Ex-Exec Files Suit Against Global Crossing Chiefs

A former Global Crossing Ltd. employee who questioned the propriety of the company’s accounting methods sued company founder Gary Winnick and three other executives Wednesday, accusing them of firing him in retaliation for his allegations and then impugning his reputation.

The former employee, Roy L. Olofson, was vice president of finance at the troubled telecommunications company until late last year. He was catapulted into the national spotlight a month ago when his accounting allegations were reported in the Los Angeles Times.

The Global Crossing executives “apparently believed they could discredit Mr. Olofson to such an extent that no one would believe him,” said Paul Murphy, one of the attorneys representing Olofson. “They were wrong.”

Winnick, through a spokesman, said the lawsuit “is baseless, has no merit, and we are confident that it will ultimately be shown as such.”

In addition to Winnick, the lawsuit filed in U.S. District Court in Los Angeles names Chief Financial Officer Dan Cohrs, Executive Vice President of Finance Joseph Perrone, and Thomas Casey, one of the company’s four former chief executives. They could not be reached for comment.

Company executives repeatedly have denied any wrongdoing and have portrayed Olofson as a disgruntled ex-employee bent on pocketing settlement money.

Olofson has been threatening legal action against the company for several months, but his strategy was derailed by the company’s filing for bankruptcy protection last month, the fourth-largest in U.S. history. While operating under Chapter 11 protection, Global Crossing is shielded from new lawsuits.

That made it impossible for Olofson to sue the company directly for a traditional claim of wrongful termination in state court, legal experts said. Instead, his suit names the four executives and raises claims of defamation, interference with his employment contract and “interference with prospective economic advantage” by failing to protect the value of his 401(k) retirement plan.

But by filing his case in federal court, Olofson also faces an uphill battle, according to employment law experts. Federal judges generally are more likely than state judges to dismiss claims such as Olofson’s, attorneys said. If the case isn’t dismissed, Olofson will have to get a unanimous jury verdict to prevail. In state court, plaintiffs need the votes of only nine out of 12 jurors.

“It’s really, really hard to bring these types of claims unless you find a smoking gun,” said Jamie Johnson, a partner in Brobeck, Phleger & Harrison’s labor and employment group in Los Angeles, which is not involved in the case.

Although it would have been easier for Olofson to win a wrongful termination claim against the company, he may be able to convince a jury that individual executives were trying to punish him for being critical of Global Crossing’s accounting practices, said David Kadue, a partner who specializes in employment law at Seyfarth Shaw in Century City, which also has no involvement in the case.

Olofson claims to be the only employee who was laid off without receiving severance or other termination benefits, and if that proves to be true, then “it certainly sounds suspicious,” Kadue said.

In his lawsuit, Olofson provides further details of his accounting concerns and the efforts by Bermuda-based Global Crossing executives to keep those allegations secret. The alleged accounting tactics helped the company mask its deteriorating financial health, which culminated in its Jan. 28 bankruptcy filing.

Olofson also accused Winnick of defaming him during a recent “town hall” meeting attended by as many as 70 Global Crossing employees. At the meeting, “Winnick stated in sum or substance that ‘The definition of an extortionist is Roy Olofson,”’ according to the lawsuit.

At the heart of Olofson’s suit are claims that the company improperly used long-term contracts for network capacity to boost revenue, even though many of the deals did not bring in cash. Olofson’s claims are under investigation by the Securities and Exchange Commission and the FBI.

Olofson said he first raised his concerns about Global Crossing’s accounting in meetings last May 31 and June 1 with finance executive Perrone, who was Olofson’s boss.

On Aug. 6, he wrote a five-page letter to the company’s top lawyer and ethics officer providing a detailed analysis of what he called deceptive accounting practices.

Since his allegations first came to light, a number of current and former Global Crossing employees have echoed Olofson’s concerns. Former employees say Global Crossing engaged in many “sham” deals that merely shifted money between telecommunications companies, without bringing in new cash or yielding useful network capacity.