Reports Detail Big Payments by Global Crossing
In the months before filing for bankruptcy protection, Global Crossing Ltd. shelled out millions of dollars in precious cash to executives, outside consultants and companies with ties to Global Crossing officials, according to newly released company reports.
The payments, some of which appear highly unusual, are included in the financial statements that list bills, salaries, severance, expense reimbursements and other items paid by Global Crossing Ltd. and subsidiary Global Crossing Development Co. in 2001, the year before the company filed for reorganization under Chapter 11 of the U.S. Bankruptcy Code on Jan. 28.
Global Crossing’s reports, filed Friday in U.S. Bankruptcy Court in New York, are not definitive and are subject to revision. Some of the payments listed may not have been honored by the company’s banks or otherwise were not paid to the listed recipient. In addition, although Global Crossing Ltd. and Global Crossing Development are the two most active entities, the holding company has more than 100 other subsidiaries with separate financial statements.
Global Crossing spokeswoman Cynthia Artin said the company is “not going to comment on any of the specifics” in the reports.
The telecommunications company, which operates a worldwide fiber-optic network, grew quickly after its founding in 1998, but revenue dried up when the telecom market disintegrated last year and the company was unable to repay its huge debt. With cash disappearing, the company filed for bankruptcy protection in an attempt to eliminate its debt and restructure its business.
Friday’s filings are of intense interest to Global Crossing’s many creditors, who will comb the statements for signs of inappropriate--or fraudulent--payments that can be reclaimed to boost any potential payback.
In particular, creditors and others may look hard at payments made by Global Crossing to Chicago-based Withit, a little-known firm that uses the Internet to stream content to large financial services companies, according to the firm’s Web site.
Withit’s president is the son of Joseph Perrone, Global Crossing’s executive vice president of finance. A deal between Global Crossing and Withit was announced by the companies a year ago, but the financial terms and the nature of the deal were not disclosed at the time.
The financial reports show that Withit received payments of $739,506 in the last six months of 2001 from a subsidiary called Global Crossing Network Center (U.K.) Ltd., including a $250,000 payment Nov. 28--just two months before Global Crossing’s bankruptcy filing. That payment was listed as part of a “product development agreement” with Withit.
Critics raised questions this year about a potential conflict of interest, but Global Crossing declined to discuss the matter and wouldn’t say how much Withit had been paid. The company said it had turned the matter over to outside attorneys for review.
John Legere, Global Crossing’s chief executive, said in March that “at this point in time, there is nobody that is guilty of any wrongdoing associated with [Withit] that we know of.”
Over the weekend, Global Crossing issued a statement on the matter, saying, “Possible conflict of interest matters are being thoroughly investigated by the special committee of Global Crossing’s board of directors with the assistance of independent outside counsel. Prior to the completion of that process, it would be premature to comment.”
Trade-Show and PR Firms Among Payees
Perrone has been in the spotlight in recent months because he worked at accounting firm Arthur Andersen and was in charge of the Global Crossing account before quitting to join the company. Some of Global Crossing’s accounting methods are under investigation by the Securities and Exchange Commission and the Justice Department.
Other payments listed in the reports include:
* $120,453 to Wingsite, a trade show services firm owned by the brother of David Walsh, a former Global Crossing executive.
* $231,670 to Sitrick & Co., a public relations firm that has represented Gary Winnick, Global Crossing’s chairman and founder.
* $2.9 million paid to accounting firm Andersen in the two months before Global Crossing’s bankruptcy filing.
* $12.6 million paid to Accenture, a consulting firm spun off from Andersen, in December and January.
* $1.4 million in rent and service fees paid in 2001 to Brownstein Hyatt & Farber, a consulting firm affiliated with former Global Crossing board member Norman Brownstein.
* $4.2 million in rent and other fees paid in 2001 to North Crescent Realty V, Global Crossing’s Beverly Hills landlord and a company controlled by Winnick.
* $15.4 million paid to attorneys, accountants and others in January for fees related to the firm’s bankruptcy filing.
The reports also show that Global Crossing’s top executives benefited from a generous expense account.
Expense payments of several thousand dollars were a regular feature throughout the filings, though they are possibly explained by the need for international travel to oversee the company’s worldwide fiber-optic network.
Former CEO Casey’s Expenses Atypical
One of the biggest expense account beneficiaries was a former chief executive, Thomas J. Casey, whose expenses last year totaled nearly $400,000.
Although a few were low--$1.08 or $152, most were more substantial, and eight payments totaling $190,000 were unlike typical expenses because they were for even amounts--$60,000, $10,000 and six for $20,000 each. The filing did not explain what was covered by the expenses.
Casey received a salary of more than $91,000 a month plus an annual bonus of $1.1 million and had an $8-million loan that was forgiven along with $336,828 as interest on the loan. He also received $328,183 to cover taxes on the loan, which essentially amounted to additional compensation.
Casey also received nearly $3.5 million in severance when he left the company at the end of October, for a total 2001 compensation, excluding stock options, of more than $13 million in cash and loans that didn’t have to be repaid.
Company founder Gary Winnick picked up a $1-million bonus, and his investment company, Pacific Capital Group, recouped about $380,000 for expenses it paid on behalf of Global Crossing. The filing did not explain what those expenses covered. Winnick was paid a base salary of more than $73,000 a month, and his expenses were relatively small compared with others’: a little more than $58,000, including one payment of an even $25,000.
According to the reports, about 30 directors and five chief executives, along with numerous other senior executives, went through the corporate turnstiles at Global Crossing since it became a public company in 1998. Last year, according to the company’s filing, nine directors and two vice chairmen left the company, and six top executives, including CEO Casey, quit.
The company also listed 139 workers’ compensation cases pending against it, along with 15 securities fraud lawsuits and eight other pending legal matters.
According to Global Crossing’s Chapter 11 bankruptcy filing, the nation’s fourth-largest, the company had $12.4 billion in debt and $22.4 billion in assets.
Since then, asset write-downs and other reassessments have steadily chipped away at the official value of the company’s assets.
