Probe Sought of Possible Shredding
Global Crossing Ltd. and a major shareholder settled differences over how the struggling fiber-optic network builder preserves records, but the investor said Sunday it is asking Congress and federal agencies to investigate claims that the company already has shredded stacks of documents.
The company acknowledged that some shredding occurred since it filed for Chapter 11 bankruptcy protection in late January, but it said the destroyed material was already on computer files and was unrelated to pending government investigations of the company’s accounting practices or securities fraud cases.
Lawyers for the Ohio Public Employees Retirement System, one of dozens of investors that have filed securities fraud lawsuits against Global Crossing and its executives, said they have asked a congressional committee, the Securities and Exchange Commission and the Justice Department to look into shredding claims.
“We can’t do more than call it to their attention and hope they pick it up,” said Jay Eisenhofer, the Ohio pension fund’s lead lawyer. None of the federal bodies has indicated whether it will look into the allegations.
The requests were made Friday night, immediately after the shredding claims were inadvertently released publicly in Bankruptcy Court filings.
The company filed for Chapter 11 bankruptcy protection Jan. 28 in the fourth-largest bankruptcy case in U.S. history.
Ralph Ferrera, a Washington-based lawyer for Global Crossing, said he also notified the SEC in Los Angeles and Denver, federal authorities and two congressional committees as soon as a court seal on the issue was lifted late Friday. He said he also sent them copies of court filings.
Global Crossing has acknowledged that some shredding occurred in outlying offices after a companywide e-mail was distributed Feb. 7 that instructed employees to retain all documents.
That goes beyond allegations raised in depositions taken since June 10 in the Ohio pension fund’s lawsuit against the company. Two Global Crossing employees said they heard a shredding machine operating behind a closed storage room door in the company’s Madison, N.J., headquarters, but they said they did not see any shredding occur. One saw the shredder after two employees in the room left.
Ferrera said the documents destroyed in outlying offices--in Rochester, N.Y., Detroit, Toronto and London--involved such information as personnel records, slide presentation materials and payroll check stock. All the information, though, already was on computer files and on backup files, he said.
“We received zero information that any destroyed documents relate to the government investigations or to the securities fraud cases,” he said. “Of course, you can never be 100% certain about anything.”
Among the biggest concerns, Eisenhofer said, is that one of the employees who allegedly shredded documents is the son-in-law of Joseph Perrone, the executive vice president for finance who allegedly devised the accounting methods that investors say inflated revenue. These methods are currently under investigation by the SEC, a congressional committee and an internal Global Crossing panel.
“Perrone is a key defendant,” Eisenhofer said.
The depositions cite Perrone’s son-in-law, Steve Scro, who has denied shredding any documents.
Eisenhofer said lawyers and investigators for the investors now will start routinely asking former employees and other witnesses about any shredding they may have seen.
Shortly before midnight Friday, the pension fund and Global Crossing agreed in talks with Bankruptcy Judge Robert E. Gerber about additional steps the company would take to preserve records, resolving a motion the fund had filed two weeks ago to create a better system for collecting and maintaining records.
“Up to now, they had not even collected many documents from the individual defendants,” Eisenhofer said.
The company has taken “extraordinary efforts” since its Feb. 7 e-mail to preserve documents, Ferrera said. In six weeks, the company spent more than $4 million, he said, to copy more than a million documents and millions of e-mails, and it has turned over hundreds of thousands of pages of documents to government agencies.
“Nobody knows better than the SEC the document preservation effort we made,” he said.
Under the agreement late Friday, Global Crossing will give the fund the names of any employees who have relevant information on their computers and will store the copied computer information at the offices of its New York bankruptcy lawyers. The company also will copy computer information of others identified as possibly having relevant information.
Global Crossing also agreed to collect similar information from all defendants, from current and past directors to employees at subsidiaries.
Incidents of shredding, Eisenhofer said, were “totally unexpected” after widespread publicity over the massive document destruction at failed Enron Corp. and its auditor, Arthur Andersen, which was convicted earlier this month of obstruction of justice.
Lawyers for investors in nearly 60 fraud lawsuits have been interviewing dozens of former Global Crossing employees this year. In her June 7 interview with the Ohio fund, laid-off employee Danuta McLennan brought up a shredding incident that allegedly occurred in mid-February.
The fund’s lawyers went to court June 10 for permission to depose employees and investigate the matter.
Since then, lawyers for the fund and for Global Crossing had been filing under seal depositions, declarations, motions and arguments over destroyed documents. Though the two sides disagree over past shredding incidents, they agreed on steps to preserve documents better, thus ending the issue for now in the securities cases.
