Panel Told of ‘Sham’ Global, Qwest Deals

Global Crossing Ltd. and Qwest Communications International Inc. engaged in “sham” transactions and secret side deals to help meet Wall Street targets, according to statements from former employees disclosed Wednesday by a congressional committee investigating the companies.

The allegations, which will be detailed under oath during a congressional hearing next week, are expected to increase the pressure on several high-profile company executives, including Global Crossing Chairman Gary Winnick and Qwest’s former chief executive, Joseph Nacchio.

Both men have been criticized for selling large amounts of stock during periods when the companies were struggling to book sales and keep share prices from falling further. Both companies are under investigation by the Securities and Exchange Commission and the Justice Department for allegedly misleading investors through suspect accounting.

The companies have denied wrongdoing.

Armed with new information from current and former employees, the House Energy and Commerce Committee plans to intensify its scrutiny of Global Crossing, Qwest and other firms by subpoenaing additional information and holding hearings.

“I am stunned by what we have learned so far,” said Rep. James C. Greenwood (R-Pa.), who heads the committee’s oversight and investigations panel. “These companies seem to have had cultures that demanded making Wall Street numbers at all costs, even if it means entering into sham transactions and secret deals.”

Winnick “has agreed to meet with our investigators if we drop the subpoena and not force him to testify before the committee under oath,” said committee spokesman Ken Johnson. “Our response was, ‘Tell us when to quit laughing.’ ”

He added, “Winnick is in no position to dictate the terms of his appearance before the committee. He has a simple choice: to testify before the committee or take the Fifth.”

Gary Naftalis, Winnick’s attorney, said, “We are disappointed that the committee’s spokesperson continues to make unfair and inappropriate statements about my client and Global Crossing.”

The hearings will focus on allegations that the two companies swapped fiber-optic network capacity in deals designed to bolster both companies’ financial performance. Although no money changed hands in the deals, the companies recorded the transactions as if they had received cash.

The first hearing Tuesday will present two panels of current and former employees from both firms, including former Global Crossing accounting executive Roy Olofson, who disclosed irregularities within the company last year.

Winnick and Nacchio will be called to testify at a second hearing tentatively scheduled for early next month.

They are expected to be joined at the hearing by Qwest President Afshin Mohebbi, former Global Crossing general counsel James Gorton, Global Crossing Chief Executive John Legere, and Joseph Perrone, executive vice president of finance at Global Crossing.

Today, Johnson said, the investigating committee is expected to get greater power to subpoena testimony and documents from Global Crossing and Qwest. “Both companies in several instances have been slow to produce documents and have flat-out refused to provide them in others,” Johnson said.

He singled out Qwest, saying the firm has invoked attorney-client privilege and refused to turn over the results of an internal probe into one of the transactions in question.

Documents and interviews indicate that Qwest struck undisclosed side deals with other telecommunications companies that significantly altered the net financial result for Qwest, Johnson said.

“Qwest still insists they never took place,” he said. “But Global Crossing had similar deals with Qwest, and [other companies] have confirmed to the committee that they had side agreements with Qwest as well.”

Qwest is cooperating, spokesman Bill Myers said.

“We’ve provided the committee with more than 250,000 pages of documents,” he said, “and we’re continuing to work with them on additional requests.”

Global Crossing also said it had cooperated fully with the committee and provided “approximately 60,000 pages of documents and roughly 40,000 e-mails and e-mail attachments.”

The firm, which filed for bankruptcy protection in January, also has made available 18 present and former directors, officers and employees for interviews.

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Bloomberg News was used in compiling this report.