Spencer Michels has a background report on the rise and fall of the telecommunications company Global Crossing.
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While the collapse of Enron has captured the attention of the country, another troubled corporate giant has also gone bankrupt– the fiber optic firm Global Crossing. And now, as with Enron, there are questions about its bookkeeping practices, and why top executives walked away with hundreds of millions of dollars while other stockholders suffered heavy losses. Two weeks ago the $22 billion company filed the fourth largest corporate bankruptcy ever in America.
Global Crossing made its fortunate in fiber optics, the technology that lets a thin strand of glass carry huge amounts of data or 30,000 phone calls at the same time. Fiber optic networks make up the backbone of the Internet, allowing images like this movie trailer to be transmitted at high speeds. In the late-'90s, Global Crossing raced to live up to its name, laying fiber optic cables around the world. Its network stretches 100,000 miles. Parts of it are under the Atlantic and Pacific Oceans.
But the fiber optics industry crashed in late 2000, when investors dumped the stocks and many companies went under. Global Crossing employees and other shareholders lost more than $450 million in stock. But in the three years before the collapse, executives sold a total of $1.3 bill Global Crossing stock. Company Founder and Chairman Gary Winnick made $730 million. CEO John Legere, who served for just two years, received $15 million in compensation.
This week, both the FBI and the Securities and Exchange Commission have been investigating whether Global Crossing improperly inflated its revenues. Like Enron, there are reports of employees raising concerns about deceptive bookkeeping as early as last summer; and like Enron, Global Crossing used Arthur Andersen as its auditor.
That raised some questions in Congress last week, when Andersen's CEO testified on Enron's problems.
You have the great distinction of being the auditor on the largest bankruptcy in history, and now the fourth largest bankruptcy in history. And I actually think that this committee should start looking into things other than just Enron.
Congressman, with respect, Global Crossing stock has been coming down for months and months and months because its business was not succeeding. The prices for its product came down precipitously. And I think what we need to do– and you know this well, I'm sure– is we need to distinguish between a business failure– and there will be business failures in this country– and an auditing failure.
Global Crossing has yet another similarity with Enron: Strong political ties. Its shareholders include former President George Bush, who received $80,000 in stock for speaking at the company in 1998; and former Democratic National Committee Chairman Terry McAuliffe– he made $18 million selling company stock in 1999. In the last election, Global Crossing gave $2.9 million to the Democratic and Republican Parties and their candidates, making it 23rd on the list of top donors.