Winnick: I'll Cough Up $25M

Is the best defense a good offense? Global Crossing Holdings Ltd. chairman Gary Winnick apparently thinks so: Faced with tough questions from the U.S. House of Representatives, he promised to pay nearly $25 million from his own pocket to all the employees who lost money in the company’s 401K plan.

"I call on the chairmen and CEOs of… any company in this country where employees lose money… to step up and write a check,” he said during his testimony before the House Committee on Energy and Commerce today, emphasizing that he and his family are planning to write a check “a little shy of $25 million” to reimburse the hard-working Global Crossing employees that lost their savings in the company’s 401K plan.

Of course, the next question might be: Is "a little shy of $25 million" enough to make up for the more than $500 million that Winnick extracted from Global Crossing over the years? That question, apparently, has yet to be answered by Congress or anybody else.

Today’s hearing -- which is the second and last Congressional hearing delving into the Indefeasible Rights of Use (IRUs) deals of Global Crossing and Qwest Communications International Inc. (NYSE: Q) -- is centered around the testimony of five current and former Global Crossing executives, including Winnick, and the testimony of four former and current Qwest executives, including former CEO Joseph Nacchio and current president and COO Afshin Mohebbi.

While he denied any wrongdoing or fraudulent transactions, Winnick said that he felt responsible for the demise of the company he constructed from scratch. “Ms. Crumpler, as well as the other people who worked for this company… were family,” he said, responding to testimony this morning by Lennette Crumpler, a former employee of the company who lost her entire retirement fund when the company filed for bankruptcy in January. “And as head of this company, I’ve let them down.”

Winnick pledged the $25 million after being grilled for hours on issues surrounding his sale of $123 million worth of company stock last May, just as GlobalX started its downward spiral, as well as on his knowledge of the controversial capacity swaps that allegedly helped the company artificially boost its numbers.

Responding to questions from Pennsylvania representative Jim Greenwood and Committee Chairman Billy Tauzin, Winnick insisted that he did not sell his 30 million shares, roughly 10 percent of the stock he held in the company, because he thought the company was in trouble. Instead, he claimed, he and his investment company, Pacific Capital Group, had been thinking about selling the stock for some time. “We decided to pull the trigger in May,” he said, “but this had been contemplated for some time.”

Among the piles of documents presented at the hearing, however, are notes and memos showing that Global Crossing’s former CEO, Thomas Casey, indicated a little more than a month before the sale that the company was $1 billion short on revenue and another $1 billion short on expenses. Only a week prior to the sale of the stock, other meeting notes show that the company was $360 million “light.”

While he admitted talking with Casey almost daily, Winnick said he couldn’t remember ever hearing about these problems. “I don’t have any recollection of Tom conveying that to me,” he said, pointing out that he didn’t attend any of the management meetings. And in any case, he said, Global Crossing was a young company, and it was always nerve-racking before a quarter came to an end. It was the nature of the business that “we never knew what the quarter would look like until the quarter was over.”

Documents were also presented at the hearing showing that Winnick not only knew of several of the controversial capacity swaps with competitors, but also used his influence to help close the deals. While Winnick admitted to knowing about large transactions, such as a swap of Atlantic assets with 360networks Inc., he said that there was a good business case for the deals. If the figures involved were large enough, these swaps would have had to be approved by numerous executives, Arthur Andersen LLP, the company’s former outside auditor, and Winnick himself.

In a memo dated April 16, Casey had written, “We do not have more room for these reciprocal deals.” “I do not have a recollection of that,” Winnick stated, pointing out that several large IRU deals had been rejected because they didn’t meet the company’s business standards.Later in today’s hearing, Qwest executives are expected to testify that they never put any pressure on the company’s employees to cut corners to make the numbers, and that they didn’t participate in so-called sham deals. In last week’s hearing, several current and former Qwest and Global Crossing employees testified that it had become “unacceptable” not to make the numbers expected on the Street (see Did Qwest Qwash Morgan's Analysts?).

"Global Crossing's bankruptcy, based on the facts known to me, is a result not of any fraud, but of a catastrophe that befell an entire industry sector," Winnick said in his testimony today. But while he insisted that he hadn’t done anything wrong, Winnick said that as head of Global Crossing, he is responsible for the suffering of the company’s employees. “This is not about money,” he said. “It’s about people. It’s always about people... The only legacy that I’m going to leave this planet with is my name, and the name that I’ve given my family.”

— Eugénie Larson, Reporter, Light Reading
www.lightreading.com