Global Crossing's Final Crossing

UPDATE: On the eve of the end of a tumultuous year for Global Crossing and its shareholders, Founder and Chairman Gary Winnick finally tenders his resignation; two board members named co-chairmen.
Posted December 31, 2002
By

Gretchen Hyman


Over this past year, Global Crossing, weathered a storm of public and legal scrutiny that led to its near collapse, bankruptcy, and eventual court-ordered restructuring.

But on the tail end of a year that brought the voice and data carrier tumbling from the top of the telecommunications heap, Gary Winnick, company founder and chairman of the board of directors of Global Crossing, announced his resignation this week, effective December 31, 2002. New Year's Eve.

The board of Global Crossing on Tuesday announced it has accepted Winnick's resignation and will likely appoint independent directors Jeremiah D. Lambert and Myron E. Ullman III as co-Chairmen, effective immediately.

In a statement, the directors said, "We wish to acknowledge Gary Winnick's role as founder of a company that today provides advanced telecommunications services to thousands of customers worldwide. The company's Plan of Reorganization having now been approved, we respect his desire to make this decision."

In a league of corporate scandal proportionally matched only by fellow technology industry giants WorldCom and Enron, Global Crossing management was accused in early 2001 by a former employee of swapping network capacity with carriers to artificially boost sales and falsify earning reports to investors.

Winnick and Global Crossing management were investigated by the Securities and Exchange Committee, the Justice Department, and Congress regarding the timely sale of millions of dollars worth of stock just before Global Crossing began to sag under the weight of billions of dollars in debt.

Winnick reportedly sold upwards of $700 million worth of stock between the time the company went public in 1998 and January 2001, while at the same time thousands of employees saw their 401k investments shrink if not disappear when the company's stock value nosedived.

Despite allegations of shady accounting practices, The Justice Department announced earlier this month that its investigation into Global Crossing would not lead to criminal charges. However, there are reports that Global Crossing creditors and shareholders may pursue Winnick's personal assets in an effort to recover losses.

At its peak, Global Crossing had a market value estimated at $50 billion, with reach into 27 countries and more than 200 major cities around the globe. Global Crossing also maintained operations in Asia through its subsidiary Asia Global Crossing, which managed to stave off bankruptcy filings until November of this year.

Winnick's attorney, Terry Christensen, said the former chairman will continue to run his investment company Pacific Capital Group that resides in the same Beverly Hills building that served as Global Crossing's headquarters in its heyday.

Winnick also serves on the National Advisory Board to Chase Manhattan Bank.

According to Christensen, Winnick will also be pursuing other investment opportunities.

"2002 was not a good year for a lot of people in many industries," said Christensen. "There have been a lot of Chairmans who have not staid the course, but Gary feels that as the creator of Global Crossing he was there to see it through to the end of the reorganization so that it would go forward in a new format. He thought that the end of the year was a good time to step down."

In a parting gesture to those employees who suffered financial losses in their 401k investments under his reign as Global's chairman, Winnick completed a pledge made in October to arrange a $25 million escrow account at Union Bank of California.

Winnick's pledge, while seemingly generous at the time it was proposed, raised the ire of many former employees who claimed to have lost significantly more money than the fund would compensate.

The total loss to shareholders was said to be in the billions, along with the loss of tens of thousands of jobs.

"I think he needs to add a zero to it," said Lynn Sarko, a lawyer representing Global Crossing employees, as quoted by Reuters.

Sarko claims that the amount of Winnick's pledge accounts for less than one-tenth of the losses Global Crossing employees suffered.

But according to Winnick's attorney, the account was arranged to replace the exact amount that each employee lost in their 401k's from the company's inception to the date Global acquired a company called Frontier in 1999.

"The mechanics still need to be worked out," said Christensen, but the pledge has been completed and will be paid out over the next few months.

In a letter to Global's board of directors, Winnick stated: "Much has happened during this past very challenging year...The collapse of the telecommunications industry, however, has taken a terrible toll on employees and investors alike, with an unprecedented loss of billions in investments and tens of thousands of jobs. I deeply regret that so many good people involved with Global Crossing also suffered significant financial loss."

Now in its second incarnation and under the leadership of CEO John Legere, Global Crossing has moved its headquarters to El Segundo, Calif. and is close to completing its court-ordered bankruptcy reorganization. The company continues to operate telco networks in 200 cities.

After filing for Chapter 11 bankruptcy in January 2002, the sixth largest bankruptcy in U.S. history, the company received a $250 million cash bailout from Hutchison Telecommunications Limited and Singapore Technologies Telemedia Pte. Ltd. in exchange for a 61.5 percent ownership stake in a post-bankruptcy Global Crossing.

According to reports, Global Crossing secured 1,663 new and renewed customer contracts between January 2002 and October, adding an estimated $783 million in revenue to the company coffers.

Global's ability to maintain its business stature within the telco industry despite its financial woes has led many analysts to believe that once the company emerges from bankruptcy reorganization, it will have no trouble regaining its market share.






0 Comments (click to add your comment)
Comment and Contribute

 


(Maximum characters: 1200). You have characters left.