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Global Crossing: What Did Winnick Know?

By Michael Weisskopf

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Gary Winnick, the flamboyant chairman of Global Crossing, is expected to be the next embattled executive to take the Fifth Amendment on Capitol Hill, when he appears this week before Representative Billy Tauzin's House Energy and Commerce Committee.

"We want to know what Mr. Winnick knew about the shaky state of company finances when he cashed in," says Investigations Subcommittee chairman James Greenwood. But what it doesn't get from Winnick, the committee may learn from documents that suggest Winnick was well aware of Global's financial troubles even as the company--stop us if you've heard this before--was presenting a rosy picture to Wall Street.

At a Feb. 26, 2001, meeting in his office, according to documents obtained by Time, Winnick learned that Global was $200 million short of the first-quarter target set by Wall Street. Yet as Global got ready to publicly report its performance two months later, CEO Tom Casey cited "record results in cash revenue" in a conference call with top stock analysts.

"I'm happy to say that once again the company has exceeded the consensus estimate of analysts for the first quarter," he said. The analysts promptly urged investors to buy heavily in Global, a worldwide network of fiber-optic cable. The stock briefly spiked, luring more capital from everyone but Global insiders.

On May 23, Winnick sold shares worth $123 million. House investigators believe Global used legally questionable methods to inflate its revenue--"capacity swaps," in which Global and other firms sold each other access to their networks and booked the sales as revenue.

These deals added $375 million to Global's bottom line in the first quarter of 2001, sources say, and Winnick approved one just hours before the quarter ended. These deals are now under scrutiny by the Securities and Exchange Commission.

Winnick's lawyer, Gary Naftalis, says Global did not mislead investors but believed it would make its first-quarter target legitimately. He says Winnick's stock sale was proper and approved by Global's counsel. The committee has yet to be convinced. "Is Winnick a choirboy," asks spokesman Ken Johnson, "or did he steal from the church's collection plate?"

Copyright © 2002 Time Inc.

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