6 February 2002 Global Crossing signed a number of capacity-swap deals with other carriers in 2001 that artificially boosted revenues. The deals were signed as the company slipped towards bankruptcy, according to fresh allegations over creative accounting at the collapsed telecoms giant.
The bankrupt Bermuda-based company’s former vice-president of finance, Roy Olofson, says he first raised the matter with Global Crossing lawyers in August 2001. Yesterday his attorney, Brian Lysaght of Californian firm O’Neill Lysaght &Sun, went public with the accusations.
Global Crossing executives “round-tripped” revenues by recording a series of deals with other carriers in which similar amounts of cash changed hands, in some cases, on networks that had not even been built, claimed Olofson.
In one example, Global Crossing signed a $100 million (€115m) contract to hand over capacity on part of its network to US carrier Qwest Communications, only to ’round-trip’ the cash by leasing a similar amount of capacity from Qwest.
Experts say that such arrangements are legal, a point stressed yesterday by Global Crossing. Accounting rules allow telecoms carriers to book an incoming contract as a chunk of revenue and then book the outgoing contract as a capital expense, which tend to be separated from quarterly operating results, they say.
But the new allegations seem likely to intensify appeals for major accounting standards reform, particularly in the wake of the ongoing scandal surrounding the collapse of Enron, the energy-trading giant.
It may also lead to calls for sweeping reforms in the way that telecoms carriers account for their revenues. Indeed, a Qwest spokesman said yesterday that capacity swaps were “common practice” in the industry.
Global Crossing, for its part, says it told Andersen, its auditor, of the allegations in January 2002. It says it is also co-operating with an investigation by the Securities and Exchange Commission (SEC) and has formed a committee of independent directors to review accusations in Olofson’s August 2001 letter.
Meanwhile, it emerged yesterday that senior executives at Global Crossing had cashed in $1.3 billion (€1.5bn) in stock between spring 1999 and November 2001. That is estimated to be about $300 million (€348.4m) more than insiders at Enron unloaded during the same period. Gary Winnick, the company’s chairman and founder, sold stock worth about $735 million (€846.3m).
Global Crossing, founded in 1997, filed the fourth-biggest chapter 11 bankruptcy in US history on 28 January 2002, listing assets of $22.4 billion (€25.8bn) and debts of $12.4 billion (€14.3bn).
Global Crossing files for Chapter 11 bankruptcy (29 January 2002)