Los Angeles, Oct. 14: Federal investigators looking into suspected wrongdoing at Global Crossing Ltd. are sharpening their focus on the first half of 2001 — a period when employees took questionable steps to fend off financial collapse and top executives cashed out shares in a final binge.
Internal documents and e-mails show that by May 2001 the telecommunications company was dangerously close to violating a key bank requirement. Had such a violation occurred, Global Crossing’s banks could have demanded repayment of more than $ 2 billion in loans and triggered a default on $ 3.8 billion in notes.
In turn, Global Crossing could have been forced into Bankruptcy Court months before its Chapter 11 filing January 28. At a minimum, the default would have restricted or reduced Global Crossing’s access to credit and likely driven down its credit rating and stock price.
To avert the potential crisis, Global Crossing employees used suspect accounting to boost the company’s adjusted EBITDA, or adjusted earnings before interest, taxes, depreciation and amortisation, according to the e-mails and interviews with former employees. Increasing that figure helped keep the company in compliance with a bank formula that measured the company’s adjusted EBITDA against its total debt.
The practices call into question top executives’ sales of more than $ 147 million in Global Crossing stock in the first half of 2001, before shares began a tumble from which they never recovered.
In May 2001 alone, when Global Crossing shares closed as high as $ 15.80, five executives or directors cashed out 11.5 million shares. Chairman Gary Winnick topped the list of sellers by cashing in more than $ 124 million of stock.