Global Crossing scrutinizes accounting
By Simon Avery
LOS ANGELES Global Crossing Ltd. said yesterday it will launch an independent review of allegations of improper accounting methods made by one of its former financial executives.
The beleaguered telecommunications firm also confirmed that the Securities and Exchange Commission is looking into the charges, and said it is cooperating with the regulator's requests for information.
Global Crossing, which filed for bankruptcy protection Jan. 28, said the allegations made last August by Roy Olofson, vice president of finance at the time, are without merit.
Olofson sent a letter to the firm's top lawyer in August, advising him that the company was inflating revenue and cash flow to enhance the appearance of results.
Global Crossing's lawyers determined last summer that there was no substance to the charges, said Dan Coulter, a company spokes-man. But "recent happenings in the industry have brought a lot of attention to accounting," he said, without referring specifically to the accounting scandal enveloping Enron Corp.
As a result, he said, Global Crossing disclosed the letter to its external auditor, Arthur Andersen, the day it filed for bankruptcy. On Jan. 29 it revealed the allegations to its own audit committee for the first time.
Both Arthur Andersen and the audit committee then requested the creation of an independent review committee, which will retain independent counsel and an accounting firm other than Arthur Andersen, the company said.
Global Crossing laid Olofson off in November as part of a widespread reduction in its work force. In a statement yesterday, Global Crossing said Olofson sought a multimillion-dollar settlement package and the motives behind his original letter are "questionable."
Paul Murphy, one of Olofson's lawyers with the Santa Monica-based firm O'Neill Lysaght & Sun, said Global Crossing's suggestions of extortion or blackmail are "ridiculous."
The two sides had agreed to a $750,000 settlement package in November, which Global Crossing reneged on in December, Murphy said.
Olofson will file a multimillion-dollar wrongful dismissal suit shortly, he added.
"They are trashing his career. They're not happy with the whistleblower and they're smearing him," Murphy said.
Asked why Olofson never took his charges of accounting improprieties to the SEC, Murphy said Olofson had hoped he could convince Global Crossing to change its methods himself, and perhaps even rejoin the company.
Global Crossing spent billions of dollars over the last five years building a global fiber-optics network linking 27 countries. In what amounts to one of the largest bankruptcy cases in U.S. history, the Bermuda-based firm with executive offices in Beverly Hills listed $12.3 billion of debt and $22.4 billion of assets.
Two Asian technology companies have offered to inject $750 million into the firm in a recovery effort that the company itself admits would allow creditors to recover some of their losses but would leave shareholders with nothing.
A shareholder group representing about 300 investors is trying to build a legal case to have the bankruptcy filing dismissed a move some debt-rating analysts said is unusual but legally possible.
Some members of the group are proposing a $1 billion warrant offering as an alternative. Under a proposal outlined by David Mersereau, vice president of Coburn Meredith, a small investment firm in Hartford, Conn., shareholders and bondholders would pay $1 a warrant for the right to buy one share at $2 for a five-year period.
Mersereau said his firm bought about 300,000 Global Crossing shares after the company's chief executive, John Legere, said publicly in November that Global Crossing was fully financed for 2002 and would not file for bankruptcy.
"It's just not a fair shake for the people on Main Street," he said. "It's a public rip-off."
A spokeswoman for Global Crossing said the company had no knowledge of Legere making such assurances.