Global Crossing under probe

By Simon Avery
Associated Press

LOS ANGELES — John D. Rockefeller took 25 years to make his first billion. Gary Winnick needed only 18 months.

Caution signs were lined up near Global Crossing headquarters in Beverly Hills, Calif., on Friday. The telecommunications company is attempting to stay afloat by reducing operating expenses by $600 million. Associated Press

The descent of Global Crossing Ltd., of which Winnick was founder and chairman, was just as precipitous as the ride up. Losing almost $50 billion in market capital, on Jan. 28 it became the fourth-largest Chapter 11 bankruptcy on record.

Winnick, 54, cashed in beforehand, selling $734 million in stock before the company hit bottom.

Claiming they were duped, shareholders have filed more than two dozen lawsuits, claiming among other things that executives inflated financial results. Some people believe Winnick is trying to profit from his company's collapse.

The Securities and Exchange Commission is investigating Global Crossing's accounting practices. The FBI has also launched a probe.

Winnick declined to be interviewed for this article. But the picture of him that emerges from court records, financial documents and interviews is of a man who luxuriated in wealth and who had a propensity for bending the rules.

His company's shareholders are angry.

"If that guy doesn't go to jail, there's no justice," said John Burat, a 42-year-old former truck driver in Conshohocken, Pa., who said he poured his full $31,000 Social Security disability payment into Global Crossing stock last year. "This is my kid's education. It just makes me sick to my stomach."

Michael Sitrick, Winnick's spokesman, said his client has not broken any laws and that all his stock sales were done in compliance with company rules and federal and state laws.

"Lots of shareholders have made lots of money through Global Crossing," he said.

Winnick was an investment banker and had no significant experience in telecommunications in 1997 when he convinced some of the biggest players in the business he could connect the world with a 100,000-mile fiber optic network. He quickly raised more than $700 million and threw in $15 million of his own money to turn his vision into a working company, and Global Crossing went public in 1998.

"He thinks big, always has," said Rabbi Marvin Hier, dean and founder of the Simon Wiesenthal Center, who has known Winnick for some 20 years. "Even when he didn't have money, he didn't want to do the conventional thing."

Winnick made headlines when he paid about $65 million in cash for a 15-bedroom mansion in Bel-Air in September 2000. And although his company is bankrupt, Winnick is pushing ahead with $15 million of renovations at the estate.

"Mr. Winnick is deeply regretful that the company could not complete a restructuring without filing Chapter 11," Sitrick explained about the expenditure. "He had personal wealth before his involvement and investment in Global Crossing."

Winnick's enthusiasm for real estate extends to Global Crossing's executive offices in Beverly Hills. His investment firm, Pacific Capital Group, spent $41.5 million in 1998 to buy the historic former MCA building and another $9 million on renovations.

The surroundings are a far cry from Winnick's modest upbringing in Roslyn, N.Y. His father, Arnold, worked in food services and started his own company, which went bankrupt. He died of a heart attack when his son was an 18-year-old student at C.W. Post University.

Winnick graduated with a degree in business and economics and in 1972, joined Burnham and Co. as a trainee broker. He rose to become a top aide to junk bond financier Michael Milken at what became Drexel Burnham Lambert but left to start his own investment firm before Milken and others were indicted on federal racketeering and fraud charges.

In 1999, Winnick was named by the Los Angeles Business Journal as Los Angeles' richest man, worth an estimated $6 billion on paper.

He spread the wealth around. His architect, rabbi and maid all reaped handsome gains.

He also has donated or pledged more than $100 million to favorite causes. The Wiesenthal Center doesn't expect Global Crossing's troubles to interfere with Winnick's $40 million pledge to build a Jerusalem branch with his name on it.

Winnick's fame gained him access to the highest levels of society. During Global Crossing's heyday, Winnick told London's Daily Telegraph that fielding calls from the president of the United States and Buckingham Palace was like "an out-of-body experience" for him.

He loved cutting big deals, but they've brought Global Crossing scrutiny and criticism.

In 1999, his upstart firm paid $8.1 billion in stock for the nation's fifth-largest long-distance company, Frontier Corp., of Rochester, N.Y. The following year, Global Crossing sold Frontier's local calling business to Citizens Communications of Stamford, Conn., for $3.7 billion in badly needed cash.

Winnick and his team tried to keep Frontier's $700 million pension plan, but state regulators blocked the attempt.

The rescue plan that Global Crossing presented when it announced it was seeking bankruptcy protection has also raised questions. Under the deal, two companies, Hutchison Whampoa of Hong Kong and Singapore Technologies Telemedia, would invest $750 million for a 79 percent stake in Global Crossing.

Global Crossing's creditors would get 21 percent, shareholders nothing.

Winnick never revealed to his own board or creditors that he and fellow company director Steven Green invested $25 million in a company called K1 Ventures, effectively controlled by another firm, Temasek Holdings, which in turn owns Singapore Technologies.

Winnick and Green told The New York Times their investment was unrelated to Singapore Technologies' effort to buy Global Crossing. Winnick resigned from K1 Ventures' board after the disclosure.

Creditors and shareholders are also angry that Winnick made millions even though Global Crossing never reported an annual profit.

The company faltered after supply of network capacity quickly outpaced demand — competitors tried to copy the firm's early success and the telecom industry deflated in the recession. Still, Winnick and his top executives pressured employees handling the books to meet Wall Street expectations so the stock price would remain high, according to employee claims.

Winnick and executives propped up Global Crossing's stock price by engaging in "a series of misleading transactions," Roy Olofson, a former vice president of finance, alleged in a defamation lawsuit filed Feb. 27 against Winnick and three other executives.

In one instance, the company reported $150 million in cash revenue after swapping fiber capacity with 360 Networks, a Canadian-based telecom. No cash was ever received, Olofson said.

Last year, Global Crossing executives opted not to warn investors about pending problems after a difficult first quarter, Olofson said.

Global Crossing has repeatedly denied Olofson's claims, labeling him a disgruntled former employee who sought payment from the firm to stay quiet.