JEFFREY KAYE: Global Crossing was in the right place at the right time
in the forefront of the telecommunications gold rush of the 1990s. Funded
by billions of dollars of venture capital and stock, it constructed
a web of fiber optic cable around the planet with a network that transmitted
data, text, voice, and video. By 1999, two years after its founding,
the company's stock hit a high of $64 a share.
SPOKESPERSON: Global Crossing has been on a tear.
JEFFREY KAYE: Company chairman Gary Winnick, who launched the firm,
became one of the world's richest men, with a personal fortune estimated
at $6 billion. At a 1999 meeting recorded for the Internet, he described
the company's dramatic rise.
GARY WINNICK: Global Crossing has gone from a company with five employees
just thirty months ago and as of the close of business tomorrow night
will be a company with ten thousand employees. The company has just
experienced remarkable growth. Mornings I wake up, I look in the mirror,
and I say to myself, what happened here?
JEFFREY KAYE: But the remarkable growth was a prologue for a long,
hard fall. In early 2001, Global Crossing was in trouble, like many
other telecom companies. It had accumulated billions of dollars in debt building Internet networks that exceeded demand: There were too many
highways, not enough traffic. This January, Global Crossing declared
chapter 11 bankruptcy, the fourth largest insolvency in U.S. History.
GARY WINNICK: It's not about Gary Winnick; it's about Global Crossing,
the family that we've all built here together. (Applause)
JEFFREY KAYE: That family feeling that Winnick described at a company
meeting 14 months ago is hardly in evidence today.
JOHN BURAT, Global Crossings Shareholder: I do believe that Gary Winnick
should go to jail, the board of directors should go to jail, and they
should be treated as a drug dealer. They should have their property,
their money, their stock all confiscated by the government. (Applause)
JEFFREY KAYE: Recently, some 250 people crowded into a church basement
across the street from the Global Crossing office building in Rochester,
New York. Laid-off employees and shareholders with near- worthless stock,
much of it in their pension plans, came to a meeting with elected representatives.
Speakers complained that the company had abruptly cut off severance
payments promised and owed to thousands of employees.
ADRIENNE RAGLAND, Former Global Crossing Employee: The severance owed
was not Monopoly money to anybody in this room. It was a mortgage payment.
It was electricity, water, gas, food.
BILL GOODNESS, Former Global Crossing Employee: The ambush-style seizing
of our severance was a calculated and cold-hearted move on the senior
executive management of Global Crossing.
JEFFREY KAYE: David Archer was laid off from Global Crossing in November.
He and his family have to adjust until he can find a source of income.
DAVID ARCHER, Former Global Crossing Employee: The employees of Global
Crossing who were severed from a company got... gave... got three days'
notice that their health benefits were being cut off. The loss of severance
was a shock to me. It forced me to... my house is up for sale. I'm going
to have to simplify my life.
JEFFREY KAYE: Gary Winnick, still the Global Crossing chairman, has
no such problems. 3,000 miles away in California, he is renovating his
$94 million palatial estate. You can't see much from the ground, but
an aerial view offers the full majesty of a home with 15 bedrooms and
17 bathrooms, overlooking the Bel Air Country Club.
Such is the upstairs/downstairs saga of Global Crossing. Particularly
galling to former employees was how the company's top executives prospered
during the company's decline. Last August, Global Crossing announced
plans to lay off 2,000 employees. At the same time, the company wiped
out the terms of an $8 million loan to then-CEO Thomas Casey, in effect
providing Casey with an $8 million gift. Two months later, John Legere
replaced Casey as CEO.
JOHN LEGERE: We are the fulfillment of Global Crossing's ambitions
in Asia.
JEFFREY KAYE: Legere had been CEO of a Global Crossing subsidiary,
Asia Global Crossing. The week of his promotion, Global Crossing's stock
price dropped below a dollar, layoffs were in full swing, and bankruptcy
was four months off. Nonetheless, Global Crossing doubled Legere's annual
salary to $1.1 million, plus annual bonuses of $1.4 million, gave him
a signing bonus of $3.5 million after taxes, and a severance package
of $3 million.
On top of all that, he got an extra $10 million after taxes when Global
Crossing forgave two-thirds of a $15 million loan the company made him
the previous year. Global Crossing has a history of granting top executives
rich rewards. In 1999, Winnick said high pay was necessary to attract
good people. He described how he hired Thomas Casey to work at his private
bank and at Global Crossing.
GARY WINNICK: I said, "Tom, what does it take?" He says,
"Gary I'm going to throw out a number, it'll never happen."
"Give me a number, Tom." "$20 million." I say, "When
can you start? I'll write the check." Insurance. You want to be
a leader, you've got to be bold. You've got to stand up to the plate.
It took Tom two weeks. He paid back that investment.
JEFFREY KAYE: A company representative says the loans were recently
forgiven for contractual reasons. But Charles Van Eaton says that for
a public company, Global Crossing's executive compensation levels were
reprehensible, particularly since guaranteed bonuses were not linked
to performance. Van Eaton is a conservative Republican, a professor
of economics at Pepperdine University in Malibu, not far from Gary Winnick's
two beach- front houses.
CHARLES VAN EATON, Economist, Pepperdine University: I wonder if that
was needed to attract those people. Well, they presumed that it was.
When we get this sort of activity, we're shocked by it. But it would
be a mistake to say that this is typical of big business in America.
It's not. It's because it's untypical that we're discussing it, and
that's why it's egregious-- absolutely egregious.
JEFFREY KAYE: Former employees say Global Crossing's senior executives
were not looking out for the shareholders. They've criticized self-
dealing and nepotism. Winnick's private investment company, the Pacific
Capital Group, leases office to Global Crossing. Relatives of top management
were given jobs and business. David Archer, Global Crossing's former
director of Global advertising, says perks were common. He was told
to help arrange a $14,000 trip to the Ryder Cup, the golf tournament,
which Global Crossing cosponsored.
DAVID ARCHER, Former Global Crossing Employee: Here was a situation
where a senior executive of the company was... was not taking a customer,
but was spending company money to bring him and his son-in-law to the
Ryder Cup. And that... that is that kind... and nobody thought twice
about it, and it was okay.
JEFFREY KAYE: For insiders, the really big money came when they exercised
stock options. All told, corporate insiders sold their company stock
for $1.5 billion. Last May, top executives embarked on a stock selling
spree. Cochairman Cook made $12 million, President David Walsh got $8.7
million, and Gary Winnick made $123.5 million. At the time they exercised
their options, earnings reports showed wide losses.
CHARLES VAN EATON: Now, when they're exercised by companies that are
doing well, we don't pay any attention to it, right? But going downhill,
everyone at the top had a keen sense that this was it, and they bailed
out, left everyone dragging. That's... that's economically and morally
questionable.
JEFFREY KAYE: Publicly, in the months prior to bankruptcy, Global Crossing
executives gave upbeat assessments about Global Crossing's prospect.
ADRIENNE RAGLAND: I certainly told people, hey, we're going to turn
it around. I'd heard that we're going to turn it around; I know how
hard I'm working.
JEFFREY KAYE: The word also went through the company that things were
on an upswing. Adrienne Ragland, whom we spoke to at a downtown Rochester
coffee shop, was a Global Crossing manager.
ADRIENNE RAGLAND: At the same time everybody else believes in it, the
top executives were not believing in it.
JEFFREY KAYE: They were selling.
ADRIENNE RAGLAND: They were selling.
JEFFREY KAYE: The company, which needed regulatory approval for many
of its deals, was a major political contributor. Global Crossing and
its executives gave more money than Enron to federal candidates-- $3.5
million since 1998. 55% of the total went to Democrats, 45% to Republicans,
according to the Center for Responsive Politics.
Also, both former president George Bush and current Democratic National
Committee chair terry McAuliffe made millions from Global Crossing's
stock. The former president was paid in stock for a speech. McAuliffe,
a consultant to Winnick, was an early investor. Former Defense Secretary
William Cohen became a Global Crossing director when he left government.
SPOKESMAN: It's technically a merchant bank.
JEFFREY KAYE: Former California Governor Pete Wilson is managing director
of Winnick's private bank. And this January, just two weeks before Global
Crossing declared bankruptcy, President Bush announced his intention
to appoint Thomas Casey, now Global Crossing vice-chairman, to his National
Security Telecommunications Advisory Committee.
SPOKESMAN: This kind of greed, absolute, unfettered greed-- I don't
think it's good for America.
JEFFREY KAYE: Today, Congress took its first look at Global Crossing.
Members of a House Financial Services Subcommittee questioned CEO John
Legere and chief financial officer Dan Coors about the company's accounting
practices. Legere blamed a downturn in the telecommunications industry
for his company's collapse and for the layoffs of some 9,000 employees.
JOHN LEGERE, CEO, Global Crossing: We feel the pain more than I think
you understand. It's a very horrible thing that we've had to do, to
try to do something that I believe is in the best interest of Rochester,
which is to save this company, save the jobs that exist, and hopefully
get back to a time when we can grow jobs and bring new jobs back into
Rochester.
JEFFREY KAYE: Legere defended his compensation package.
REP. STEPHANIE TUBBS JONES, (D) Ohio: How much did you receive to become
the CEO of Global Crossing?
JOHN LEGERE: I think my salary is public information.
REP. STEPHANIE TUBBS JONES: I ask you, what did you receive, sir?
JOHN LEGERE: My salary is $1.1 million a year.
REP. STEPHANIE TUBBS JONES: And you received a signing bonus, also,
sir?
JOHN LEGERE: I had a $3.5 million signing bonus. There is a difficulty
in trying to understand the complexities of a chief executive officer
in a turnaround situation of a major telecommunications company, and
to believe that those skills are translated to having anybody who could
come in and play that role is an understatement of the complexity of
the task that we faced.
JEFFREY KAYE: Members of Congress also quizzed the Global Crossing
executives about a controversial financial practice that critics say
artificially inflated the value of the company. The transactions are
known as "swaps." Telecom companies, including Global Crossing,
traded rights to use each other's networks, boosting the companies'
sales and earnings figures. The Global Crossing executives denied any
improper accounting, and Legere said he hopes a viable, slimmed-down
company can emerge from bankruptcy.
JOHN LEGERE: The reality is that thousands of our employees continue
to operate the real Global Crossing. Today, Global Crossing has over
85,000 customers-- corporations, governments, associations, and organizations--
in over 200 cities in 27 countries who transmit voice and data over
our global network. Every day, our employees keep coming to work, keep
helping customers keep the data moving, and keep their spirits high.
JEFFREY KAYE: Legere's optimism is reminiscent of assurances Gary Winnick
offered in 1999.
GARY WINNICK: We're not going to be the Flying Walendas in the business.
WE have a big responsibility to our shareholder base and to our employees.
And, uh, we're never going to violate that.
JEFFREY KAYE: Whether or not they did violate that responsibility
is now the subject of more than 30 lawsuits, as well as investigations
by Congress, by the FBI, and by the Securities and Exchange Commission.
IT WAS ALL SWEPT UNDER THE RUG AND GARY AND CO. WALKED FREE FROM MY SUBPOENA, JUST LIKE DEBRA YANG, WHILE I ROTTED IN MAXIMUM SECURITY PRISON, SUBJECTED TO THEIR "MENTAL TREATMENT" FOR "RESTORATION."
THEN THEY CONSPIRED TO BREAK THE LAW AGAIN. AND DID JUST THAT WHEN THEY UNLAWFULLY RELEASED GARY WINNICK FROM ONE OF "MY SUBPOENAS."
AND NOW THE BAD GUYS ARE GONNA PAY FOR THEIR CRIMES AGAINST THE PEOPLE OF THE U.S.A.
AND GARY IS ABOUT TO FINALLY BE CONFRONTED.
