Global Crossing Ltd. set up a loan-guarantee plan to help shield executives who were facing personal margin calls, people familiar with the matter said. The plan, started in 2001 as the Bermuda-based fiber-optic company's shares began declining, was used by two executives, these people say. The plan was designed to prevent the executives from selling company stock to pay back loans made against the value of the shares, they say. It is unclear how much the company guaranteed in total, how many executives were eligible for the plan or which ones tapped it.
If executives had to sell their stock, "that was very bad for the company," says a person familiar with the plan. Low-interest loans and loan guarantees to executives have drawn criticism from some investors and members of Congress, concerned that companies are putting capital at risk for the personal benefit of their executives. WorldCom Inc., for example, extended $341 million in loans to founder and Chief Executive Bernard Ebbers so that he wouldn't have to sell some of his WorldCom stock to pay debts he incurred while buying the stock. The company's low-interest loan saved Mr. Ebbers millions in annual interest by borrowing from the company.
Global Crossing, which filed for bankruptcy protection under Chapter 11 of the federal Bankruptcy Code in January, is under investigation by the Securities and Exchange Commission and the Justice Department, which are looking into whether the company used "swaps" of fiber-optic capacity with other telecommunications companies to inflate its revenue.
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