FBI, SEC investigating Global Crossing

Siobhan Kennedy

NEW YORK: Telecommunications company Global Crossing Ltd. on Friday found

itself the focus of two federal investigations, by the FBI and securities

regulators, as the fallout from its huge bankruptcy filing last month

intensified.

In a double blow to the high-speed telecommunications network operator,

federal law enforcement officials said the Federal Bureau of Investigations had

launched a probe into the company, including its accounting practices.

Global Crossing said the US Securities and Exchange Commission also had

launched a formal Global Crossing investigation, after a letter from a former

Global employee alleged that the firm had used improper accounting methods that

artificially inflated revenues.

Global Crossing said it would not comment on the probe by the FBI, but a

spokeswoman said the company had received notice of the SEC investigation in a

letter dated Feb. 6. "Our policy is and always has been to cooperate with

any investigation by appropriate authorities," Global Crossing spokeswoman

said Becky Yeamans told Reuters.

An FBI spokesman had no comment when asked about the Global Crossing

investigation and added, "As a policy, we do not confirm or deny

investigations."

Hamilton, Bermuda-based Global Crossing filed for protection under Chapter 11

of the bankruptcy code on Jan. 28 in the fourth-largest corporate insolvency in

US history. It listed assets of $22.4 billion and $12.4 billion in debts. The

company's bankruptcy filing followed similar filings by energy trader Enron

Corp. and retailer Kmart Corp., the accounting practices of both of which have

been called into question.

Making matters worse was the discovery, in regulatory filings on Friday, that

Global Crossing had eased terms on $18 million in loans to two top executives

before filing for bankruptcy in January.

In October, the company agreed to eliminate the $10 million outstanding on a

$15 million loan made to Chief Executive John Legere, according to Global

Crossing's quarterly report with the SEC. It also significantly eased terms on

an $8 million loan to former Chief Executive Thomas Casey, according to the

filing, which said that if Casey remained with Global Crossing the entire loan

would be forgiven.

Separately, Lucent Technologies Inc. said on Friday it dropped its case

against Global Crossing after reaching an agreement with the telecoms company.

Lucent had tried to force Global to immediately accept or reject equipment and

network contracts it made with Lucent.

Olofson letter



Global Crossing said on Monday the SEC had asked it to hand over documents
including the former employee's letter. The company also said it would open its

own probe to review the letter, written by Roy Olofson, a former vice president

of finance.

In addition, it said the panel would retain independent counsel and an

accounting firm other than Andersen, the company's regular accounting firm, to

review the matter.

In the letter, dated Aug. 6, 2001, Olofson alleged that it was improper for

Global Crossing to have reported pro forma values for cash revenue and adjusted

earnings before interest, taxes, depreciation and amortization because the

numbers were not measures of cash receipts or earnings. He also alleged that the

amounts were inflated.

After reviewing the letter and consulting outside counsel, Global Crossing

said the allegations were without merit. The company also questioned Olofson's

motives, saying he had previously threatened to sue the company and has been

attempting to negotiate a settlement.

Olofson was fired by Global Crossing on Nov. 30 as part of a move to cut

1,200 jobs. The company said last week it had received a new letter from Olofson

saying he would sue for wrongful termination unless a multimillion-dollar

payment were made to him by Feb. 1.

Olofson's attorneys have denied Global Crossing's claims. They allege that

the company fired Olofson because of his accounting allegations and have said

that the law firm is poised to file a law suit against Global Crossing any day

now.

FBI probe unclear



Legal experts said it was not clear why the FBI had become involved, or
whether the investigation was focusing on Global Crossing's accounting or

Olofson.

"If a regulatory agency believes they've discovered evidence of criminal

activity, they typically advise either the FBI or appropriate local law

enforcement immediately," Robert McTamaney, chairman of the corporate legal

department with the New York City-based law firm Carter, Ledyard & Milburn.

"The SEC informed us that the investigation doesn't mean that anyone in

the company has broken the law and we're confident that they'll determine that

the allegations are false," Global Crossings' Yeamans said.

But another expert suggested the FBI might be carrying out routine

investigations following Global Crossing's claim that Olofson was just seeking

to get money from the company.

"The FBI's general mandate in these kind of cases is not to get into it

until after the SEC has concluded its investigations," Martin Pollner, a

senior partner with the law firm of Loeb & Loeb in New York, who is also

former head of law enforcement for the US Treasury department.

"However, if there are allegations of extortion or bribery, the FBI

steps in very quickly, that's their jurisdiction."

(C) Reuters Limited.