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Capacity Swaps by Global Crossing and Qwest: Sham Transactions Designed to Boost Revenues?
Subcommittee on Oversight and Investigations
Prepared Statement of The Honorable Billy Tauzin Thank you Mr. Chairman. I've said on a number of occasions that this Subcommittee over the past year truly has done a tremendous public service with its dogged investigative work into corporate misconduct -- beginning with Enron and Andersen and extending through to the actions of Global Crossing and Qwest, which we will continue to explore this morning. I believe members on both sides here appreciate what they've learned from this good work. One important lesson that these investigations have revealed for us is how a handful of key leaders of a big corporation -- the CEOs, CFOs, Presidents and Board Members -- really set the tone for those below them. Last week we heard from a number of executives, at both Global Crossing and Qwest, who were charged with making deals happen. And they did make them happen -- sometimes, as we learned, with an implicit, if not explicit, effort to deceive. Look at what we've been unraveling in this investigation. It's a story of deception and betrayal of public trust. How else can we explain Global Crossing pursuing optical capacity sales and swaps that its own employees couldn't justify? They did so out of desperation to make the numbers, as we have learned, when the market for expanding optical capacity was drying up. Deception and betrayal of the public trust -- how else can we explain some of Qwest's dealmaking? Here's a company that entered into long-term capital leases with illegitimate side agreements -- winks and nods -- that these deals really weren't what Qwest would report to the accountants for the purpose of booking income. These were sham deals that both sides knew were being done for one purpose only -- to make quarterly numbers. The people who put these deals together were not rogue employees. We learned they were responding to, and working within, an atmosphere created from those at the top. This morning we have those who set the tone before us. And I look forward to learning from them directly about the atmosphere they set at these two companies. Congress, the SEC and the Department of Justice, as you also note Mr. Chairman, all have a duty to help restore trust in the marketplace when it has been violated. So far, I believe the facts we've uncovered in our investigation show the SEC has been on the right track in its recent investigations. Yet some fail to understand this duty. Joseph Nacchio, the former Chairman and CEO of Qwest, who is before us today, reportedly told the press that the SEC's investigation of Qwest was driven by "global corporate McCarthyism" and "Enronitis." I wonder what Mr. Nacchio will say today, now knowing what we've uncovered and Qwest's own admission that it must restate its prior financial statements by over one billion dollars. Mr. Chairman, we should remember that those who believe most strongly in free markets should be most outraged by deceptive and fraudulent behavior that undercuts trust in free markets. These poisonous acts -- whether in the corporate boardroom or the boiler room -- violate the trust that is necessary for a marketplace to flourish in a free society. We should encourage rules and actions that help to maintain this trust. Thank you again Mr. Chairman, and I look forward to the testimony.
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