 |
 |
 |
 |
 |
 |
 |
 |
 |
 |
 |
 |
 |
 |
 |
Capacity Swaps by Global Crossing and Qwest: Sham Transactions Designed to Boost Revenues?
Subcommittee on Oversight and Investigations
Prepared Statement of The Honorable Jim Greenwood Good morning and welcome to the Subcommittee on Oversight and Investigations' second day of hearings focusing on a series of highly questionable business transactions involving the Global Crossing and Qwest corporations. We began this hearing last Tuesday by examining a central question: were these transactions to swap fiber-optic capacity done for substantive business purposes? Or were they, instead, essentially sham transactions, merely designed to provide the appearance of increased revenues, aimed at deceiving both Wall Street analysts and ordinary investorS alike? Our inquiry has centered on actions by senior employees and executives of both Qwest and Global Crossing who established and implemented the policies, and who made the key decisions for these companies. But our inquiry also concerns broader matters - matters of accounting and accounting oversight by the executives, corporate boards, and the appropriate regulatory bodies. Our duty here is not just to expose what may be wrongdoing by a handful of individuals -- though there is considerable public value to that -- but to also determine if there are more substantive accounting policies and oversight issues that the Congress and the Executive Branch need to address. During our first day of hearings into this matter, we explored in detail some of the capacity swaps entered into by Global Crossing and Qwest. We examined the ostensible reasoning behind these swaps, and whether there were side or oral agreements that allowed Qwest, in particular, to account for them illegitimately. We heard from both current and former employees of both companies involved in these transactions. And we learned of the pressure placed on them from executives at the highest levels to complete these transactions in order to show REVENUES, however FICTITIOUS, during a time of shrinking markets and declining business volume. As knowledgeable as these witnesses were, however, they were not the ones who determined the high - most knowledgable observers have said unrealistically high -- revenue targets that drove the deal-making decisions. nor did They create the numbers-obsessed environment in which these deals were made. The people who created this environment, who made these fateful decisions, are before us to speak to these matters this morning. Our investigation suggests that these executives continued to find ways to artificially produce Quarterly REVENUE numbers through capacity swaps, even when their employees objected that it had become too difficult to sell substantial amounts of capacity. now we can hear their side of the story and question them directly about these matters. In particular, we can ask these executives and board members the same questions that many current and former employees of these companies would ask if they had an opportunity to do so. Consider Mr. Gary Winnick, Chairman and founder of Global Crossing, who is before us today. He reportedly cashed in $735 million from his stock in the company, including over $100 million in stock sales at a time in May of last year when Global Crossing executives were beginning to realize the extent of the company's financial problems. UNFORTUNATELY, GLOBAL CROSSING EMPLOYEES AND INVESTORS WERE NOT SO LUCKY. approximately 10,000 employees lost their jobs, their health care and their life savings, while INVESTORS LOST $54 billion. We have before us today a woman who was one of the unfortunate investors in and employees of Global Crossing. For 31 years, Lenette Crumpler worked at Frontier, which Global Crossing acquired in 2000. Ms. Crumpler had invested $86,000 in her 401(k) while working for Frontier, which could not have been easy for her to do as a single mother with two children. She believed in the statements made by Global Crossing executives that the company was in sound financial shape and would successfully "weather the storm." As a result, she held onto her stock, while the boys in the big corner offices did just the opposite. Sadly, Ms. Crumpler has lost her entire retirement savings. WE ALSO HAVE BEFORE US PAULA SMITH. mS. sMITH IS A FORMER QWEST EMPLOYEE WHO HAS LOST $400,000 IN HER 401(k) AS THE PRICE OF qWEST STOCK HAS FALLEN SIGNIFICANTLY. sHE BELIEVED THAT PLACING HER MONEY INTO qWEST WAS A "CONSERVATIVE" INVESTMENT. iT WAS HER DREAM TO USE THAT MONEY TO PUT HER TWO DAUGHTERS THROUGH COLLEGE. I know that THEY and the many other Global Crossing and Qwest employees who have lost their jobs and their retirement savings want to hear from these executives. In addition to our focus on past executive actions, we will also hear today from some of the current executives and Board members about the future of these companies. They will be able to address our questions concerning Global Crossing and Qwest's future business plans. I am also eager to learn more about Qwest's recent restatement of its previous financial statements due to its accounting for these capacity swaps, and to learn if we can expect to see similar restatements by Global Crossing. I'd also like to learn whether the corporate environment has indeed changed at these companies, and what lessons these current leaders have drawn from these past problems. Let me thank the witnesses for coming this morning for what promises to be an informative hearing.
|
|||||||||||
|
