Features

Global Crossing paid millions to its chairman’s own firms

By Simon Avery The Associated Press
Saturday February 16, 2002

LOS ANGELES — Global Crossing chairman Gary Winnick controlled companies that had lucrative dealings with his fiber optics network firm before it imploded, regulatory filings show. 

The special relationships between the firms added an undisclosed amount to the personal profits of Winnick, who sold $734 million worth of stock before the company began bankruptcy proceedings on Jan. 28. 

The dealings involved Global Crossing paying millions of dollars to a privately held merchant bank and its subsidiaries founded and controlled by Winnick. 

The fees paid to Winnick through Pacific Capital Group Ltd. and its subsidiaries covered real estate leases, corporate aircraft fees and financial advice, according to documents filed with the Securities and Exchange Commission. 

In one deal made in October 1999, Global Crossing agreed to pay North Cresent Realty, a subsidiary of Pacific Capital, $400,000 a month to lease office space in Beverly Hills. Pacific Capital then subleased space back to North Cresent Realty for $53,000 a month. 

The agreement also involved Global Crossing paying North Cresent $3.2 million toward $7.5 million of renovations. 

Global Crossing is formally based in Bermuda, although Winnick and other top executives work out of Beverly Hills. The company is expected to announce soon that it will leave its Beverly Hills offices and relocate 60 employees to El Segundo and the San Fernando Valley. 

The company said an independent real estate consultant reviewed the complex transaction and determined it to be “the product of an arm’s length negotiation.” 

Mike Sitrick, a spokesman for Winnick, said Global Crossing got three independent valuations of the property and paid North Cresent the middle quote. In addition, Winnick excused himself from the negotiations, Sitrick said. 

Pacific Capital also billed Global Crossing $2 million during 1999 for using airplanes in which Pacific had a stake. Sitrick said the fee was less than Global Crossing would have paid an independent charter company. 

Global Crossing made another large payment to Winnick’s companies as part of a consulting contract drawn up in 1997, in which a unit of Pacific Capital advised Global Crossing’s wholly owned subsidiary, Atlantic Crossing Ltd., on a $482 million loan. 

Under terms of the deal, Pacific Capital’s PCG Telecom was to receive 2 percent of Atlantic Crossing’s gross revenue over a 25-year period. 

In June 1998, Global Crossing terminated the deal by agreeing to pay $135 million to Pacific Capital, several members of Global Crossing’s own board, including Winnick, and two financial partners: the CIBC and Union Labor Life Insurance Co. 

Since Global Crossing filed for bankruptcy protection, shareholders have accused the company of overstating revenue, and past and present employees have complained that they have lost the bulk of their retirement savings. 

Matt Fico was laid off by Global Crossing in November. The 27-year-old customer support manager said he lost about $20,000 in stock options and 401(k) retirement savings. 

He said knowledge of the multimillion-dollar deals between Global Crossing and some of its top executives has left him feeling “distrustful.” 

“These things might be legal, but they certainly don’t look ethical,” he said. 

In Washington, a spokesman for the House Energy and Commerce Committee, which is investigating the collapse of Enron Corp., said the panel has begun looking into the Global Crossing affair. 

“It’s inevitable we’re going to do something” related to Global Crossing, said the spokesman, Ken Johnson. 

Meanwhile, Rep. Louise Slaughter, D-NY, has asked the Committee on Education and the Workforce to examine Global Crossing’s move preventing employees from accessing their 401(k) accounts during December and January. 

The retirement accounts were flush with company stock, which employees could not trade because Global Crossing was in the process of switching plan administrators.