Global Crossing investigation validates capacity swaps but criticises financial management

Bankrupt fibre-optic network operator Global Crossing [GBLXQ.PK] continues to be dogged by allegations of accounting fraud following the release of a report of the company’s business practices. The report concluded an eleven-month review of Global Crossing’s accounting practices, public disclosures and concurrent sales of network capacity with other carriers by a special committee of the telco’s board. Five months before Global Crossing filed for bankruptcy in January 2002, a former employee, Roy Olofson, had alleged that the company had entered into fraudulent business deals to raise its revenues and meet stock market expectations. The telco did not disclose the allegations until after the bankruptcy filing, triggering an investigation by the US authorities and a clampdown on accounting methods in the US telecoms industry. The report found that whilst Global Crossing had valid business reasons to swap capacity on its high-speed networks - a practice that eventually brought about its downfall when the market collapsed - its outside counsel Simpson Thatcher & Bartlett (ST&B) failed to thoroughly investigate Olofson’s allegations of fraud. Although ST&B bore the brunt of the committee’s scorn, Global Crossing’s management was strongly criticised for failing to disclose forecasts of its financial decline. Assets of Global Crossing are waiting to be sold to Hutchison Whampoa [0013.HK] and Singapore Technologies Telemedia, pending regulatory approval.