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One Man's Quixotic Quest for Telecom Glory


From the living room of his luxurious 10,000-square-foot midtown Manhattan apartment, Francesco Galesi built an empire that earned him a winter villa near Jamaica's Montego Bay, a 12-bedroom oceanfront castle on Long Island and a net worth of more than $400 million that once ranked him halfway up the Forbes 400 list of America's wealthiest.

Galesi made his millions in real estate.

He lost much of it in telecommunications--more than $70 million and counting in a frustrated 20-year effort to build a national telephone network in one of the most competitive, cutthroat and mercurial industries.

The story of this self-made son of an Italian immigrant might be just another human saga in the multibillion-dollar boom and bust of America's telecom sector were it not for Galesi's one major success.

Galesi is one of the longest- serving directors of WorldCom Inc. He is one of just four board members on the crippled company's audit committee, which signed off on years' worth of cooked books that the company now says misstated nearly $4 billion in costs as revenue. And he is the man responsible for recruiting Scott D. Sullivan, WorldCom's "whiz-kid" chief financial officer, who was fired last month for what the company called his central role in what has become one of America's biggest corporate scandals.

For The Record
Los Angeles Times Saturday July 13, 2002 Home Edition Main News Part A Page 2 National Desk 7 inches; 272 words Type of Material: Correction
Galesi photo credits--Photos in a Section A story Thursday about entrepreneur Francesco Galesi were incorrectly credited. The picture of Galesi should have been credited to the Albany Times Union. The picture of the Dragon's Head mansion should have been credited to Bloomberg News.

It remains unclear whether the WorldCom board or its audit committee knew of the misstatements at the time. But Galesi is among a handful of WorldCom directors who are defendants in a blizzard of class-action shareholder lawsuits filed in recent weeks against America's second-largest long-distance company, after its stock tanked from a high of $65 a share three years ago to just 20 cents today.

At 71, the intensely private Galesi--whose press clippings are confined mainly to gossip items about his Long Island social life and Russian princess wife--apparently still sits atop a real estate fortune that stretches from New York to Texas. Galesi reportedly parlayed a borrowed $4 million that he invested in an abandoned U.S. Army dump in upstate New York in 1960 into a network of industrial parks worth well more than $100 million.

Galesi has not spoken publicly of WorldCom since the accounting debacle. His lawyers either have declined to comment or have not returned calls seeking his version of events that led up to it. A raft of federal investigations is underway to reconstruct them, by congressional committees and by the federal agencies that were responsible for monitoring the telephone and Internet conglomerate.

But thousands of pages of documents in federal courthouses in New York and Chicago and at the Securities and Exchange Commission in Washington open a window on WorldCom's world through the adventures of one of its earliest and presumably more influential board members--much of the record in Galesi's own words while under oath.

The documents also provide clues to what went so wrong at WorldCom.

The story of Galesi's attempts to build his own major long- distance network even while serving on WorldCom's board is, in many ways, emblematic of the rise and fall of WorldCom. Galesi's costly and ambitious telecom ventures both parallel and intersect those of WorldCom founder Bernard J. Ebbers, who was ousted as chief executive in April when it was revealed that he owed WorldCom $408 million to cover loans he used to buy company stock.

As Ebbers gobbled up about 70 companies in just over a decade, sometimes sweeping their principals onto the board of the emerging WorldCom, the potential for conflicts of interest that could violate securities laws mounted exponentially, the documents show.

That appeared especially true for Galesi, who continued to try to create another telecom giant both before and after he sold one of his early ventures to Ebbers.

Several lawyers who specialize in telecommunications, including some who have opposed Galesi in court, said Galesi appeared to take pains to avoid using his WorldCom insider position to benefit his own companies. To do so, they said, probably would have been illegal.

Such insider conflicts are targets of the SEC's investigation of WorldCom and a prime focus of another probe launched by Congress on Monday. And under the business reform proposals advanced by President Bush in his Wall Street speech Tuesday, there would be restrictions on who could serve on a corporate board's internal audit committee.

The performance of WorldCom's board--and particularly its audit committee--is among the investigators' other chief targets. On that score, Galesi's telecom track record reflects what some critics say may have contributed to WorldCom's undoing: key directors and managers--including former basketball coach and motel owner Ebbers and real estate magnate Galesi--who had little or no hands-on experience in an emerging industry that not even experts could reliably analyze.

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