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THE NATION

Global Crossing Is Accused of Shredding Documents

Bankruptcy: A pension fund, which says it lost $116 million in the Chapter 11 filing, is seeking an injunction to prevent the loss of any more records.

June 23, 2002|JAMES S. GRANELLI | TIMES STAFF WRITER

Stacks of documents were destroyed at Global Crossing Ltd. in the days before as well as after the telecommunications company filed for bankruptcy protection and became a subject of federal investigations, lawyers in a securities fraud case charge.

Attorneys for the Ohio State Retirement System, which says it lost $116 million in stock when Global Crossing filed for reorganization under Chapter 11 of the U.S. Bankruptcy Code on Jan. 28, are seeking orders to halt further shredding and to copy information from all of Global Crossing's computers.

But company executives denied that any significant amounts of documents were destroyed. The pension fund claims papers were shredded in violation of Global's own Feb. 7 mandate to employees to retain documents in light of the bankruptcy filing and investigations into the company's accounting practices.

The allegations are part of a series of declarations, depositions and arguments filed under seal since June 10 and released Friday by U.S. Bankruptcy Judge Robert E. Gerber in New York.

During that time, both the company and the Ohio fund interviewed current and former employees to try to determine if any documents involving the nation's fourth-largest bankruptcy were destroyed.

"While we have found isolated incidents of document disposal in the ordinary course of business, none of the documents involved appear to have any relevance to pending litigation or governmental investigations," Global Crossing said in a statement. Executives said that "there is no merit to the allegations and that they remain largely unsubstantiated."

The allegations came to light a week after a federal jury in Houston convicted accounting firm Arthur Andersen of obstruction of justice in a case that involved illegal disposal of documents related to collapsed energy trader Enron Corp., which itself is under a court order to halt document destruction.

The Ohio pension fund contends that on Jan. 22, six days before the bankruptcy filing, employees shredded documents that filled three garbage bags. On Feb. 7, Global Crossing sent a companywide e-mail telling employees to halt any further shredding, as the U.S. Securities and Exchange Commission and federal prosecutors began investigating the company.

Nevertheless, the pension fund contends, two employees--one the son-in-law of top executive Joseph Perrone--went behind closed doors in a storage room "where shredding appears to have taken place" shortly after the company e-mail was distributed.

The pension fund does not offer any evidence of the nature of the shredded documents.

In the court papers, Cathleen Kicak, a Global Crossing receptionist, said she saw secretary Beth Hunt Drong and Perrone relative Steve Scro leave a large storage room containing a shredder at the company's Madison, N.J., offices. Kicak said she and her co-workers "were curious as to why they were in there behind a closed door with a shredder."

The 25-year-old receptionist "heard the sound of a shredding machine operating just before" the employees left the room, shareholders' lawyers said in court papers. In her statement, Kicak said they left the door open and she saw a small shredder sitting on top of a garbage pail.

Kicak said she later told her sister-in-law and then co-worker, Danuta McLennan, about the shredding. McLennan, who left the company in March, said she went to the room and, though the door was closed, "heard what sounded like shredding machines in use."

McLennan later informed lawyers for Global Crossing shareholders about the alleged shredding. Drong and Scro denied shredding any documents. Drong said in the court papers that she and Scro sometimes ate lunch in the storage room to discuss company matters. She also said that she never saw a shredder in that storage room and that all shredders were removed from copy rooms within a week or so after the Feb. 7 e-mail was sent.

Pension fund lawyers claim that, according to McLennan's statement, the shredding took place over 2 1/2 weeks and that a "significant volume of documents" was destroyed. However, neither Kicak nor McLennan claimed to have seen any shredding take place.

Separately, an e-mail dated Feb. 15 indicated that Scro and Drong told other employees they saw an aide to a former executive shred documents that filled three garbage bags. The company said the documents consisted of research materials of a former executive. Global Crossing lawyers told Gerber that, besides sending the Feb. 7 e-mail, they moved quickly to safeguard more than 1 million documents government regulators and investors' lawyers may be interested in.

The Bermuda company listed $22.4 billion in assets--largely fiber-optic cable networks linking about 200 cities in 27 countries--and $12.4 billion in debts. With a glut of cable worldwide and slack demand, the company could not generate enough revenue amid massive amounts of red ink to pay down its debts.

Prospective buyers for all or parts of the company's assets are expected to file bids by July 11, and an auction will be held two weeks later. The court will decide July 30 if anything will be sold. Executives and creditors believe current managers can salvage Global and keep it as an independent telecommunications company.

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Bloomberg News contributed to this report.

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