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Winnick Subpoenaed by House Panels

Telecom: Questions will focus on Global Crossing's actions before the sale of stock by top executives.

September 13, 2002|JUBE SHIVER Jr. and ELIZABETH DOUGLASS | TIMES STAFF WRITERS

WASHINGTON — Widening their probe of potential wrongdoing in the telecommunications industry, two House panels said Thursday that they subpoenaed Global Crossing Ltd. Chairman Gary Winnick to question him about transactions that boosted the fiber-optic company's revenue shortly before he and other executives sold more than $100 million worth of stock.

The House Energy and Commerce Committee and its Oversight and Investigations subcommittee also subpoenaed former Global Crossing general counsel Jim Gorton and former Qwest Communications International Inc. executive Greg Casey. The panels want the three to testify about allegations that both firms participated in so-called capacity swaps in the spring of 2001 that had the effect of propping up each company's revenue.

That, in turn, would have helped to keep the stock prices of the two companies from falling further and, investigators believe, allowed seven executives and board members to sell some of their shares. Winnick, for example, sold shares for $123.5 million in May 2001.

The subpoenas are a sign that investigators are intensifying their probe of Global Crossing, the once-highflying telecommunications carrier that filed for bankruptcy protection in January, and Qwest, a debt-laden regional Bell company that provides local phone service to 24 million customers in 14 states.

This year, the panels had sought only financial documents from Qwest as part of their investigation of Global Crossing but found evidence of possible wrongdoing at both companies.

Winnick, Casey and Gorton were ordered to appear at a Sept. 24 hearing. Committee investigators also have secured interviews scheduled for next week with former Qwest Chief Executive Joseph Nacchio and former Chief Financial Officer Robin Szeliga about the company's dealings.

"We are concerned that these capacity swaps are merely sham transactions meant to artificially increase revenue and mislead investors," said Rep. James C. Greenwood (R-Pa.), chairman of the investigations subcommittee.

Qwest spokesman Will Myers said no executives from his company have been subpoenaed by the committees. But he said Qwest is hopeful of being cleared and is "continuing to cooperate with investigators." Committee investigators have interviewed 18 current and former employees at Global Crossing, and a dozen from Qwest, said Ken Johnson, a top commerce committee aide.

Winnick could not be reached for comment. He is expected to take the 5th Amendment at his appearance before the committee.

His attorney, Gary Naftalis, said Thursday that Winnick has done "nothing improper."

"He ... continues to cooperate with this and other inquiries by making available all relevant documents," Naftalis said. "All records and reports demonstrate that Gary acted, at all times, legally, ethically and honorably."

Two weeks ago, the committee--frustrated with what it said was a lack of cooperation from Winnick--threatened to subpoena the executive because he was resisting being interviewed.

On Thursday, the committee released copies of correspondence that appeared to cast doubt on the legitimacy of Qwest accounting, especially in its reporting of swaps.

In one e-mail, an unnamed Qwest manager told a Qwest executive that he would blow the whistle on the company over what he said were questionable accounting practices.

"I have some information about violations that Qwest has committed in this area of accounting," wrote the manager, whose name was not disclosed because committee investigators are seeking his cooperation in their probe.

Both Qwest and Global Crossing are being investigated by the Securities and Exchange Commission, the Justice Department and House Financial Services Committee for dealings arising out of their exchange of telecommunications transmission capacity that may have masked both companies' deteriorating conditions.

Such swaps, known as an "indefeasible rights of use," or IRUs, are similar to real-estate leases and are used to secure upfront money in exchange for offering deeply discounted, long-term contracts for transmission capacity on telecommunications networks.

The committees previously have focused on a number of transactions, including a March 30, 2001, swap in which Global Crossing sold 360Networks Inc. $150 million in fiber-optic capacity and, in turn, agreed to buy capacity from 360Networks. Global insisted on closing the deal quickly so that it could show $150 million in revenue before the end of the fiscal quarter March 31.

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Shiver reported from Washington, and Douglass reported from Los Angeles.

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