FBI, SEC investigating Global Crossing

Siobhan Kennedy

NEW YORK: Telecommunications company Global Crossing Ltd. on Friday found
itself the focus of two federal investigations, by the FBI and securities
regulators, as the fallout from its huge bankruptcy filing last month
intensified.

In a double blow to the high-speed telecommunications network operator,
federal law enforcement officials said the Federal Bureau of Investigations had
launched a probe into the company, including its accounting practices.

Global Crossing said the US Securities and Exchange Commission also had
launched a formal Global Crossing investigation, after a letter from a former
Global employee alleged that the firm had used improper accounting methods that
artificially inflated revenues.

Global Crossing said it would not comment on the probe by the FBI, but a
spokeswoman said the company had received notice of the SEC investigation in a
letter dated Feb. 6. "Our policy is and always has been to cooperate with
any investigation by appropriate authorities," Global Crossing spokeswoman
said Becky Yeamans told Reuters.

An FBI spokesman had no comment when asked about the Global Crossing
investigation and added, "As a policy, we do not confirm or deny
investigations."

Hamilton, Bermuda-based Global Crossing filed for protection under Chapter 11
of the bankruptcy code on Jan. 28 in the fourth-largest corporate insolvency in
US history. It listed assets of $22.4 billion and $12.4 billion in debts. The
company's bankruptcy filing followed similar filings by energy trader Enron
Corp. and retailer Kmart Corp., the accounting practices of both of which have
been called into question.

Making matters worse was the discovery, in regulatory filings on Friday, that
Global Crossing had eased terms on $18 million in loans to two top executives
before filing for bankruptcy in January.

In October, the company agreed to eliminate the $10 million outstanding on a
$15 million loan made to Chief Executive John Legere, according to Global
Crossing's quarterly report with the SEC. It also significantly eased terms on
an $8 million loan to former Chief Executive Thomas Casey, according to the
filing, which said that if Casey remained with Global Crossing the entire loan
would be forgiven.

Separately, Lucent Technologies Inc. said on Friday it dropped its case
against Global Crossing after reaching an agreement with the telecoms company.
Lucent had tried to force Global to immediately accept or reject equipment and
network contracts it made with Lucent.

Olofson letter

Global Crossing said on Monday the SEC had asked it to hand over documents
including the former employee's letter. The company also said it would open its
own probe to review the letter, written by Roy Olofson, a former vice president
of finance.

In addition, it said the panel would retain independent counsel and an
accounting firm other than Andersen, the company's regular accounting firm, to
review the matter.

In the letter, dated Aug. 6, 2001, Olofson alleged that it was improper for
Global Crossing to have reported pro forma values for cash revenue and adjusted
earnings before interest, taxes, depreciation and amortization because the
numbers were not measures of cash receipts or earnings. He also alleged that the
amounts were inflated.

After reviewing the letter and consulting outside counsel, Global Crossing
said the allegations were without merit. The company also questioned Olofson's
motives, saying he had previously threatened to sue the company and has been
attempting to negotiate a settlement.

Olofson was fired by Global Crossing on Nov. 30 as part of a move to cut
1,200 jobs. The company said last week it had received a new letter from Olofson
saying he would sue for wrongful termination unless a multimillion-dollar
payment were made to him by Feb. 1.

Olofson's attorneys have denied Global Crossing's claims. They allege that
the company fired Olofson because of his accounting allegations and have said
that the law firm is poised to file a law suit against Global Crossing any day
now.

FBI probe unclear

Legal experts said it was not clear why the FBI had become involved, or
whether the investigation was focusing on Global Crossing's accounting or
Olofson.

"If a regulatory agency believes they've discovered evidence of criminal
activity, they typically advise either the FBI or appropriate local law
enforcement immediately," Robert McTamaney, chairman of the corporate legal
department with the New York City-based law firm Carter, Ledyard & Milburn.

"The SEC informed us that the investigation doesn't mean that anyone in
the company has broken the law and we're confident that they'll determine that
the allegations are false," Global Crossings' Yeamans said.

But another expert suggested the FBI might be carrying out routine
investigations following Global Crossing's claim that Olofson was just seeking
to get money from the company.

"The FBI's general mandate in these kind of cases is not to get into it
until after the SEC has concluded its investigations," Martin Pollner, a
senior partner with the law firm of Loeb & Loeb in New York, who is also
former head of law enforcement for the US Treasury department.

"However, if there are allegations of extortion or bribery, the FBI
steps in very quickly, that's their jurisdiction."

(C) Reuters Limited.