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Global Crossing's Winnick under
scrutiny
- - - - - - - - - - - -
By Simon Avery
March 4, 2002 | LOS ANGELES (AP) --
John D. Rockefeller took 25 years to make his first billion.
Gary Winnick needed only 18 months.
Yet nearly five years after he took bold steps to create
the world's most advanced fiber optic network, Winnick is
at the center of a spectacular implosion of shareholder
wealth.
The descent of Global Crossing Ltd., of which Winnick
was founder and chairman, was just as precipitous as the
ride up. Losing almost $50 billion in market capital, on
Jan. 28 it became the fourth-largest Chapter 11
bankruptcy on record.
Winnick, 54, cashed in beforehand, selling $734 million in
stock before the company hit bottom.
Claiming they were duped, shareholders have filed more
than two dozen lawsuits, claiming among other things
that executives inflated financial results. Some people
believe Winnick is trying to profit from his company's
collapse.
The Securities and Exchange Commission is investigating
Global Crossing's accounting practices. The FBI has also
launched a probe.
Winnick declined to be interviewed for this article. But
the picture of him that emerges from court records,
financial documents and interviews is of a man who
luxuriated in wealth and who had a propensity for
bending the rules.
His company's shareholders are angry.
"If that guy doesn't go to jail, there's no justice," said
John Burat, a 42-year-old former truck driver in
, in Salon's new feature,
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Conshohocken, Pa., who said he poured his full $31,000
Social Security disability payment into Global Crossing
stock last year. "This is my kid's education. It just makes
me sick to my stomach."
Michael Sitrick, Winnick's spokesman, said his client has
not broken any laws and that all his stock sales were
done in compliance with company rules and federal and
state laws.
"Lots of shareholders have made lots of money through
Global Crossing," he said.
Winnick was an investment banker and had no significant
experience in telecommunications in 1997 when he
convinced some of the biggest players in the business he
could connect the world with a 100,000-mile fiber optic
network. He quickly raised more than $700 million and
threw in $15 million of his own money to turn his vision
into a working company, and Global Crossing went public
in 1998.
"He thinks big, always has," said Rabbi Marvin Hier, dean
and founder of the Simon Wiesenthal Center, who has
known Winnick for some 20 years. "Even when he didn't
have money, he didn't want to do the conventional
thing."
Winnick made headlines when he paid about $65 million
in cash for a 15-bedroom mansion in Bel-Air in
September 2000. And although his company is bankrupt,
Winnick is pushing ahead with $15 million of renovations
at the estate.
"Mr. Winnick is deeply regretful that the company could
not complete a restructuring without filing Chapter 11,"
Sitrick explained about the expenditure. "He had personal
wealth before his involvement and investment in Global
Crossing,"
Winnick's enthusiasm for real estate extends to Global
Crossing's executive offices in Beverly Hills. His
investment firm, Pacific Capital Group, spent $41.5
million in 1998 to buy the historic former MCA building
and another $9 million on renovations.
The surroundings are a far cry from Winnick's modest
upbringing in Roslyn, N.Y. His father, Arnold, worked in
food services and started his own company, which went
bankrupt. He died of a heart attack when his son was an
18-year-old student at C.W. Post University.
Winnick graduated with a degree in business and
economics an in 1972, joined Burnham and Co. as a
trainee broker. He rose to become a top aide to junk
bond financier Michael Milken at what became Drexel
Burnham Lambert but left to start his own investment
firm before Milken and others were indicted on federal
racketeering and fraud charges.
In 1999, Winnick was named by the Los Angeles Business
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[ 03/01/02 ]

3. Journal as Los Angeles' richest man, worth an estimated
$6 billion on paper.
He spread the wealth around. His architect, rabbi and
maid all reaped handsome gains.
He also has donated or pledged more than $100 million
to favorite causes. The Wiesenthal Center doesn't expect
Global Crossing's troubles to interfere with Winnick's $40
million pledge to build a Jerusalem branch with his name
on it.
Winnick's fame gained him access to the highest levels of
society. During Global Crossing's heyday, Winnick told
London's Daily Telegraph that fielding calls from the
president of the United States and Buckingham Palace
was like "an out of body experience" for him.
He loved cutting big deals, but they've brought Global
Crossing scrutiny and criticism.
In 1999, his upstart firm paid $8.1 billion in stock for the
nation's fifth-largest long distance company, Frontier
Corp., of Rochester, N.Y. The following year, Global
Crossing sold Frontier's local calling business to Citizens
Communications of Stamford, Conn., for $3.7 billion in
badly needed cash.
Winnick and his team tried to keep Frontier's $700 million
pension plan, but state regulators blocked the attempt.
The rescue plan that Global Crossing presented when it
announced it was seeking bankruptcy protection has also
raised questions. Under the deal, two companies,
Hutchison Whampoa of Hong Kong and Singapore
Technologies Telemedia, would invest $750 million for a
79 percent stake in Global Crossing.
Global Crossing's creditors would get 21 percent,
shareholders nothing.
Winnick never revealed to his own board or creditors that
he and fellow company director Steven Green invested
$25 million in a company called K1 Ventures, effectively
controlled by another firm, Temasek Holdings, which in
turn owns Singapore Technologies.
Winnick and Green told The New York Times their
investment was unrelated to Singapore Technologies'
effort to buy Global Crossing. Winnick resigned from K1
Ventures' board after the disclosure.
Creditors and shareholders are also angry that Winnick
made millions even though Global Crossing never
reported an annual profit.
The company faltered after supply for network capacity
quickly outpaced demand _ competitors tried to copy the
firm's early success and the telecom industry deflated in
the recession. Still, Winnick and his top executives
pressured employees handling the books to meet Wall
Street expectations so the stock price would remain high,

4. Street expectations so the stock price would remain high,
according to employee claims.
Winnick and executives propped up Global Crossing's
stock price by engaging in "a series of misleading
transactions," Roy Olofson, a former vice president of
finance, alleged in a defamation lawsuit filed Feb. 27
against Winnick and three other executives.
In one instance, the company reported $150 million in
cash revenue after swapping fiber capacity with 360
Networks, a Canadian-based telecom. No cash was ever
received, Olofson said.
Last year, Global Crossing executives opted not to warn
investors about pending problems after a difficult first
quarter, Olofson said.
Global Crossing has repeatedly denied Olofson's claims,
labeling him a disgruntled former employee who sought
payment from the firm to stay quiet.
Associated Press
More wire stories
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