Public Broadcasting Service - The Long Fall of Global Crossing lyrics

JEFFREY KAYE: Global Crossing was in the right place at the right time in the forefront of the telecommunications gold rush of the 1990s. Funded by billions of dollars of venture capital and stock, it constructed a web of fiber optic cable around the planet with a network that transmitted data, text, voice, and video. By 1999, two years after its founding, the company's stock hit a high of $64 a share. SPOKESPERSON: Global Crossing has been on a tear. JEFFREY KAYE: Company chairman Gary Winnick, who launched the firm, became one of the world's richest men, with a personal fortune estimated at $6 billion. At a 1999 meeting recorded for the Internet, he described the company's dramatic rise. GARY WINNICK: Global Crossing has gone from a company with five employees just thirty months ago and as of the close of business tomorrow night will be a company with ten thousand employees. The company has just experienced remarkable growth. Mornings I wake up, I look in the mirror, and I say to myself, what happened here? JEFFREY KAYE: But the remarkable growth was a prologue for a long, hard fall. In early 2001, Global Crossing was in trouble, like many other telecom companies. It had accumulated billions of dollars in debt building Internet networks that exceeded demand: There were too many highways, not enough traffic. This January, Global Crossing declared chapter 11 bankruptcy, the fourth largest insolvency in U.S. History. GARY WINNICK: It's not about Gary Winnick; it's about Global Crossing, the family that we've all built here together. (Applause) JEFFREY KAYE: That family feeling that Winnick described at a company meeting 14 months ago is hardly in evidence today. JOHN BURAT, Global Crossings Shareholder: I do believe that Gary Winnick should go to jail, the board of directors should go to jail, and they should be treated as a drug dealer. They should have their property, their money, their stock all confiscated by the government. (Applause) JEFFREY KAYE: Recently, some 250 people crowded into a church basement across the street from the Global Crossing office building in Rochester, New York. Laid-off employees and shareholders with near- worthless stock, much of it in their pension plans, came to a meeting with elected representatives. Speakers complained that the company had abruptly cut off severance payments promised and owed to thousands of employees. ADRIENNE RAGLAND, Former Global Crossing Employee: The severance owed was not Monopoly money to anybody in this room. It was a mortgage payment. It was electricity, water, gas, food. BILL GOODNESS, Former Global Crossing Employee: The ambush-style seizing of our severance was a calculated and cold-hearted move on the senior executive management of Global Crossing. JEFFREY KAYE: David Archer was laid off from Global Crossing in November. He and his family have to adjust until he can find a source of income. DAVID ARCHER, Former Global Crossing Employee: The employees of Global Crossing who were severed from a company got... gave... got three days' notice that their health benefits were being cut off. The loss of severance was a shock to me. It forced me to... my house is up for sale. I'm going to have to simplify my life. JEFFREY KAYE: Gary Winnick, still the Global Crossing chairman, has no such problems. 3,000 miles away in California, he is renovating his $94 million palatial estate. You can't see much from the ground, but an aerial view offers the full majesty of a home with 15 bedrooms and 17 bathrooms, overlooking the Bel Air Country Club. Such is the upstairs/downstairs saga of Global Crossing. Particularly galling to former employees was how the company's top executives prospered during the company's decline. Last August, Global Crossing announced plans to lay off 2,000 employees. At the same time, the company wiped out the terms of an $8 million loan to then-CEO Thomas Casey, in effect providing Casey with an $8 million gift. Two months later, John Legere replaced Casey as CEO. JOHN LEGERE: We are the fulfillment of Global Crossing's ambitions in Asia. JEFFREY KAYE: Legere had been CEO of a Global Crossing subsidiary, Asia Global Crossing. The week of his promotion, Global Crossing's stock price dropped below a dollar, layoffs were in full swing, and bankruptcy was four months off. Nonetheless, Global Crossing doubled Legere's annual salary to $1.1 million, plus annual bonuses of $1.4 million, gave him a signing bonus of $3.5 million after taxes, and a severance package of $3 million. On top of all that, he got an extra $10 million after taxes when Global Crossing forgave two-thirds of a $15 million loan the company made him the previous year. Global Crossing has a history of granting top executives rich rewards. In 1999, Winnick said high pay was necessary to attract good people. He described how he hired Thomas Casey to work at his private bank and at Global Crossing. GARY WINNICK: I said, "Tom, what does it take?" He says, "Gary I'm going to throw out a number, it'll never happen." "Give me a number, Tom." "$20 million." I say, "When can you start? I'll write the check." Insurance. You want to be a leader, you've got to be bold. You've got to stand up to the plate. It took Tom two weeks. He paid back that investment. JEFFREY KAYE: A company representative says the loans were recently forgiven for contractual reasons. But Charles Van Eaton says that for a public company, Global Crossing's executive compensation levels were reprehensible, particularly since guaranteed bonuses were not linked to performance. Van Eaton is a conservative Republican, a professor of economics at Pepperdine University in Malibu, not far from Gary Winnick's two beach- front houses. CHARLES VAN EATON, Economist, Pepperdine University: I wonder if that was needed to attract those people. Well, they presumed that it was. When we get this sort of activity, we're shocked by it. But it would be a mistake to say that this is typical of big business in America. It's not. It's because it's untypical that we're discussing it, and that's why it's egregious-- absolutely egregious. JEFFREY KAYE: Former employees say Global Crossing's senior executives were not looking out for the shareholders. They've criticized self- dealing and nepotism. Winnick's private investment company, the Pacific Capital Group, leases office to Global Crossing. Relatives of top management were given jobs and business. David Archer, Global Crossing's former director of Global advertising, says perks were common. He was told to help arrange a $14,000 trip to the Ryder Cup, the golf tournament, which Global Crossing cosponsored. DAVID ARCHER, Former Global Crossing Employee: Here was a situation where a senior executive of the company was... was not taking a customer, but was spending company money to bring him and his son-in-law to the Ryder Cup. And that... that is that kind... and nobody thought twice about it, and it was okay. JEFFREY KAYE: For insiders, the really big money came when they exercised stock options. All told, corporate insiders sold their company stock for $1.5 billion. Last May, top executives embarked on a stock selling spree. Cochairman Cook made $12 million, President David Walsh got $8.7 million, and Gary Winnick made $123.5 million. At the time they exercised their options, earnings reports showed wide losses. CHARLES VAN EATON: Now, when they're exercised by companies that are doing well, we don't pay any attention to it, right? But going downhill, everyone at the top had a keen sense that this was it, and they bailed out, left everyone dragging. That's... that's economically and morally questionable. JEFFREY KAYE: Publicly, in the months prior to bankruptcy, Global Crossing executives gave upbeat a**essments about Global Crossing's prospect. ADRIENNE RAGLAND: I certainly told people, hey, we're going to turn it around. I'd heard that we're going to turn it around; I know how hard I'm working. JEFFREY KAYE: The word also went through the company that things were on an upswing. Adrienne Ragland, whom we spoke to at a downtown Rochester coffee shop, was a Global Crossing manager. ADRIENNE RAGLAND: At the same time everybody else believes in it, the top executives were not believing in it. JEFFREY KAYE: They were selling. ADRIENNE RAGLAND: They were selling. JEFFREY KAYE: The company, which needed regulatory approval for many of its deals, was a major political contributor. Global Crossing and its executives gave more money than Enron to federal candidates-- $3.5 million since 1998. 55% of the total went to Democrats, 45% to Republicans, according to the Center for Responsive Politics. Also, both former president George Bush and current Democratic National Committee chair terry McAuliffe made millions from Global Crossing's stock. The former president was paid in stock for a speech. McAuliffe, a consultant to Winnick, was an early investor. Former Defense Secretary William Cohen became a Global Crossing director when he left government. SPOKESMAN: It's technically a merchant bank. JEFFREY KAYE: Former California Governor Pete Wilson is managing director of Winnick's private bank. And this January, just two weeks before Global Crossing declared bankruptcy, President Bush announced his intention to appoint Thomas Casey, now Global Crossing vice-chairman, to his National Security Telecommunications Advisory Committee. SPOKESMAN: This kind of greed, absolute, unfettered greed-- I don't think it's good for America. JEFFREY KAYE: Today, Congress took its first look at Global Crossing. Members of a House Financial Services Subcommittee questioned CEO John Legere and chief financial officer Dan Coors about the company's accounting practices. Legere blamed a downturn in the telecommunications industry for his company's collapse and for the layoffs of some 9,000 employees. JOHN LEGERE, CEO, Global Crossing: We feel the pain more than I think you understand. It's a very horrible thing that we've had to do, to try to do something that I believe is in the best interest of Rochester, which is to save this company, save the jobs that exist, and hopefully get back to a time when we can grow jobs and bring new jobs back into Rochester. JEFFREY KAYE: Legere defended his compensation package. REP. STEPHANIE TUBBS JONES, (D) Ohio: How much did you receive to become the CEO of Global Crossing? JOHN LEGERE: I think my salary is public information. REP. STEPHANIE TUBBS JONES: I ask you, what did you receive, sir? JOHN LEGERE: My salary is $1.1 million a year. REP. STEPHANIE TUBBS JONES: And you received a signing bonus, also, sir? JOHN LEGERE: I had a $3.5 million signing bonus. There is a difficulty in trying to understand the complexities of a chief executive officer in a turnaround situation of a major telecommunications company, and to believe that those sk**s are translated to having anybody who could come in and play that role is an understatement of the complexity of the task that we faced. JEFFREY KAYE: Members of Congress also quizzed the Global Crossing executives about a controversial financial practice that critics say artificially inflated the value of the company. The transactions are known as "swaps." Telecom companies, including Global Crossing, traded rights to use each other's networks, boosting the companies' sales and earnings figures. The Global Crossing executives denied any improper accounting, and Legere said he hopes a viable, slimmed-down company can emerge from bankruptcy. JOHN LEGERE: The reality is that thousands of our employees continue to operate the real Global Crossing. Today, Global Crossing has over 85,000 customers-- corporations, governments, a**ociations, and organizations-- in over 200 cities in 27 countries who transmit voice and data over our global network. Every day, our employees keep coming to work, keep helping customers keep the data moving, and keep their spirits high. JEFFREY KAYE: Legere's optimism is reminiscent of a**urances Gary Winnick offered in 1999. GARY WINNICK: We're not going to be the Flying Walendas in the business. WE have a big responsibility to our shareholder base and to our employees. And, uh, we're never going to violate that. JEFFREY KAYE: Whether or not they did violate that responsibility is now the subject of more than 30 lawsuits, as well as investigations by Congress, by the FBI, and by the Securities and Exchange Commission.