- The chairman of Enron, Kenneth Lay, sold $108 million
of Enron stock before the company filed for bankruptcy, making himself
and his cronies rich, but leaving thousands of employees angry and out
of pocket.
-
- But according to Fortune magazine, Lay's clean-up is
nothing compared to the gluttony of Gary Winnick, founder and chairman
of fibre-optic network operator Global Crossing.
-
- Global filed for Chapter 11 bankruptcy protection in
January when it emerged that the company had debts of up to $12.4 billion.
It was the fourth-largest Chapter 11 case in US history.
-
- Winnick was largely blamed for the company's downfall
and is now scrambling to prepare a reorganisation plan to rescue Global,
while trying to retain its independence. Global Crossing has until September
16 to submit the plan to US bankruptcy judge Robert Gerber before the `period
of exclusivity' runs out.
-
- Winnick is considering investing up to $100 million of
his own money to resuscitate the telecoms services company. He is also
believed to have approached numerous private equity firms in an effort
to generate funds of up to $1 billion.
-
- Winnick founded Global Crossing in 1997, having no previous
experience in the telecoms industry.
-
- After graduating from a local New Jersey college, Winnick
started work as a furniture salesman. He joined investment bank Drexel
Burnham Lambert in the early 1970s, working on bond sales. He was transferred
to the group's West Coast branch, where he met colleague Michael Milken.
-
- Milken is reputed to have launched the $200 billion junk-bond
market in the early 1980s in the US. His indictment on charges of insider
trading in 1990, brought about the collapse of Drexel Burnham Lambert and
tainted the junk-bond name.
-
- Winnick went on to set up his own investment firm, Pacific
Capital Group, in Los Angeles. Pacific had holdings in property, financial
services, healthcare and biotechnology, and a consulting firm called PCG
Telecom.
-
- Winnick and his associates were keen to invest in the
telecommunications industry, and it has been alleged that they based Global
Crossing on an idea hatched by somebody else.
-
- According to Fortune magazine, Bill Carter and Wallace
`Wally' Dawson of AT&T outlined a plan to lay a fibre-optic cable beneath
the Atlantic Ocean. This would provide high-capacity connections between
the US and Europe, which would handle soon-to-boom internet traffic and
increase international business.
-
- AT&T sold its submarine unit in 1996, and Winnick
cherrypicked the employees left behind for the Global operation.
-
- Within the first year, Winnick had gathered $20 billion
for the venture and won over clients including AT&T, WorldCom, Deutsche
Telekom and British Telecom.
-
- The company went public in 1998, valued at $38 billion,
and by February 2000 Global's market valuation stood at $47 billion.
-
- Winnick went on a shopping spree, buying up long-distance
provider Frontier for $11.2 billion and bidding $37 billion for US West,
which it lost to Qwest. He also bought a $90 million estate in Bel Air
in California.
-
- That is when things began to turn sour for Winnick.
-
- As the internet phenomenon began to implode, the demand
for broadband withered. The value of Global's stock plummeted from $61
to $16 within days. By last December stock was trading at $1 a share.
-
- "[Global] raised more capital than it needed and
built a network with more capacity than the world demanded," according
to Fortune. "By the time Global Crossing collapsed, its long-term
debt had ballooned to $7.6 billion (total liabilities were $14 billion),
and it simply didn't have the cash to make its interest payments."
-
- But Winnick had already made his fortune by then. He
cashed in $735 million of stock and had received $10 million in salary
and benefits. His cronies sold $4.5 billion in stock and his co-chairman
sold $36 million in stock before the bust. Underwriters at Salomon Smith
Barney and JP Morgan Chase also made millions for pumping up the stock
while Global dumped it.
-
- Winnick also owned Global's headquarters building in
Beverly Hills, receiving $400,000 a month in rent from his own company
and almost $4 million in renovation fees.
-
- It also emerged that Winnick and four others comprised
PCG Telecom and that they received 2 per cent of Global's revenues for
advising Global on development and marketing strategies.
-
- Global's shock downfall prompted shareholder suits alleging
securities fraud and alerted agencies including the FBI and the Securities
and Exchange Commission to its financial documents.
-
- Former US president Bill Clinton was implicated by Judicial
Watch -- allegedly a Clinton foe -- as having ties with Global.
-
- Clinton is believed to have enjoyed an occasional round
of golf with Winnick, and was accused last month of accepting a $1 million
donation for his presidential library from Global in exchange for ignoring
its "pump and dump" scheme.
-
- Global is based in Bermuda, but operates out of offices
in New Jersey. It plans to shut 217 offices by the end of the year and
trim expenses to $900 million from $1.55 billion last year. It has also
announced plans to sell off assets including a British fibre-optic network
and Global Marine, as well as its conferencing business.
-
- With the global economy still shaky and investors uncertain,
Winnick will find the crawl back to safe ground a tough one.
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- Additional reporting by Bloomberg
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