High-speed communications network operator Global Crossing Ltd., which filed for bankruptcy last week, Monday said it would form a special committee of independent directors to review a former employee's allegations of improper accounting.

Hamilton, Bermuda-based Global Crossing said the committee will retain independent counsel and an accounting firm other than Andersen, the company's regular accountants, to review the matter.

It also said the Securities and Exchange Commission had asked it to turn over certain corporate documents and a letter sent by the former employee setting out the allegations. Global Crossing said it had complied.

The company disclosed the former employee's allegations, and denied them, last week.

Global Crossing filed for bankruptcy on Jan. 28 in the fourth-largest corporate insolvency in U.S. history and the largest failure yet in the battered telecommunications sector. Two of its Asian business partners agreed to pay $750 million to assume control of the company.

EMPLOYEE QUESTIONS ACCOUNTING, ASKS FOR MONEY

Global Crossing last week said Roy Olofson, a former vice president of finance, wrote a letter in August alleging that the company's accounting practices had boosted revenues artificially.

Olofson alleged that it was improper for the company 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. It said he previously threatened to sue the company and has been attempting to negotiate a settlement. Global Crossing said it had refused to agree to his demands.

Olofson's attorney later wrote a draft complaint elaborating on the allegations and added a new allegation that the company had delayed the announcement of a downward revision of its 2001 financial guidance because of stock transactions entered into by senior Global Crossing executives.

Global Crossing denied the additional allegations.

Global Crossing fired Olofson on Nov. 30, 2001, as part of a move to cut 1,200 jobs. Earlier in the year it cut 2,000 workers.

The company said that on Jan. 18 it received a new letter from Olofson containing renewed threats to sue for wrongful termination unless a multimillion-dollar payment was made to him by Feb. 1, 2002.

Olofson's attorney strongly denied that.

"Did we threaten to sue them? Yes. Are we going to sue them? Yes," Paul Murphy, an attorney with the law firm of O'Neill, Lysaght & Sun in Santa Monica, California, told Reuters in a telephone interview Monday.

"The fact that they view it as extortion is irrelevant. It can only be extortion if they believe they have something to hide," he said.

Murphy, who alleged Global Crossing fired Olofson because of his accounting allegations, said the law firm was poised to file a law suit against Global Crossing very shortly, perhaps by the end of the week.

HEIGHTENED SENSITIVITY

Global Crossing said that its bankruptcy and recent events outside the company had "created a heightened sensitivity to any alleged accounting improprieties." As a result, at the end of January it told Andersen and its audit committee of the existence of the former employee's allegations.

Global Crossing's losses and stock fall mirror problems throughout the telecommunications sector. Network operators such as Qwest Communications International Inc. and WorldCom Inc. also have struggled as wholesale prices have plunged and business customers have cut back on technology spending in the weak economy. Last week McLeodUSA Inc. also filed for bankruptcy.

Global Crossing struggled with the debt incurred from building its global network, which links more than 200 major cities in 27 countries. The one-time Wall Street darling also suffered from a glut of fiber-optic network capacity, slack demand, and declining rates for voice and data transmission services, particularly on its undersea routes.

Global Crossing's Chapter 11 bankruptcy filing followed similar filings by energy trading giant Enron Corp. and retailer Kmart Corp., both of whose accounting practices have been called into question.

Stocks of long-distance network operators sank last week amid fears that additional companies would file for bankruptcy. In recent days, Williams Communications Group Inc. and Level 3 Communications Inc. said they do not plan to file for bankruptcy.