LOS ANGELES – A former Global Crossing Ltd. executive cooperating with federal investigators probing the high-speed telecommunications network firm's collapse plans to file a wrongful termination lawsuit within the next week, his lawyer said on Wednesday.
Roy Olofson, a former vice president of finance at Global Crossing, cooperated with the Securities and Exchange Commission (SEC), the FBI and several Congressional investigations into the failed company, his Santa Monica-based lawyer, Brian Lysaght, told Reuters.
"We had the lawsuit ready to go before the bankruptcy, but we had to procedurally recast it after the bankruptcy filing," Lysaght said. "It should be filed within a week."
Global Crossing, which filed for bankruptcy on Jan. 28 in the fourth-largest insolvency in U.S. history, has denied Olofson's allegations that it engaged in improper accounting.
But the company said earlier this month the SEC had asked it to turn over documents including a letter that Olofson sent in August that questioned certain business practices.
The FBI has started a separate investigation into the failed company, which stands accused of having used nearly worthless swap transactions -- long-term network capacity lease deals with other telecom companies -- to pump up the value of reported revenues.
Olofson initially voiced concerns about the company's financial practices in meetings with Joseph Perrone, executive vice president of finance and former outside auditor with Arthur Andersen & Co., the Big Five accounting firm currently embroiled in the Enron scandal, Lysaght said.
Olofson was concerned that the company was using aggressive, accounting methods to boost its revenues, his lawyer said.
Lysaght said Perrone responded by threatening Olofson with termination.
"He told Mr. Olofson that ... a list would be created as to which employees would be laid off. He told Olofson to call him on June 6 to find out his status."
Olofson's concerns -- relating to Global Crossing's first quarter 2001 figures -- were contained in a letter to the company dated August 2001 that was disclosed after its bankruptcy.
Shortly after receiving the letter, Global Crossing said it received another letter from an attorney alleging Olofson had been "constructively terminated" and demanding a multi-million dollar payment.
Global Crossing has said Olofson's allegations are "completely without merit" and has described him as an embittered former employee trying to extract a cash settlement.
Furthermore, the company said it did not terminate Olofson until Nov. 30 as part of a substantial workforce reduction.
The company said this month it would form a committee of directors to review Olofson's allegations.
Global Crossing, which controls about one-fifth of the fiber optic capacity leaving the United States, is based in Hamilton, Bermuda, but has maintained an executive office in Beverly Hills. Two of its Asian business partners have agreed to pay $750 million to assume control of the failed company.
SWAP CONTRACTS IN QUESTION
Global Crossing, saddled with debt from building its massive network, allegedly entered into deals to swap capacity on other company's networks using instruments called indefeasible rights of use (IRU).
According to Lysaght, Global Crossing recorded the price paid for such transactions as a capital expense amortized over a few years, but recorded IRU income as revenue, immediately boosting earnings.
"Some of these swaps were totally ridiculous," Lysaght said. "The joke was they were giving up network space for a player to be named later."
Two telecommunications companies that participated in swaps with Global Crossing -- Qwest and Vancouver-based 360networks -- have been asked by the SEC to disclose details of their transactions.
The Canadian company, which had entered into a swap deal with Global Crossing in July 2000 valued at more than $180 million, said on Wednesday that it had received a subpoena from the SEC.
FROM AUDITOR TO INSIDER
Separately, a Global Crossing spokeswoman said securities regulators had questioned, but then cleared, Perrone's move from auditor to company executive.
Perrone joined Global Crossing in May 2000 after serving as a managing partner for Arthur Andersen.
A spokeswoman for Global Crossing said Perrone's move from an auditor to company insider was questioned by the SEC around the time it was preparing for the initial public offering (IPO) of its Asia Global Crossing unit.
In a review of the IPO, it was a routine matter for the SEC to question whether Perrone's hiring "impaired" Andersen's independence as an auditor, said Global Crossing spokeswoman Becky Yeamans.
The SEC and the company were "satisfied that Andersen met the requirements for independence," Yeamans said.