A brief history/outline.
In 2002, a huge corporation filed for Chapter 11 bankruptcy, despite announcing continual huge company growth the prior year. The company, who was audited by Arthur Anderson, is in the process of denying accounting irregularities. The company fat cats or executives have made a fortune despite the recent bankruptcy and the invested employees/shareholders have suffered major financial losses. Who is the company? You would not be alone in immediately thinking of Enron and the scandal that involved Key Lay, also in 2002. However, the correct answer would be Global Crossing, a 5 year old company founded by Gary Winnick in 1997.
The Rise of Global Crossing.
As mentioned in the introduction of this paper, from the outside facts of the downfall of Global Crossing, you could confuse the case involving Enron with Global Crossing, but why? At their peaks both Lay and Winnick were apart of corporations who were the bar setters in their respective industries. They used their millions for their own lavish lifestyles, for charities and for infamous investing in political campaigns, only to see their nest eggs fall out of the tree quicker than you can say 'Houston, we have a problem.' We all know the rise and fall story of Enron, but little media spotlight has been put onto the lesser known rise and fall of Global Crossing, so I present to you, my paper. The year is 1997 and furniture salesman Gary Winnick, a former Drexel Burnham employee, has just been offered a project by AT&T to construct and maintain a new undersea cable that shall link the U.S and Europe more than ever. The catch being that Winnick had to raise $750 million by him. AT&T would construct the cable and become a client to Winnick. Such a task would faze more than the average man but Winnick came up with the $750 million in just 90 days, $15 million financed by him and so Global Crossing was born. We fast forward two years to 1999. In between the years of Global Crossing's birth and 1999, Global Crossing has gone public with a starting price of $9.50 a share, sounds like nothing out of the ordinary. That is until you come to realise that such a starting price has exploded to $60 per share, boosting Winnick's personal fortune of over $1 billion in a mere 18 months, which is faster than even Bill Gates. The year 2000 was a show of growing financial strength for Global Crossing and Winnick. The most publicized showing was Winnick's decision to move operations to the Beverly Hills offices, in which Winnick remodelled the building insides to represent an Italian Villa, as well as Winnick replicating the Oval Office at the White House for his own personal office. More in terms of direct business operations and in a bid to interact with customers on a more global scale, Global Crossing moved to acquire IXnet and IPC. The following year Global Crossing again appeared to be on the up in what would be arguably their most successful year of them all. The company claimed to be fully an operational network that spanned around the world in 27 countries and their aim of becoming a fully global network was seen to be becoming a reality. Their local exchange carrier was sold for $3 billion and merger talks were emerging between Global Crossing's Asian counterparts, which would in theory create 'a nearly seamless network throughout the world,' sounds like a plan doesn’t it. The Fall of Global Crossing’s.
The date is January 2002 and Global Crossing has filed for Chapter 11 Bankruptcy, with debt of $12.5 billion dollars. The obvious question is, how? The true reason for such a downfall to me is somewhat unclear to pin point, but from my research I have been able to narrow down what I think were the 3 leading causes of Global Crossing's financial problems. The first is one that actually affected the Telecom industry as a whole, and that was the rapid change in technology that occurred early in the new millennium. This meant that for those...
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