Global Crossing
Company Background
Global Crossing Limited (GC) is an example of what may occur when there are failures to properly audit financial statements and internal controls. This scandal happened around the same time as the Enron scandal. In early 2002, the GC bankruptcy was the fourth largest in the U.S. history. In 2005, it settled with the SEC, having been determined that it did not comply with numerous accounting laws.
ABOUT THE COMPANY
GC, founded in 1997 by Gary Winnick, was a telecommunications company with broad ambitions to rapidly expand its telecommunication services throughout the world. It was headquartered in Bermuda, but operated primarily in the United States. In 2000, the wholesale market for bandwidth began to soften. Insufficient revenue to pay the massive debt they had accumulated to build their costly networks/huge infrastructure. In fact, GC has never reported annual profit since its creation, and by the first quarter of 2001, cash was running short. It filed for protection under Chapter 11 of the U.S. Bankruptcy Code, making it the biggest flameout of the telecom bust so far and the fourth-largest bankruptcy in U.S. history.
Key Players:
Gary Winnick, age 54, a native of New York, who had no particular expertise with the telephone industry. Instead, he was a veteran of Wall Street junk bond trading and he used his Wall Street connections to raise the funding for GC. Although the endeavor proved to be unsuccessful, Winnick did not suffer financially. Through timely stock sales, he earned $750 million in less than 5 years, sufficient to construct one of the most expensive homes in the nation 's history.CITATION Ala \l 1033 (Alan V. Funk, 2012)Joseph Perrone was the former executive vice president of finance and former outside auditor for 31 years with Arthur Andersen & Co. Though it is common for outside auditors to jump ship and go in-house at the companies they audit, Perrone 's move was unusual because he was so highly placed at Arthur
Global Crossing Limited (GC) is an example of what may occur when there are failures to properly audit financial statements and internal controls. This scandal happened around the same time as the Enron scandal. In early 2002, the GC bankruptcy was the fourth largest in the U.S. history. In 2005, it settled with the SEC, having been determined that it did not comply with numerous accounting laws.
ABOUT THE COMPANY
GC, founded in 1997 by Gary Winnick, was a telecommunications company with broad ambitions to rapidly expand its telecommunication services throughout the world. It was headquartered in Bermuda, but operated primarily in the United States. In 2000, the wholesale market for bandwidth began to soften. Insufficient revenue to pay the massive debt they had accumulated to build their costly networks/huge infrastructure. In fact, GC has never reported annual profit since its creation, and by the first quarter of 2001, cash was running short. It filed for protection under Chapter 11 of the U.S. Bankruptcy Code, making it the biggest flameout of the telecom bust so far and the fourth-largest bankruptcy in U.S. history.
Key Players:
Gary Winnick, age 54, a native of New York, who had no particular expertise with the telephone industry. Instead, he was a veteran of Wall Street junk bond trading and he used his Wall Street connections to raise the funding for GC. Although the endeavor proved to be unsuccessful, Winnick did not suffer financially. Through timely stock sales, he earned $750 million in less than 5 years, sufficient to construct one of the most expensive homes in the nation 's history.CITATION Ala \l 1033 (Alan V. Funk, 2012)Joseph Perrone was the former executive vice president of finance and former outside auditor for 31 years with Arthur Andersen & Co. Though it is common for outside auditors to jump ship and go in-house at the companies they audit, Perrone 's move was unusual because he was so highly placed at Arthur
Bibliography: Berman, D. K., & Solomon, D. (2002, Feburary 12). GC 's Use of Swaps To Boost Revenue Wasn 't Unusual. Retrieved December 14, 2013, from wsj.com: http://online.wsj.com/news/articles/SB1013557879590019920 Brown, K. (2002, Feburary 21). Creative Accounting: Four Areas To Buff Up a Company 's Picture. Retrieved December 15, 2013, from THE WALL STREET JOURNA: http://webpage.pace.edu/pviswanath/articles/aeg4e43/finstat/creative.html Golden, T. W., Skalak, S. L., & Clayto, M. M. (2006). A Guide to Forensic Accounting Investigation. Hoboken: John Wiley & Sons, Inc. Granelli, J. S. (2002, June 23). GC Is Accused of Shredding Documents. (Los Angeles Times) Retrieved December 15, 2013, from latimes.com: http://articles.latimes.com/2002/jun/23/business/fi-global23 The Good Auditor-Skeptic or Wealth Accumulator? Ethical Lessons Learned from the Arthur Andersen Debacle. (2005). Journal of Business Ethics, 57(1), p17-29. Retrieved December 13, 2013, from http://p3333-web.ebscohost.com.linkingservices.exlibrisgroup.com.proxytest.sdsu.edu/ehost/detail?sid=06d4ce2a-9e50-4688-9f23-4a14a04a593e%40sessionmgr4005&vid=1&hid=4209&bdata=JnNpdGU9ZWhvc3QtbGl2ZQ%3d%3d#db=buh&AN=17175244 Famous Financial Frauds in Bankruptcy. Alan V. Funk, Gil A. Miller, Burk W. Reynolds. GLBC 10-K. March 6, 2005 & 2006 “Major Financial Reporting Frauds of the 21st Century: Corporate Governance and Risk Lessons Learned”, Hugh Grove & Elisabetta Basilico* “Journal of Forensic & Investigative Accounting”, Vol. 3, Issue 2, Special Issue, 2011 GC Investigation, www.fraudlaw.org