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    Adjuster Fraud Investigation Checklist Essay

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    Fraud Investigation: Global Crossings Limited Fraud Case


    This paper will provide an in in-depth analysis of the Global Crossings Scandal of 2002, and will provide information regarding to Global Crossing’s background, the responsible parties of the scandal, the fraud committed by Global Crossing, the financial impacts of that fraud, laws that may or may not have been broken, how the fraud was uncovered and the outcome of the investigations. For clarification on abbreviations in this paper, the Securities and Exchange Commission will be abbreviated to SEC. Initial Public offering will be abbreviated to IPO, and the Generally Accepted Accounting Principles will be abbreviated to GAAP. The term “Dot Com” used in this paper references the economic boom associated with the adaptation of the internet between the late 1990’s and early 2000’s.


    Global Crossings Limited was founded in 1997 by Gary Winnick as a telecommunications firm which provided a large international internet network and strived to build a 100,000-mile fiber optic network to connect 27 countries. In its first year, the company gained $35 million from investments when it went public, including $20 million from Winnick (Stern, 2002).

    Between when the company went public in 1998 and 2000, Global Crossings acquired a multitude of other corporations in multi-billion dollar purchases including Global Marine Systems, Frontier Communications and Rochester Telephone Corporation (Stern, 2002). It formed joint ventures valued in the billions with large tech companies such as Softbank and Microsoft, and in 2000 even attempted the rescue of the Kursk during the Kursk submarine disaster.

    During this time, the Global Crossings relied heavily on investments and loans to complete its massive projects and international deals. Its share prices climbed to $60 a share in 2000 compared to the 1998 IPO amount of $19 a share, making Global Crossings Limited one of the most lucrative companies to invest in.

    However, between 2000 and 2002, the company began to lose billions in revenue and in the 4th quarter of 2001, the company lost $3.4 billion (O’Brian). In January of 2002, the company filed bankruptcy with assets listed at $22.4 billion and debts at $12.4 billion, making it the 4th largest bankruptcy in history.

    Responsible Parties

    A year before Global Crossing declared bankruptcy, Chairman and founder Gary Winnick sold 10% of his stock worth $123 million, and then a month before the bankruptcy resigned from his position and sold 25% of his stock worth $734 million. Witnesses say Winnick saw a projection of decreased revenues, but Winnick says he had no knowledge of this information (Stanwick, 2003).

    Other executives including Global Crossings CEO from 2000 to 2001 Thomas Casey, CFO from 1998 to 2003 Dan Cohrs, and Executive Vice President from 2000 to 2002 Joseph Perrone (Securities and Exchange Commission, 2005) sold a combined $900 million worth of stock before the bankruptcy.

    Fraud Committed

    In the years leading up to the bankruptcy, the SEC had been interested in Global Crossing. Global Crossing had been expanding at an exponential rate, spending tremendously, and accumulating a large amount of debt even as the Dot Com era was winding down and similar telecommunication companies were faltering heavily. When the company sought Chapter 11 protection, the FBI and SEC began investigating openly. While the FBI would file no charges against any of the Global crossing executives, the SEC would find what attributed to such a financial disaster.

    The SEC found that Global Crossing operated in swap deals and insider trading in an attempt to misrepresent the company’s financial health. It was found that the company would not report revenue on their exchanges between telecommunications carriers’ restatements, as is required in Accounting Principles Bulletin No. 29. This failure to provide investors information about swap deals, which Global Crossing initiated with other telecommunications companies, gave the appearance of increased revenue. The SEC said the actions were not in accordance with GAAP (Stanwick, 2003).

    However, when you look at the definition of fraud, it states “The intentional misrepresentation of a material fact” and “Deceit, trickery, sharp practice, or breach of confidence, perpetrated for profit or to gain some unfair or dishonest advantage” (Dictionary, 2018). When applied to the Global Crossing scandal, Global Crossing executives intentionally misrepresented their revenue in order to hold on to current investors and to appear as a healthy, financially stable, growing company to invest in. This misled investors and Global Crossing used them to artificially keep the company afloat, even though executives knew that the company was struggling amid the end of the Dot Com boom. This is evident by executives unloading billions worth of shares in the year leading up to the bankruptcy for personal enrichment at the expense of their investors and employees, which leads into the next major violation that the SEC found: insider trading.

    The insider trading at Global Crossing was evident, as founder Gary Winnick and executives sold over a billion dollars’ worth of shares leading up to the collapse of Global Crossing. Winnick and the executives had access to information about the company not available to the public and acted on them.

    Insider trading is defined by the SEC as “buying or selling a security, in breach of a fiduciary duty or other relationship of trust and confidence, on the basis of material, nonpublic information about the security” (U.S. Securities and Exchange Commission, 2018). According to the definition of insider trading, Global Crossing executives did commit insider trading due to them acting on information that was not publicly available for personal financial gain at the expense of investors and employees.

    Global Crossing executives knew that the company was in financial trouble and knew that their public financial statements were inflated to show increased revenue when in fact, Global Crossing was at a deficit and outspending itself greatly. It is unclear why no criminal charges were filed for this. The FBI may not have had enough information to prove beyond a reasonable doubt, or the financial and fraud laws in place at the time may not have been adequate enough for a case like this.

    Financial impacts

    In the months leading up to the bankruptcy and when the bankruptcy hit, the price of Global Crossing’s stock fell from $60 a share to 7 cents. 8,000 Global Crossing employees lost their jobs, and many employees lost their 401(k) funds. Investors were left with nothing when the stock bottomed out, resulting in a combined loss of $49 billion for investors (Hopkins, Krantz, 2002).

    The New York pension fund alone lost $63 million as a result of the collapse, and the telecommunications market as a whole lost 500,000 jobs and $2 trillion in market capitalization as a direct result of Global Crossing’s bankruptcy (Subcommittee on Oversight and Investigations, 2002.). This tremendous loss

    Laws Violated

    While Global Crossing executives were fined by the SEC for accounting violations, no charges were brought against Global Crossing executives by the FBI or any other government agency. The only Global Crossing employee charged by the FBI during this scandal was a worker who was laid off during the bankruptcy, and then threatened to kill Global Crossing executives online and release personal information of 2,000 employees (Romero, 2002.).

    As stated earlier, it was found by the SEC that Global Crossing only violated GAAP, the generally accepted accounting principles, and that violating GAAP is not a violation of law.

    Breaking news/Investigation

    In late February of 2002, a month after Global Crossing filed for bankruptcy, a former executive named Roy Olofson blew the whistle on the company’s fraudulent accounting practices. Olofson was summarily fired from Global Crossing and filed a defamation suit against company officers and directors. He would cooperate with the FBI, SEC, and congressional investigators.

    The FBI would not file any formal charges, nor would anything come from the congressional investigation. The SEC, however, would end up settling with three Global Crossing executives by the names of Thomas Casey, Dan Cohrs, and Joseph Perrone, ordering them to cease and desist from causing any violations and any future violations of Section 13(a) of the Exchange Act and Rules (Securities and Exchange Comission, 2005), and also pay $100,000 each to a parallel civil suit.


    In the end, Former executives including founder Gary Winnick settled a class action lawsuit by former employees and investors for a total of $325 million. Also ordered to pay in the lawsuit was Global Crossing’s law firm, Simpson Thacher & Bartlett (Morgenson, 2004). They were ordered to pay $19.5 Million.

    Investors who bought shares in Global Crossing beginning in 1999 received $245 million, while former employees received $80 million (Morgenson, 2004). That is roughly $10,000 per employee, a tiny amount when compared to lost 401(k)s and company issued stock, like the $63 million loss in the New York Pension Fund and the $110 million lost in Public Employees and State Teachers’ Retirement System of Ohio pension funds (Morgenson, 2004). The executives and involved parties never admitted to fraud or any wrongdoing throughout the scandal.

    However Gary Winnick, founder of Global Crossing and who made a $734 million profit right before the company collapsed, created a $25 million fund for Global Crossing employees who lost money in investing in the retirement plan (Morgenson, 2004). That would be an additional $3,125 for workers who lost their retirement plans, totaling $13,125 per worker from Global Crossing.

    No criminal charges were filed, and Global Crossing returned from bankruptcy in 2003 with new executives. The company attempted to continue to operate with half of its original employees and the public reluctant to invest after the scandal, until it eventually was bought out by Level 3 Communications in 2011 for $3 billion.


    1. Dictionary. (2018). Fraud. Retrieved from
    2. Morgenson, Gretchen. (2004). Global Crossing Settles Suit on Losses. The New York Times. Retrieved from
    3. O’Brian, Timothy. (2004). A New Legal Chapter for a 90’s Flameout. New York Times. Retrieved from
    4. Romero, Simon. (2002). Ex-Global Crossing Worker Arrested by FBI. New York Times. Retrieved from
    5. Securities and Exchange Commission. (2005). Order Instituting Cease-and-Desist Proceedings, Making Findings, and Imposing a Cease-and-Desist Order Pursuant to Section 21c of the Securities Exchange Act of 1934. United States of America Before the Securities and Exchange Comission. Retrieved from
    6. Stanwick, Sara. Stanwick, Peter. (2003). Global Crossing. Auburn University. Retrieved from
    7. Stern, Christopher. (2002). Global Crossing Files for Bankruptcy. The Washington Post. Retrieved from
    8. Subcommittee on Oversight and Investigations. (2002). The effects of the Global Crossing Bankruptcy on investors, Markets, and Employees. Retrieved from
    9. United States District Court, S.D. New York. (2004). In re Global Crossing, Ltd. Retrieved from
    10. U.S. Securities and Exchange Commission. (2018). Insider Trading. Retrieved from

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