The Wall Street Journal has reported that the Securities and Exchange Commission will not file securities charges against former Global Crossing Chairman Gary Winnick or fine him $1 million.
The Journal, which cited people familiar with the matter, reported that SEC Chairman William Donaldson said that Winnick was a nonexecutive chairman who had not signed off on the disclosures involving a series of questionable transactions.
The disclosures were inadequate, and Winnick had agreed to pay the $1 million fine as part of a settlement agreement. According to the Journal's sources, however, Donaldson joined with the two Republican commissioners to reject a staff recommendation to file charges against Winnick.
Global Crossing, which sold fiber-optic capacity, filed for bankruptcy in January 2002 when it faced $12.4 billion in debt. It has emerged from bankruptcy, but its finances are still shaky, the Journal reported.
In the SEC's two-year investigation of Global Crossing, no evidence of fraud or insider trading turned up, but the probe revealed that executives did not provide regulators with correct disclosure about so-called swap transactions. Those deals involve telecom companies trading equal amounts of fiber-optic capacity and booking the sale as revenue and the purchase as a capital expense.
The SEC decided the accounting for the transactions was improper, but was not done with the intent to commit fraud and did not have a material effect on the company's finances.
At last Thursday's closed-door meeting, sources told the Journal that SEC enforcement lawyers argued that Winnick developed the swap transactions as a way to meet revenue expectations. While he was a “nonexecutive” chairman, he was involved in major business decisions. Donaldson, however, did not believe Winnick's involvement warranted civil charges being filed against him.
Insiders at the SEC say they are angry that Donaldson turned down the settlement when Winnick was willing to agree to the charges and pay a fine, Journal sources said. Some are worried that the SEC's decision may be sending executives the message that they can avoid legal problems by saying that they were unaware of wrongdoing.