Copyright 2002 Gannett Company, Inc.
Enron backlash on Capitol Hill ensnares the telecommunications industry today with the first congressional hearing into Global Crossing's accounting.
Global Crossing executives, with officials from Qwest Com- munications, Cable & Wireless and WorldCom, are expected to be grilled about Global's network swaps. Such deals enabled Global to swap capacity with other carriers.
The deals have been criticized because the cash received counted as revenue, while the amount it spent was considered a capital expense that didn't eat into operating earnings. The accounting of such deals has now spurred probes of Global, which filed for bankruptcy protection on Jan. 28, by the Securities and Exchange Commission and the FBI.
Rep. Sue Kelly, R-N.Y., chairman of the House Financial Services oversight and investigations panel, says Global executives "need to talk … openly and honestly, because they were at the helm when employees and investors were victimized."
* Global Crossing: Chief Financial Officer Dan Cohrs will discuss accounting for swaps, as well as their role in building the industry, people familiar with his testimony say. He also will discuss how audit firm Arthur Andersen and the company accounted for swaps. CEO John Legere is expected to testify about market forces that led to the industry's meltdown.
* Qwest. Afshin Mohebbi, Qwest's president, will testify. Qwest also faces an SEC probe. It has been asked by the panel about its swaps with Global and how it books revenue from network sales in general. Qwest says its accounting is proper.
* WorldCom. WorldCom general counsel Michael Salsbury is expected to say that WorldCom bought and sold capacity in transactions last year with Asia Global Crossing, which is majority-owned by Global.
But Salsbury also will say the deals are different than the swaps being scrutinized, because WorldCom accounted for them differently and more conservatively. Its 2001 capacity sales amounted to about $ 25 million in revenue.
* Cable & Wireless. A lawsuit by a former Global Crossing employee cites a swap between Global and Cable & Wireless. The employee alleges such swaps improperly inflated revenue, misleading investors. The lawsuit does not allege wrongdoing by C&W. It says that buying and selling network capacity is normal business. Andrew McGrath, a division president, will testify.
The hearing also aims to determine whether a bill sponsored by the committee's chairman, Rep. Michael Oxley, R-Ohio, will prevent another Enron or Global Crossing.
That legislation, among other things, tries to ensure auditor independence, a public oversight board for accounting and greater SEC funding.