Even as the government looks for evidence of accounting fraud at the troubled communications company Global Crossing, some analysts are shaking their heads over the apparently legal ways the company's executives were able to walk away with personal fortunes.
No one did better than Gary Winnick, a former executive at Drexel Burnham Lambert who founded Global Crossing in 1997, took it public the next year and sold shares worth $734 million before the company collapsed.
Global Crossing's creditors may be lucky to get pennies on the dollar. Many employees lost significant parts of their 401(k) funds. And anyone still holding shares has a stock that closed at 7 cents on Friday. The shareholders include Mr. Winnick, who has 75 percent of his original holdings, a stake now worth just $5 million.
But he, like other executives, made millions from the company and its stock before the telecommunications recession took down Global Crossing and many other start-ups. Mr. Winnick declined a request for an interview.
The Global Crossing saga resembles another corporate collapse -- Enron -- in that executives did well while many employees and small investors did not.
Despite investigations by the Securities and Exchange Commission and the F.B.I., so far Global Crossing executives have not been accused of wrongdoing. Even so, in the view of one analyst, the outcome raises serious questions about corporate management.
Thanks for reading The Times. Subscribe to The Times ''What they did is not a crime, but it so thoroughly favors corporate insiders,'' said Nell Minow, the editor of the Corporate Library, a corporate watchdog Web site, who first raised questions about Global Crossing's management practices two years ago. ''I have no objection when shareholders make money, too,'' she said, ''but this turns investment in a public company into a shell game.''
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During the Internet boom, Global Crossing, which operates a global fiber-optic network for the transmission of phone calls and Internet data, was a Wall Street favorite. Mr. Winnick's first windfall came in June 1999, after U S West, a regional Bell company had agreed to be acquired by Global Crossing.
After receiving a rival offer from Qwest Communications, U S West backed out of the Global Crossing deal. As a penalty, U S West was required to buy 10 percent of Global Crossing's shares at a slight premium to the market price. Mr. Winnick, who held 100 million shares, options and warrants at the time, sold 5.6 percent of his stake at U S West's offered price of $62.75 a share, netting him $350 million.
Global Crossing's ambition -- to build a 100,000-mile fiber-optic network linking 27 countries -- was an expensive proposition. By the spring of 2000, with the air already escaping from the Internet bubble, Global Crossing's shares were trading in the low 30's. As the company sought to raise additional money in April 2000 through a secondary stock offering, Mr. Winnick sold 8.1 million shares for $261 million.
Mr. Winnick, though, did not make money only by selling stock. He also received stock options, a salary and a bonus as the company's chairman, during a mercurial reign in which he hired and fired five chief executives in five years.
In 2000, Mr. Winnick drew a salary of $785,833, a bonus of $1.03 million and other payments of $57,000. That same year Mr. Winnick, or companies he controlled, owned 78.9 million shares of Global Crossing stock as well as 8.56 million options, totaling 9.78 percent of the company, according to its S.E.C. filings.
''His pay was not egregiously high by American corporate standards,'' said Graef Crystal, the well-known compensation expert.
But Ms. Minow, of the Corporate Library, argues that Mr. Winnick's huge stake of stock ownership should have been incentive enough for him to run the company, with no need for additional compensation. She also criticized Global Crossing's practice of leasing offices and airplanes from companies that were managed or controlled by Mr. Winnick.
Through a spokesman, Mr. Winnick said that the deals were the result of arms-length negotiations.
''They had very short arms,'' Ms. Minow said, when told of the comment. ''In fact, it sounds more like a bear hug to me. It is just more reaching into the cookie jar.''
''It perpetuates an atmosphere of cronyism and clubbishness,'' she said, ''that makes it easy for board members to forget that they are there on behalf of shareholders.''
And it did not require being in the club for long to reap the benefits. Robert Annunziata became chief executive in 1999 and lasted only a year, but his employment contract indicates that it was a lucrative stint.
Mr. Annunziata received a signing bonus of $10 million and two million options, with a strike price $10 below where the stock was trading at the time. In arranging the deal, Ms. Minow said, Mr. Annunziata was ''saying that he thinks the stock will decline and so he doesn't want to be hurt as badly as everybody else.''
Others who benefited were former associates of Mr. Winnick's from his days in the 1980's as a former sales executive at Drexel Burnham Lambert under Michael R. Milken. Jay R. Bloom, Andrew R. Heyer and Dean Kehler, all former Drexel bankers, were instrumental in providing Global Crossing with $35 million in financing before the company went public, after they moved to the Canadian Imperial Bank of Commerce.
C.I.B.C., based in Toronto, made roughly $2 billion on the investment, making it one of the most profitable bets by a financial institution in the 1990's. The investment is also thought to have generated millions of dollars for Mr. Bloom, Mr. Heyer and Mr. Kehler, who came to C.I.B.C. after it acquired their investment firm, the Argosy Group, in 1995.
For Mr. Winnick personally, even as the stock was falling last year, was able to lock in profits -- as he did in May with a deal to sell 10 million shares to Goldman, Sachs at $12 each, even if the price went lower. At the same time, David A. Walsh, the president and chief operating officer of Global Crossing, sold over 670,000 shares in May for $8.7 million.
And last October, when the stock first dipped below $1 a share, the company agreed to forgive two-thirds of a $15 million loan to its current chief executive John Legere, documents filed with the S.E.C. showed.
As the S.E.C. and the Federal Bureau of Investigation explore whether Global Crossing artificially inflated its revenue -- and thus its stock price -- during the boom times, the fortunes of its top executives and financiers stand in contrast to many Global Crossing employees who have seen their savings evaporate. Just last month, as the company filed for bankruptcy protection, employees who were laid off were told that they would receive no additional payments from their severance packages, and that they would have to stand in line behind other creditors.
Many current and former employees have lost much of the value of their 401(k) investments because ''the company matched the amount workers put in with Global Crossing stock, and it could not be sold for five years,'' said Linda McGrath, president of Local 1170, the Communications Workers of America. ''A lot of workers made their contribution in stock, because they had faith in their employer.''
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