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Corporate scandal: Same story, different company

By ROBERT TRIGAUX, Times Business Columnist

© St. Petersburg Times, published February 17, 2002

His huge company just went belly up.

His huge company just went belly up.

He stiffed most of his employees, whose retirement plans were devastated when the company stock tanked.

He's denying accounting irregularities at his company, which was audited by Arthur Andersen. And he's personally accumulated a fortune in fancy real estate holdings.

I'm not talking about Ken Lay or the highly publicized and sorry goings-on at Enron Corp.

I'm talking about Gary Winnick, who ran a highflying, 5-year-old corporation called Global Crossings into Chapter 11 bankruptcy last month.

Global was the biggest telecommunications company bankruptcy in history. Yet by Enron standards of saturation media coverage, Global's barely registered as more than a footnote.

At first glance, Lay and Winnick appear joined at the hip. They both got immensely rich running companies that claimed to be cutting edge, that poured millions into the campaign coffers of politicians, and that eventually crashed and burned with amazing speed.

But so far, only Ken Lay and Enron have suffered the massive public humiliation and scorn of congressional inquiries. Lay, subpoenaed by a congressional panel last week, took the Fifth and declined to answer questions.

Winnick's time may be coming. The House Energy and Commerce Committee, which is investigating the collapse of Enron, says it's now looking into the Global Crossing scandal.

Whether Winnick mimics Lay and refuses to cooperate remains to be seen.

Winnick's tale of boom and bust, greed and opulence, is a doozy.

Let's go back a mere five years, to 1997, when the economy was still humming and Internet fever was approaching its peak.

Winnick was a furniture salesman who went on to trade junk bonds in the 1980s with Michael Milken at the notorious Drexel Burnham securities house. By 1997, Winnick was in California cutting investment deals as the head of his own small firm. AT&T needed a new undersea cable linking the United States and Europe, but it wanted someone else to finance it.

AT&T's offer: If Winnick could raise $750-million and set up a company to oversee it, AT&T would handle the cable construction and become a customer.

What did Winnick know about the international fiber optic market? Not much. "If I'd known more about the telecom business, Global Crossing would never have happened," Winnick has said.

Timing is everything. Congress had just passed a law that was supposed to deregulate the stuffy telecommunications market. The Internet was exploding as people and corporations worldwide tapped the online phenomenon.

Winnick personally put up $15-million and raised the rest of the $750-million in a mere 90 days. Global Crossing was born.

Demand for bandwidth, which Global Crossing could supply via its growing undersea cable network, seemed infinite. Winnick raised an astonishing $20-billion to lay more cables. By August 1998, Global went public at $9.50 a share. By April 1999, it had hit $60.

As Global's fortunes soared, so did Winnick's.

He reached the $1-billion mark of personal net worth in 18 months. That means he grew wealthier at a clip of about $1.8-million a day.

Within two years, Winnick had amassed an astonishing $4.5-billion.

That unprecedented pace of wealth-building made Forbes magazine drool. Forbes Global put Winnick and Global Crossing on its April 19, 1999, cover. The magazine said Winnick set a "speed to wealth" record. That means he made his billions faster than Henry Ford or John Rockefeller or even Bill Gates.

While Global Crossing ballooned in size, however, chairman Winnick went through five chief executives faster than leased Mercedes.

And there was another tiny little problem. For all its hype, Global never posted an annual profit. In all, it lost an estimated $7-billion.

Global was legally based in Bermuda for tax reasons, but Winnick ran it from posh Beverly Hills offices. Winnick's investment firm bought the ornate former MCA building and installed its name in gold on the green metal gates. Inside the building, which is modeled after an Italian villa, Winnick's office was a replica of the Oval Office at the White House.

To dedicate his posh, new "Global Crossing Plaza" headquarters, Winnick invited California Gov. Gray Davis and other political and business leaders to a ceremony in November 2000. MCA chairman emeritus Lew Wasserman attended and saluted Winnick.

"We sincerely hope that Gary Winnick and his companies will have the same enjoyment with the building that we had for 28 years," Wasserman said.

Not quite. Exactly 15 months later, Global Crossing filed for bankruptcy. Once the dot-com bubble burst and the economy headed into recession, it became clear that the supposedly endless appetite for bandwidth had turned into a glut of unused capacity.

At his financial peak, Winnick was probably the wealthiest individual in Los Angeles. And he lived the part. He bought the old 4-acre Conrad Hilton estate in ritzy Bel Air for a reported $40-million, the highest price ever paid in this country for a single-family residence.

That was just a warmup. He's said to be spending more than $30-million to decorate the mansion, described as "one of the most ornate residences in the world" in a recent Wall Street Journal story.

In e-mails and phone calls, readers of the St. Petersburg Times have asked if Houston's Enron has gotten so much attention from the "liberal media" because of its close ties to George W. Bush (Ken Lay is Bush's No. 1 all-time political contributor) and his Texas-heavy administration. Wasn't Global Crossing just as cozy with Democrats?

At first glance, yes. During the 2000 election campaign, Global Crossing provided a hefty $2.8-million in donations, with 55 percent of it going to Democrats, according to the nonpartisan Center for Responsive Politics. Its contributions even topped those of Enron Corp., which gave $2.4-million during the period.

Last year, Global Crossing contributed $622,270, with 64 percent to Democrats.

Terry McAuliffe, now the chairman of the Democratic National Committee, was an early investor in Global Crossing, turning a $100,000 stake into just under $18-million when he sold most of his shares in 1999.

But Global Crossing didn't skimp on Republicans by any means. In the 2000 elections, its two top recipients were Sen. John McCain of Arizona and Sen. Conrad R. Burns of Montana, both senior Republicans of the Senate Commerce Committee, which oversees the telecom industry.

Then there's the story about George Bush, the current president's father. In 1998, six months before the company went public, Bush appeared on Global Crossing's behalf at an event in Tokyo. His normal fee for such an appearance: $100,000.

But during a breakfast with the company's co-chairmen, Winnick and Lodwrick Cook (an old Bush friend and former head of Atlantic Richfield Co.) sold Bush on Global Crossing's prospects. Bush agreed to be compensated instead with $80,000 in Global Crossing stock.

Good move. Once Global Crossing went public, those shares soared in value to more than $14-million. Bush has not indicated if he sold those shares or held on to them (thus losing most of their value).

As Global Crossing prospered, Winnick routinely sold off shares of his stake in the company. Well before the company shares plummeted, he had sold an estimated 30 percent chunk of his holdings valued at more than $600-million.

Earlier this month, a humbled Winnick told Global Crossing employees that the company had no choice but file the fifth-largest bankruptcy case in U.S. history. More than $450-million in stock held by employees and other investors became worthless.

Winnick's words sound a lot like Ken Lay's, who offered this remark last week to a congressional panel before taking the Fifth: "I come here today with a profound sadness about what has happened to Enron, its current and former employees, retirees, shareholders and other stakeholders."

Lay -- a Missouri farm boy and son of a Baptist preacher, who became a Ph.D. economist and chief of a highflying Houston energy empire.

Winnick -- modestly raised in suburban Long Island, son of a father whose food service equipment business went bust in the 1960s, who leveraged a natural sales talent to become (for a while) a near-instant billionaire.

Now both self-made men have so much to explain to so many.

Two men, so different. So alike.

-- Robert Trigaux can be reached at trigaux@sptimes.com or (727) 893-8405.

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