An internal investigation into Global Crossing Ltd.'s dealmaking practices concluded that while the telecommunications company did not always properly document each transaction, the deals represented legitimate business transactions and were accounted for appropriately.
But the 700-page report is harshly critical of Simpson Thatcher & Bartlett, the company's former outside counsel, for failing to adequately investigate allegations about the deals first raised by Roy Olofson, a former vice president of finance at Global Crossing.
At the time that Simpson Thatcher conducted its investigation into Olofson's allegations, a partner of the firm, Rhett Brandon, served as Global Crossing's acting general counsel.
The report says: "Brandon's concurrent roles, as Simpson Thatcher & Bartlett partner and the Company's Acting General Counsel, compromised the Company's relationship with Simpson Thatcher & Bartlett; led to misunderstandings; and ultimately gave rise to a conflict of interest upon the failure of Simpson Thatcher & Bartlett to adequately investigate Olofson's allegations."
Global Crossing and Simpson Thatcher & Bartlett declined to comment yesterday. Coudert Brothers LLP, the firm that prepared the report at the behest of a special committee of Global Crossing's board of directors, also declined to comment.
The report claims Simpson Thatcher failed to interview key Global Crossing executives and criticized Brandon for failing to immediately inform outside auditor Arthur Andersen LLP of Olofson's allegations of improper accounting. Andersen did not receive a copy of the letter until January 2001, six months after it was drafted. By the time Andersen received the Olofson letter, Global Crossing had already filed for bankruptcy protection.
Olofson alleged in his Aug. 6, 2001, letter that the company improperly accounted for a series of deals in which it entered into long-term contracts to lease access to other companies' networks. At the same time, Global Crossing contracted to sell the same companies access to its network. Olofson alleged that the transactions were essentially revenue-neutral swaps rather than cash-generating transactions.
The report, however, found that Global Crossing did not violate the law or accounting rules in more than a dozen controversial transactions it entered into with other telecommunications companies during 2000 and 2001. The report focused on the 16 biggest deals that had also been the focus of an ongoing Securities and Exchange Commission review of the company.
The authors, after interviewing key executives and reviewing more than 1 million documents and 65,000 e-mails determined that all of the deals had a legitimate business purpose. At the time, Global Crossing was trying to build a global telecommunications network. In areas where it did not have its own facilities in place, it leased access from other companies.
In addition, the report notes that Global Crossing relied on the opinion of its auditor and its legal counsel when it entered into the deals.
Finally, the report says that Global Crossing "decided on its own to make public disclosure of the concurrent transactions commencing in 2001 . . . and cleared the adequacy and timing of such disclosure with its professional advisors."