LOS ANGELES - Global Crossing Ltd., the bankrupt fiber-optic network operator that once had a $38.9 billion market value, won't face U.S. criminal charges over its accounting practices, according to people close to the investigation.
Prosecutors were investigating a former Global Crossing official's claims that executives overstated revenue and misreported costs.
The U.S. attorney's office in Los Angeles, which also explored document-shredding allegations, decided there's insufficient evidence for criminal charges, the people said.
"Obviously, there was no smoking gun," Robert Mintz, a former federal prosecutor, said yesterday. "There was no insider upon whose shoulders the government can build a solid criminal case."
Top executives of several major corporations, including Enron Corp., WorldCom Inc. and Adelphia Communications Corp., have faced criminal charges in the past year stemming from accounting problems that plunged their companies into bankruptcy.
Global Crossing filed in January what was then the fourth-largest U.S. Chapter 11 bankruptcy and remains under Securities and Exchange Commission investigation.
"Often prosecutors, after reviewing the evidence, make a judgment that their resources are better directed elsewhere and allow the SEC to handle the matter," Mintz said.
Still, the SEC might bring civil charges, the people close to the investigation said.
Global Crossing spokeswoman Tisha Kresler and Thom Mrozek, spokesman for the U.S. attorney's office in Los Angeles, declined to comment.
Justice Department spokesman Mark Corallo also declined to comment.
Global Crossing, founded in 1997 by former Drexel Burnham Lambert executive Gary Winnick, said in October that it would restate results for the first nine months of last year.
The announcement followed an SEC decision in August that companies can no longer book revenue from some exchanges of network capacity. The company will reduce assets and liabilities by $1.2 billion each and cut sales by $19 million.
Global Crossing sought protection from creditors Jan. 28 after amassing $12.4 billion in debt building a 27-nation network before prices for line use plunged amid a glut of fiber-optic capacity.
Its shares, which rose as high as $64.25 in May 1999, traded over the counter at 24 cents at the close of New York trading yesterday.
The company's bankruptcy recovery plan, which calls for Hutchison Whampoa Ltd. and Singapore Technologies Telemedia PTE to pay $250 million for a 61.5 percent stake in Global Crossing, won a bankruptcy judge's approval this month.
SEC and FBI officials began examining Global Crossing's accounting after Roy Olofson, a former vice president of finance, alleged that the company inflated revenue from leasing space on its lines, while underreporting costs for buying space on rivals' networks. The company booked revenue in some cases where no cash changed hands, Olofson said.
The investigations widened after Global Crossing employees said in court documents that the company shredded documents in February at its headquarters in Madison, N.J., after the SEC began investigating.
Global Crossing denied the allegations, while acknowledging that some records were destroyed at five other offices.
The company said it didn't believe any shredded documents were relevant to the case.