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Global Crossings Scandal

Global Crossing filed for bankruptcy in 2002 due to fraudulent accounting activities. The company improperly reported revenue from long-term contracts and from equipment sales between itself and other companies. Several high-ranking executives, including the founder, sold off large amounts of their shares in the company before its bankruptcy. As a result of the bankruptcy, employees lost severance payments and the value of their 401(k) investments that were heavily weighted in now-worthless Global Crossing stock.

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Ivan Bendiola
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1K views1 page

Global Crossings Scandal

Global Crossing filed for bankruptcy in 2002 due to fraudulent accounting activities. The company improperly reported revenue from long-term contracts and from equipment sales between itself and other companies. Several high-ranking executives, including the founder, sold off large amounts of their shares in the company before its bankruptcy. As a result of the bankruptcy, employees lost severance payments and the value of their 401(k) investments that were heavily weighted in now-worthless Global Crossing stock.

Uploaded by

Ivan Bendiola
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Bendiola, Ivan C.

Global Crossing Accounting Scandal


Global Crossing was a telecommunications company with broad ambitions to
rapidly expand its telecommunication services throughout the world. However, it
filed for bankruptcy protection in 2002 caused by following fraudulent reasons or
activities:

reporting revenue for long term contracts in full at the initiation of the
contract, rather than proportionately over its life leading to revenue
misstatement because revenues were not being reported in the period
they were earned
improper revenue reporting occurred when Global Crossing sold $100
million of telecommunication facilities to Qwest Communications
International Inc., in return for a similar valued amount from Qwest.
Qwest did not record this transaction as a sale, however Global Crossing
did report this as sales revenue despite cash never changing hands
concealing these misstatements by Joseph Perrone, a former Arthur
Andersen employee
Perrone adviced Global Communications to fund a project involving his
son, Joseph Perrone, Jr., that totaled over $1 million in Global Crossing
expenditures which brought up conflict-of-interest concerns
a conflict-of-interest issue occurred when several high ranking
executives of Global Crossing, including its founder Gary Winnick, sold
off shares of the company. Winnick sold $123.5 million worth of shares
before the company's eventual bankruptcy

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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