The Securities and Exchange Commission does not plan to bring civil securities charges against former Global Crossing Ltd. chairman Gary Winnick, according to his attorney, Gary Naftalis.
The SEC had also been expected to fine Winnick $1 million for failing to properly disclose a series of transactions undertaken by the company, The Wall Street Journal pointed out. But this fine would be almost laughable in any case, given that Winnick walked away with a whopping $734 million after selling stock before the company filed for Chapter 11.
The free pass for Winnick is not without controversy. According to a number of reports, the decision not to charge the former telecom executive is opposed by two of the SEC’s five commissioners and would reverse the recommendation from the agency’s enforcement division.
Global Crossing was one of the poster companies for the 1990s Internet/tech/telecom bubble. The fiber-optic company was founded in 1997 by Winnick, a one-time executive in Michael Milken’s junk-bond department at Drexel Burnham Lambert. He served as Global Crossing’s nonexecutive chairman until 2002, when the company filed for Chapter 11 protection under the weight of $12.4 billion in debt.
A two-year probe by the SEC was unable to find evidence of fraud or insider trading, according to the Journal, but it did find that executives failed to provide regulators with adequate disclosure about certain, critical swap transactions. The SEC concluded that the accounting for the transactions was wrong but wasn’t done with an intent to commit fraud and didn’t have a material effect on the company’s finances, according to the paper, citing people familiar with the matter.
The Journal also pointed out that if the SEC doesn’t take action against Winnick, it could harm the agency’s deals with three other former Global Crossing executives over the alleged disclosure violations, including former chief financial officer Dan Cohrs and former chief accounting officer Joseph Perrone. The former executives wanted Winnick to accept some responsibility for the company’s actions, reported the paper.
At a meeting last week, SEC lawyers argued that while Winnick may have held the title of nonexecutive chairman, he functioned as a hands-on officer of the company who showed up at the office every day and was involved in major business decisions, according to the Journal. Donaldson argued that he didn’t believe Winnick had enough involvement in the company’s day-to-day operations to warrant civil charges, according to the report.