Telecom Woes Grow

 Making good on a promise to expand its probe of business misconduct beyond the Enron Corp. scandal, a congressional panel Tuesday asked telecommunications carrier Global Crossing Ltd. to turn over information concerning its accounting practices and executive compensation.

The letter from leaders of the House Energy and Commerce Committee made 22 specific requests, including seeking the names of outside accountants and lawyers that worked for Global Crossing, which filed for bankruptcy protection in January.

The committee wrote in its letter that like beleaguered energy trader Enron, Global Crossing “may have engaged in similar accounting practices that had the effect of increasing Global Crossing’s revenues without increasing its cash flow.”

The letter, addressed to Global Crossing Chief Executive John Legere, is the first concrete step by congressional investigators to probe the finances of the telecommunications company.

Separately, the House Financial Services Committee said it would hold a hearing on Global Crossing’s accounting practices March 21, the Wall Street Journal reported.

The company is under investigation by the FBI and Securities and Exchange Commission.

A company spokeswoman Tuesday declined to comment on the Energy and Commerce Committee letter. She noted that Legere already has committed himself “to working with the committee in connection with this request.”

The committee’s letter came as a former Global Crossing employee filed a class-action lawsuit in federal court on behalf of co-workers, seeking restitution of lost retirement savings. The two events significantly raise the legal and economic stakes for the company.

Global Crossing, which is based in Bermuda but has executive offices in Beverly Hills, spent billions of dollars during the last five years building a worldwide fiber-optic network. It also was one of Washington’s most generous political donors, giving nearly $3 million in the 1999-2000 election cycle.

Yet its political and economic clout did little to shield it from weak demand for high-speed data lines and investor ire over its bookkeeping practices.

An aide to the committee said the slowing pace of the 3-month-old Enron investigation has given lawmakers time to switch their focus to the business practices of Global Crossing.

“Clearly we have been up to our eyeballs in Enron, but as that winds down it frees up some of our resources to [determine ] if clever accounting and financial hocus- pocus created an illusion of profitability” at Global Crossing, committee spokesman Ken Johnson said.

In its letter to the company, the committee noted that Global Crossing and Enron used accounting firm Andersen as their auditor. The committee expressed particular concern about Global Crossing’s alleged use of a controversial industry sales contract known as an “indefeasible right of use.”

IRUs, similar to real estate leasing, are used to secure upfront money in exchange for offering deeply discounted long-term contracts for transmission capacity on telecommunications networks.

But the predictions of explosive demand for transmission capacity proved overly optimistic with the demise of thousands of dot-com companies. And with waning demand, the telecommunications industry went into a tailspin.

The investigations by the FBI and SEC are focusing on whether the IRUs were used too liberally to artificially inflate revenue and profit at Global Crossing and other telecommunications carriers.

The Energy and Commerce Committee also has focused on the company’s decision to forgive the $10-million balance of a loan to Legere and ease the terms of an $8-million loan to former CEO Thomas Casey.

The inquiries have “significant implications for the telecommunications industry and its ability to dig itself out of the amount of debt it’s accumulated to build out their networks,” said Erick Gustafson, director of technology and communications policy at Citizens for a Sound Economy, a conservative Washington advocacy group on tax and economic issues. Global Crossing, he said, “is emblematic of the lengths some companies will go to influence the process by currying political favor.”

The suspicions that Global Crossing used questionable accounting techniques to overstate revenue were echoed in the class-action lawsuit, filed in U.S. District Court in Los Angeles by Scott Johnson of Fairfield, Conn.

The suit alleges that Global Crossing executives inflated the company’s true worth and encouraged plan participants and beneficiaries to continue to maintain substantial investments in company stock. The suit claims that workers were barred from selling stock in their 401(k) plans as the share price fell.

A Global Crossing spokeswoman responded: “We believe Global Crossing has complied with all applicable laws and regulations regarding the administration of our 401(k) plan.”