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Tuesday, 5 February, 2002, 10:19 GMT
Global Crossing accounts probed
Global Crossing website
The higher they climb, the harder they fall?
Global Crossing, the bankrupt US high-speed telecommunications provider, has said it will launch an independent probe of its accounts.

The telecoms company, which is also being investigated by the regulator, the Securities and Exchange Commission (SEC), will look into allegations of impropriety by a former employee.

Former vice president of finance, Roy Olofson, wrote to Global Crossing's leading lawyer last August, suggesting that the accounts painted too bright a picture of the company's performance.

Mr Olofson's letter claimed that the company was inflating its earnings and cash flow to make its financial performance look better than it actually was.

Allegations disputed

But the company said Mr Olofson's allegations were unfounded, and this would explain why the independent probe had not been launched earlier.

Rather, the reason why the independent probe was launched had more to do with the growing concerns among investors about companies' accounting practices.

Such concerns have come to the fore following revelations about misleading accounting methods used by the failed energy trader Enron and other companies.

"Recent happenings in the industry have brought a lot of attention to accounting," a spokesman said without mentioning Enron.

Recent disclosure

Global Crossing informed its external auditor, Andersen, of Mr Olofson's letter on the day when it filed for bankruptcy.

On the following day, the company's audit committee was informed of the letter.

The Committee immediately called for an independent investigation by an accounting firm other than Andersen.

Andersen, which was also the external auditor for Enron, has been under fire recently for its handling of the energy giant's accounts.

Tough dispute

Mr Olofson, was laid off in November in what the company said was part of a widespread redundancy programme.

Mr Olofson, in turn, has claimed wrongful dismissal and is planning to sue Global Crossing after the company in December reneged on an agreed $750,000 settlement.

The company has said Mr Olofson sought a settlement worth several million dollars, and in a statement it hinted at "questionable" motives behind writing the disputed letter.

Mr Olofson's lawyer dismissed as "ridiculous" Global Crossing's apparent suggestion that he should have written the letter in order to make money from it.

"They are trashing his career," the lawyer, Paul Murphy of the O'Neill Lysaght & Sun law firm, said.

"They are not happy with the whistleblower and they're smearing him."

Large debts

Formed in 1999 from a merger between a Bermuda-based fibre-optic cable specialist and a local US telecoms operator, Global Crossing was regarded as one of the most promising of the new generation of telecoms companies that sprang up in the late 1990s.

The combined company had secured a stock market value of $75bn.

But the economic slowdown - which hit global telecoms spending - and an increase in competition, together with heavy debts, hit the company hard.

Part of Global Crossing's troubles which led to the bankruptcy filing came from more than $12bn debts built up developing its global network of fibre optic cables, which links more than 200 cities in 27 countries.

Its assets are believed to be worth almost twice as much as its debts.

See also:

28 Jan 02 | Business
Global Crossing files for bankruptcy
14 Dec 01 | Business
Global Crossing bankruptcy fears
14 Jan 02 | Business
Audit giants called to account
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