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WASHINGTON — Telecommunications executives defended their accounting practices Thursday as lawmakers questioned whether the companies used shady bookkeeping and misled investors.
On the hot seat: Global Crossing, the fiber-optic carrier, which in January became the biggest telecom to file for Chapter 11 bankruptcy protection.
The House Financial Services oversight and investigations panel ripped Global for its accounting of network swaps that are being probed by the Securities and Exchange Commission and the FBI. At issue is whether Global, and its peers, used the deals to improperly inflate revenue.
“There are certainly very serious questions as to whether it engaged in practices that had far more to do with meeting analysts’ earnings estimates than with economic substance,” Rep. John LaFalce (D-N.Y.) said.
Joining Global at the packed hearing were top brass from Qwest Communications and WorldCom, both of which have also been queried by the SEC, and Cable & Wireless. Each dealt with Global or its Asia Global Crossing subsidiary.
The companies say the network swaps had a legitimate business purpose and helped them expand their networks. They say the accounting was proper, disclosed and blessed by auditors. Global, Qwest and WorldCom use Arthur Andersen, the audit firm under fire for its role in Enron’s collapse.
Also, the companies say such swaps and network capacity sales only accounted for a small portion of revenue.
While strongly defending the deals, Global Chief Financial Officer Dan Cohrs admitted it was tough to figure out, at first, how to account for the network sales in the emerging industry.
The hearing aimed to gather information for a bill sponsored by committee Chairman Rep. Michael Oxley (R-Ohio). The bill aims to prevent investor calamities caused by Global and Enron, by ensuring auditor independence and more accounting oversight.
Most lawmakers were skeptical, bringing a fiery tone similar to that at Enron hearings. Rep. Michael Capuano (D-Mass.), likened the accounting in question to a Ponzi scheme: “You bought something you didn’t need, with money you didn’t have, and sold it to somebody who didn’t need it and didn’t have any money, and you hid the bookings.” Rep. Stephanie Tubbs Jones (D-Ohio), asked Global CEO John Legere to calculate the number of fired employees he could have helped with his $3.5 million signing bonus. He refused, saying, “I don’t do math in public.”
More hearings are possible. Ken Johnson, spokesman for the House Energy and Commerce Committee, says committee investigators met with Global lawyers Wednesday and expect to begin receiving documents it requested from the company next week.