Group 2B Nirav Bhatt Roxana Villamor Erika Garcia Manisha Suckoo

1. Group 2B Nirav Bhatt Roxana Villamor Erika Garcia Manisha Suckoo

2. Background Global Crossing, Ltd., (NASDAQ: GLBC) • A Bermuda corporation with its principal offices in Bermuda and Florham Park, New Jersey • Founded in 1997, by Gary Winnick a jowly, hard-driving former bond salesman with $20 million. • Global's fiber-optic cables, Mr. Winnick once promised, would help start a telecommunications revolution • Its IPO was in 1998. Global’s shares leaped from $9.50 to $13.40 the first day of trading.

3. Background cont’d • Less than two years later, with the stock at a peak of about $64, the market valued Global at $47 billion - more than PepsiCo, more than CBS, more than McDonald's. • In 2001, the Internet bubble burst and dozens of telecom companies collapsed. • Global and certain affiliates filed for Chapter 11 bankruptcy protection on January 28, 2002 • On December 9, 2003, Global Crossing emerged from bankruptcy as a shadow of its former self.

4. Operations • Global Crossing, Ltd. (GX) is a telecommunications company whose business plan was to construct and/or acquire a state-of-the-art global fiber-optic network and to sell fiber optic capacity and telecommunications services (collectively “capacity”) on that network to other providers and users of telecommunications services. • GX sold this capacity through contracts in the form of “Indefeasible Rights of Use,” or “IRUs.” An IRU is an irrevocable right to use a specific amount of capacity for a specified time period.

5. Operations cont’d • By early 2001, an increasing number of Global Crossing’s carrier customers were requesting that GX buy capacity from them, and it was becoming increasingly difficult for GX to sell capacity to carrier customers unless, at the same time, they purchased a similar dollar amount of capacity from the same carrier. • GX referred to the simultaneous purchase and sale of capacity with other carriers as “reciprocal transactions.”

6. Global Crossing’s wrongdoing • GX and its senior management failed to ensure that the company provided complete and accurate disclosure to investors concerning certain significant transactions entered into by the company in the first half of 2001. • In early 2001, GX was increasingly reliant on the reciprocal transactions as a substantial source of Global Crossing’s announced “pro forma” results, i.e., results of operations that were prepared on a basis defined by GX, and that were not in accordance with generally accepted accounting principles. • Without these reciprocal transactions, GX would not have met securities analysts’ estimates for its first and second quarter 2001 pro forma results.

7. Global Crossing’s wrongdoing cont’d • GX was required to disclose completely and accurately material information regarding the reciprocal transactions and the effect of that information on the interpretation of its financial results. • While GX did disclose was neverthelessinadequate

8. Global Crossing’s wrongdoing cont’d • In the “MD&A” portion of its first and second quarter of 2001 Forms 10-Q, GX failed adequately to disclose: • That the transactions were reciprocal in nature • That Global Crossing’s pro forma results were increasingly dependent on these reciprocal transactions, and that, given market trends, GX likely would not be able to sustain these results in the future • In presenting its statements of cash flows, that the reciprocal transactions did not enhance Global Crossing’s liquidity • Material information concerning Global Crossing’s purchase of capacity

9. Violation of the Reporting Provisions of Section 13(a) of the Exchange Act and Rules12b-20 and 13a-13 • Global Crossing violated Section 13(a) of the Exchange Act and Rules 12b-20 and 13a-13 which require issuers of securities registered pursuant to Section 12 of the Exchange Act, to file certain quarterly reports with the Commission. • Global Crossing failed to provide the context within which financial information should be analyzed. As a result, investors did not have the ability to judge the quality of Global Crossing’s financial results and the likelihood that its past performance would be indicative of future performance.

10. Case Outcome What happened to Global Crossing?

11. JANUARY - 2002 BANKRUPTCY!!!

12. Outcome - 2002 • January • Chapter 11 Bankruptcy • Protection; restructure; investment • February • Investigations • SEC; FBI; Internal • August • NEW START • $250 mill investment – Hutchinson & Singapore

13. Outcome – 2003 & 2004 • December 2003 • EMERGE from BANKRUPTCY • March 2004 • Officers settle class action suit • $325 million $1 Lost severance packages $240 Shareholders $79 Workers of lost 401k

14. Outcome - 2005 • April 2005 • SEC settled suit • No fines; penalties • No fraud • No comment to commission’s findings

15. Conclusion • Along with Kenneth L. Lay of Enron, L. Dennis Kozlowski of Tyco International and Bernard J. Ebbers of WorldCom, Mr. Winnick has emerged as a symbol of the financial shenanigans behind the 1990's bull market. Unlike the others, however, Mr. Winnick, Global's founder and chairman, was cleared of criminal charges • The facts brought against Global Crossing simply weren't there to prosecute him and the other executives involved • Winnick did not have an executive role in the company's day-to-day operations the way a chief executive would.

17. Why are dozens of CEO’s currently subject to criminal proceedings while no former GX executives experienced similar troubles? • There is no good explanation. The answer lies primarily in politics • Mr. Winnick’s contribution was a fraction of the $300 million lost by the company's employees but was an unusual gesture nonetheless • The discrepancy in treatment between the Justice Department's handling of Enron and Global Crossing highlights the high risk of arbitrary and capricious results that occurs when government seeks to criminalize business behavior.