The Emperor of Greed

Fortune/PBS June 24, 2002

Disciple of former Drexel Lambert swindle guru Michael Milken, Gary Winnick had never worked in the telecom industry before he founded Global Crossing in 1997. The company rose swiftly and fell even faster. Its business plan changed with the phases of the moon - so did its CEOs (there were five in four years). It had a huge market value and a teeny cash flow. It inflated its revenues by swapping capacity with other carriers, and lured customers and investors by overstating the capabilities of its network. It exploited its relationships with both Wall Street and its bankers on a scale unrivaled in the industry. 'Winnick used to walk around the office saying he owned Jack Grubman and Jimmy Lee', says one former colleague, referring to fees paid to key underwriters at Citigroup's Salomon Smith Barney and JP Morgan Chase.

Gary Winnick and his cronies are arguably the biggest group of greedheads in an era of fabled excess. Billions of dollars flowed out Global Crossing and into the pockets of insiders. Not only did Winnick sell off stock at huge profits while investors who jumped in later watched their stakes burn to nothing, but he treated Global Crossing from the get-go as his personal cash cow, earning exorbitant fees from consulting and real estate deals between Global Crossing and his own private investment company.

Winnick wasn't the only executive getting rich quick. Other insiders sold a whopping $4.5 billion in stock in three years. Co-chairman Lodwrick Cook, the former chairman of Atlantic Richfield, sold $36 million of stock. (In 1999 Cook told the Los Angeles Business Journal that every day he says 'god bless america and god bless Gary Winnick'.) Combined stock sales for directors Barry Porter, David Lee, and Abbott Brown, longtime business associates of Winnick's, totaled $516 million.

Wall Street partners fared well too. Canadian firm CIBC World Markets, which was an early investor in Global Crossing and at one time had five employees on its board, earned $56 million in banking fees even before Global Crossing's 1998 IPO. It turned a $41 million investment into a $1.7 billion windfall and exited the board just as the telecom bubble was bursting. Global Crossing paid more than $420 million in fees to Wall Street firms in three short years. As one investment banker recalls, 'people wanted to do business with Winnick because he was the best game in town'.

Needless to say, most outside investors never saw that kind of payday: they have almost zero chance of recouping any of the $20 billion Global Crossing raised. More...

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