By thinnest of margins, Winnick avoids sanction.

The case may have looked and smelled like an Enron or a WorldCom, but the investigation of Global Crossing Ltd. lacked enough evidence to pierce a legal shield put up by Gary Winnick's lawyers, according to attorneys familiar with the investigation.

Last week, the Securities and Exchange Commission opted to drop a $1 million agreed-upon settlement with Winnick, the Florham Park, N.J., company's local founder.

The decision caps three years of government probes into the once high-flying fiber optics company that filed for bankruptcy protection in 2002 after incurring $12.4 billion in debt. The U.S. Attorney's Office in Los Angeles dropped its criminal case more than two years ago.

"I was completely expecting the Justice Department and the SEC to proceed and do their job, just the same way they did with Enron and all the rest, and they just didn't," said Brian Lysaght, a partner at Piper Rudnick LLP who represents former Global Crossing executive and whistleblower Roy Olofson. "I'm completely befuddled. It makes absolutely no sense to me, and I can't think of a rational reason why that happened."

But lawyers familiar with the case say the facts simply weren't there to prosecute executives at Global Crossing. They note that there were problems with the case from the start, primarily because as chairman, Winnick did not have an executive role in the company's day-to-day operations the way a chief executive would. In addition, Global Crossing disclosed some of the questionable transactions that were alleged--albeit in an unclear way--while Enron and WorldCom did not.

"This is a situation where the technology and business transactions got in front of the rules," said one attorney involved in the case.

Winnick's attorney, Gary Naftalis, a partner at Kramer Levin Naftalis & Frankel LLP, declined to comment beyond a statement: "We always believed that the evidence demonstrated that Gary Winnick acted lawfully and properly in connection with Global Crossing."

Cases differ

By some accounts, the case against Global Crossing looked a lot like investigations into other high-profile telecommunications firms.

As with WorldCom, Global Crossing involved alleged insider trades and capacity swaps, which are trades of usage between telecommunications carriers on each other's systems. Many companies improperly used these trades to inflate revenues on their books.

Federal investigators also said Winnick made insider trades, including a stock sale of $123 million in May 2001, after the company's executives allegedly admitted revenues were $1 billion too low and expenses were $1 billion too high.

Global Crossing even bad a whistleblower who wrote a memo to the company's chief compliance officer around the same time former Enron Vice President Sherron Watkins was complaining to her supervisors about the Houston energy firm's accounting methods.

But the similarities stop there.

In his tie-breaking decision last week, SEC Chairman William Donaldson argued that Winnick should not be held responsible for the day-to-day activities that took place at Global Crossing because he served as a non-executive chairman, the Wall Street Journal reported.

One of the SEC staff's arguments had been that Winnick, who remained on the board almost a year after the company filed for bankruptcy, was involved in all operations of the company, regardless of what his title was. Federal investigators also accused Global Crossing executives of illegally booking hundreds of millions of dollars in capacity swaps as cash revenue in early 2001.

But Global Crossing officials had disclosed the transactions, unlike other telecommunications companies that faced charges.

Lysaght maintains that Global Crossing's disclosures didn't make clear what they were doing, and the way they recorded the transactions was improper. "The thing that was wrong about it was how they handled the money," Lysaght said.

In his testimony before a House subcommittee in September 2002, Olofson suggested that Global Crossing executives made the swaps to inflate revenues. But Olofson, who claims he was fired for questioning the swaps, failed to get other executives to make similar claims to investigators, lawyers say.

In fact, many of the executives hired the same attorney who represented the company. A unified defense presents problems in a criminal case, which often relies on defendants to split apart from one another and make individual deals with investigators. Without those splits in the criminal case, each defendant had less to lose in the civil securities case.

"Usually, in criminal prosecutions, the way the case is broken is if people have independent counsel," Lysaght said. "Independent counsel has a fiduciary duty to make sure their particular client gets in the door first. If the defendants maintain a unified position and nobody gets in the door first, they don't have anybody to flip on anybody else."

Surprise move

Winnick's own testimony may have helped him as well. Unlike executives at Enron and WorldCom, Winnick waived his fight to plead the Fifth Amendment and testified before a subcommittee of the House Committee on Energy and Commerce, which held hearings in October 2002 regarding the capacity swaps.

At those hearings Winnick surprised everyone, including his own lawyers, by announcing he would write a check for $25 million to former employees of Global Crossing. No other telecommunications executives had made such an offer.

Winnick paid another $55 million this year as part of a $325 million agreement to settle civil suits.

Those payments pale next to the more than $700 million in stock pocketed by Winnick during his reign of Global Crossing. But they appeased those who were most hurt by the firm's collapse: Investors and former employees.

"Should he have been carted off to jail or paid a fine? I'm sure there are people who feel that way," said Gary Gotto, a partner at Keller Rohrback PLC, who represents tens of thousands of current and former employees of Global Crossing who lost millions on their 401(k) programs. "But while that's raw emotion, we used a realistic assessment of what he really did and what should have come out of the office. That's why we supported a settlement and the judge approved it. It is time to move on. If you feel otherwise, you'll be frustrated."

In the end, Winnick's lawyers may have won his exoneration with their final arguments to the SEC, outlined in a legal brief called a Wells submission, which is a response by the target of an investigation to a Wells notice. The SEC sends a Wells notice to targets notifying them that the commission is preparing to file civil charges.

Several former SEC attorneys say Winnick's attorneys probably used the Wells submission to argue that his position as non-executive chairman exonerated their client.

The commission rarely looks at a Wells submission if both parties have agreed to a settlement, said Irving Einhom, a Manhattan Beach securities lawyer who headed the SEC's Los Angeles office in the '80s. But in this case, Winnick's lawyers managed to convince somebody at the SEC to take a final look, he said. What they discovered was unconvincing evidence.

Even for $1 million, SEC commissioners would not force a securities fraud charge on a defendant whose case still has questions, he said.

"I have to give his attorneys credit for having done a spectacular job," said Lysaght.