New twist for Global Crossing as bankruptcy fallout spreads. (Up Front).

Global Crossing Ltd. was back in the news last week after the two Asian firms that received bankruptcy court approval to buy control of the company withdrew a regulatory application. A multi-agency task force determined that the transaction, which is still being reviewed by antitrust regulators, raised national security concerns. One of the firms, Hong Kong-based Hutchison Whampoa Ltd. has ties to the Chinese government. In addition to efforts to move the telecommunications company out of bankruptcy, there are still ongoing federal investigations into accounting fraud, shareholder lawsuits and legal entanglements. The Business Journal spoke to a variety of government officials, attorneys and others familiar with the issues for an update on their status.

Question: Now that the government has raised questions related to Hutchison's bid for Global Crossing, what is the status of the bankruptcy proceeding?

Answer: Hutchison and partner Singapore Technologies Telemedia Pte. Ltd. have not given up. They are meeting with officials of Treasury Department, Federal Bureau of Investigation and other agencies to reach an arrangement that would satisfy their concerns. The companies hope to resolve the matter in the next two weeks.

Q: There have been press reports that a change in governance -- such as keeping Hutchison Whampoa officials off the board of the new company -- is key to any new arrangement. Is that all there is to it?

A: No. The U.S. government also has operational concerns, and wants to make sure Hutchison cannot tap into Global Crossing's lines or exert too much control over its day-today operations and decision-making. In effect, Hutchison must decide whether to accept a deal that would leave it as a passive investor, despite a proposed 31 percent stake in the company.

Q: Have similar concerns slowed the sale of Asia Global Crossing Ltd., given that the successful bidder of its assets is China Netcom Corp., a mainland Chinese company?

A: No. Asia Global's assets are fiber optic lines connecting various Pacific Rim cities and are not within the U.S. That deal, approved by a U.S. Bankruptcy Court judge on Jan. 28, does not have to undergo the same U.S. security review. The deal is expected to close within two weeks, when the company's offices will then be moved to Hong Kong.

Q: There have been press reports that the Justice Department has decided it does not have enough evidence to pursue criminal fraud charges against Gary Winnick. Is this true?

A: Officially, the department has made no such announcement, and Winnick's attorney, Terry Christensen, says he has not received any such assurances. But Christensen also says the government has not denied the reports, which he takes as an indication they could be true.

Q: Could Winnick and others still face civil penalties resulting from the Securities and Exchange Commission's investigation into alleged accounting fraud?

A: Yes. Christensen calls the issue "the ultimate question" surrounding the investigation, though he maintains Winnick will eventually be exonerated of any wrongdoing. However, law enforcement sources suggest the SEC may try to extract a significant monetary settlement from Winnick and other key officials.

Q: What is the status of the lawsuits that have been filed against Winnick and others by shareholders and former employees?

A: There were 57 actions filed in various U.S. District Courts that were generally consolidated into two separate actions before Judge Gerard E. Lynch in New York. One involves allegations that shareholders were defrauded of billions of dollars because of various bogus financial practices. The other involves suits accusing Winnick and others of breaking their fiduciary duty in managing retirement plans. The defendants are seeking to dismiss the lawsuits even before discovery begins, a process that is expected to drag into the fall or later. If the lawsuits are allowed to go forward, as many expect they will, the cases could take years to settle.

Q: Since the lawsuits allege billions of dollars in fraud, is it possible that Winnick could be forced to dip into his own pocket?

A: Corporate officers and directors are covered by directors and officers insurance and almost never have to do so. But since the allegations are so massive, Christensen acknowledges they far exceed the insurance, potentially financially jeopardizing his client.

Q: Winnick pledged during one of the House committee hearings to personally contribute $25 million to aid former employees who lost retirement savings. Did he fulfill that pledge?

A: Winnick announced he fulfilled the pledge by donating the money to an irrevocable escrow account at Union Bank of California.

Q: Some suggest Winnick should do more, perhaps by selling off his Bel-Air home, which might go for $100 million, and donate the proceeds. Is that a possibility?

A: Christensen bristles at the suggestion that Winnick has not done enough, noting that his $25 million contribution is "$25 million more" than any other executive involved in the collapse of the telecommunications industry has put up.

Q: What is Winnick doing since he resigned Dec. 31 as chairman of Global Crossing?

A: Pacific Capital Group Inc., Winnick's private investment firm, recently sold Global Crossing's former U.S. headquarters in Beverly Hills for $50 million. Christensen says the firm is still active and Winnick is involved in seeking various new business opportunities.