Winnick testifies locally in probe of company's deals.

Global Crossing Ltd. Chairman Gary Winnick spent two days last week giving testimony at the Securities and Exchange Commission's Los Angeles offices, a signal that the evidence-gathering stage of the SEC's ongoing investigation into possible securities law violations at the failed telecom company is winding down.

"We're hopeful that within the next few months the SEC will be able to make their analysis, and hopefully come to a favorable conclusion," said Terry Christensen, an attorney representing Winnick and other officers and directors of Global Crossing in shareholder lawsuits.

About 15 or 20 Global Crossing executives already have given testimony to the SEC, Christensen said.

"He is the latest in a long series of executives of the company that have been asked to give testimony at the SEC and he's doing so," Christensen said.

SEC Pacific Region director Randall Lee declined to comment on Winnick's appearance.

The SEC is reported to be focusing on several transactions made by Global Crossing near the end of the first and second quarters of 2001. In these transactions, Global Crossing simultaneously purchased and sold capacity in deals with the same partner. The SEC, along with prosecutors from the U.S. Justice Department as well as congressional investigators, are trying to determine if the transactions had a valid business purpose, or were simply concocted in order to inflate reported revenues.

If the transactions are determined to be shams, the SEC has to decide whether Winnick was involved, or knew about them when he made his last large sale of Global Crossing stock, for $123 million in May 2001.

Attorneys familiar with the SEC's process said Winnick's appearance is a sign that the evidence-gathering phase of the inquiry may be nearing an end.

"He's very close to the end if not the last one," said Irv Einhom, a Los Angeles securities lawyer who once headed the SEC's Los Angeles office. 'They're up right now where the air is clear."

Winnick's appearance does not necessarily mean he is a target, or that the investigation is at any specific stage, said Dan Tyukody, head of the securities litigation practice in Los Angeles for Clifford Chance.

However, Tyukody said, the SEC will usually bring in lower-level people to gain ammunition for later conversations with the target company's top officers.

"Normally you would expect that they have spent some time finding out how the company operates, so that your time with the chairman is well spent," he said.

From here, commission staff likely will decide whether to recommend formal charges against anyone at the company.

While it's possible the SEC will decide it doesn't have a case, it's not likely, Einhorn said.

"They're trying to make a case against this guy and whoever at Global Crossing is responsible for all the apparent misstatements," Einhorn said.

If the SEC staff determines that violations have occurred, they will issue what's called a Wells Notice to the targets, indicating that they're preparing to make a recommendation of securities law violations to the commission in Washington. Once a Wells Notice is received, the target has two weeks to respond and convince SEC staff that they did nothing wrong.

The SEC has authority to bring only civil charges against companies and individuals believed to have broken federal securities laws. When criminal activity is suspected, the SEC brings in prosecutors from the Justice Department, who can build a criminal case. Typically, the investigations are coordinated.

Decision to testify

Winnick was accompanied to the SEC's Miracle Mile offices by Gary Naftalis, a New York trial lawyer specializing in white collar criminal defense.

Spotted last Wednesday by a Business Journal photographer in the SEC's 11th floor offices, Winnick emerged from an apparent midmorning break in the testimony, flanked by two or three men. Winnick, who has been a virtual recluse ever since the Global Crossing scandal unfolded about a year ago, appeared glum, his hair slightly mussed. Within seconds, all disappeared into an elevator.

Winnick isn't discussing any settlement with the SEC or engaged in negotiations, Naftalis said. Winnick did not invoke his Fifth Amendment right not to testify at the SEC proceeding, Christensen said.

Winnick did the same before a Congressional panel in October, where his answers were greeted with some skepticism.

At the Washington proceedings, Winnick denied any wrongdoing but pledged $25 million to former Global Crossing employees. He distanced himself from the day-to-day decision making at Global Crossing, and said he didn't recall being told critical information about Global Crossing's financial distress that Chief Executive Tom Casey was telling other senior officers.

Einhom said he was surprised that Winnick is testifying before the SEC. since lower-level executives have an incentive to save themselves from scrutiny by saying incriminating things about higher-ups. Most competent defense attorneys would advise a client in such a high-profile case to invoke the Fifth Amendment, Einhorn said.

"Gary Naftalis is not only competent but he's an outstanding criminal lawyer," Einhom said. "He's either made the assessment that his client has nothing to be concerned about, or his client has made the decision by himself to testify."