The Securities and Exchange Commission is expected to fine at least three former executives of Global Crossing Ltd., the fiber-optic company that went bust in the business downtown earlier this decade.
The fine on the executives — including the company’s founder and former chairman, Gary Winnick — stems from alleged accounting fraud at the company that spiraled into an Enron-like bankruptcy three years ago under $12.4 billion of debt. Although Global Crossing was also accused of fraud, the reorganized company is currently struggling to obtain financing from key shareholders to remain solvent, so it will not be fined in the settlement.
However, what is most remarkable about all of this is that Global Crossing was forced into its chapter 11 case only a month after Enron and under similar circumstances as Enron. For example, Mr. Winnick sold $734 million in stock as the company plummeted into bankruptcy protection. Nevertheless, as analyzed in more detail in this earlier post, no one associated with Global Crossing has ever been indicted in a criminal case.
So long as we allow government to criminalize business behavior, such arbitrary results will be common. Not only does such governmental action dilute the moral force of law, it will eventually discourage beneficial risk taking that generates economic development and job creation.
Remember that, New York voters, as you decide whether to vote for Eliot Spitzer.