This NY Times article provides a fine report on the demise of Global Crossing, Ltd., the telecommunications company that went down under suspicious circumstances at the same time as Enron Corp. was cratering. However, unlike Enron, the Justice Department established no “Global Crossing Task Force.” Moreover, neither Global Crossing CEO and chairman Gary Winnick nor any other Global Crossing executive was ever charged with a crime:

Along with Kenneth L. Lay of Enron, L. Dennis Kozlowski of Tyco International and Bernard J. Ebbers of WorldCom, Mr. Winnick has emerged as a symbol of the financial shenanigans behind the 1990’s bull market. Unlike the others, however, Mr. Winnick, Global’s founder and chairman, has already been cleared of criminal charges. The Justice Department quietly dropped a criminal fraud investigation of him on Christmas Eve of 2002, relieving him of the prospect of prison time.

Nevertheless, the allegations in pending civil lawsuits sound the same as the core allegations in pending criminal indictments against various former Enron executives:

J. P. Morgan Chase and other leading banks are seeking $1.7 billion in damages from Mr. Winnick and other Global Crossing executives, contending that the group engaged in a “massive scam” to “artificially inflate” the company’s performance to secure desperately needed loans. . .
Among other things, the suit refocuses attention on exactly what Mr. Winnick knew about his company’s finances during times when it was borrowing heavily and he was selling hundreds of millions of dollars in stock.

Which led the U.S. District Judge Gerald E. Lynch to comment with regard to the banks’ case against Global Crossing:

“I am prepared to look at this case as, with all respect to the people involved, a bunch of crooks getting sued by a bunch of bankers who are too dumb to stop throwing money down the toilet.”

Indeed, Global Crossings’ growth was even more meteoric than Enron’s:

In a three-year whirlwind, Mr. Winnick tapped the stock and bond markets for $20 billion, all on the prospect that Global would keep growing and securing new customers. Global went public in August 1998, its shares leaping from $9.50 to $13.40 the first day of trading. Less than two years later, with the stock at a peak of about $64, the market valued Global at $47 billion – more than PepsiCo, more than CBS, more than McDonald’s.
None of Global’s financials justified this. It lost $20 million on sales of just $424 million in 1998, and it would never earn a penny in profits after that. In fact, losses would balloon. In 2000 alone, Global lost $1.4 billion, a staggering amount for any start-up, no matter how bright its future.
Nonetheless, Mr. Winnick’s $20 million initial stake in Global was, at its height, worth more than $6 billion. He had become a billionaire faster than anyone in American history – faster than Bill Gates, faster than John D. Rockefeller – and his picture landed on the cover of Forbes magazine, with a headline that read “Getting Rich at the Speed of Light.”

And, of course, as with Enron, Global Crossing had its helpers among market promoters, including the ubiquitous politicians:

Mr. Winnick’s team also gave large donations to Republicans and Democrats, hired well-connected lobbyists in Washington and secured Wall Street’s loyalty, including that of Jack Grubman, a Salomon Smith Barney analyst who played carnival barker for the telecom joyride of the 1990’s. Mr. Grubman, whose firm reaped hefty fees for underwriting Global’s stock and for advising it on acquisitions, lavishly praised Global in his investor reports.

However, Global Crossing’s world came crashing down in 2001 as the telecommunications industry went through a severe shakeout. Although garnering only a fraction of the public attention of Enron’s meltdown, Mr. Winnick’s analysis of what caused Global Crossing’s demise sound the same as that of Enron’s Jeffrey Skilling or Kenneth Lay regarding Enron’s collapse:

In his Congressional testimony in 2002, Mr. Winnick offered his thoughts on his company’s fate. “Global Crossing’s bankruptcy, based on the facts known to me, is not a result of fraud but of a catastrophe that befell an entire industry sector,” he said. “I don’t offer this as an excuse because it’s certainly not an acceptable excuse. It’s an explanation.”

But, as with Enron, there are many who do not agree that Mr. Winnick and Global Crossing were just the victims of bad luck:

Susan Kalla, a telecom analyst at Friedman Billings Ramsey, said Mr. Winnick inflated the scope of every deal he struck and overstated what he was able to charge for access to Global’s network. “I believe this guy has set American business culture back greatly,” she said. “He wasted billions and billions of dollars that could have been spent on far more useful purposes. He’s set innovation in the industry back by a decade because he, and others like him, beat investors down so badly. “This was just about speculation,” she said.

Although Mr. Lay has been indicted for selling his Enron stock on margin calls while Enron spun downward in late 2001, Mr. Winnick skated free while selling his Global Crossing stock under the same circumstances:

According to the J. P. Morgan suit, [Mr. Winnick] sold $860 million worth of stock from 1999 to 2001, and the lawsuit contends that most was sold at a time when serious problems at the company were not being publicly disclosed. (Mr. Winnick’s representatives contest that figure, saying he sold $735 million worth of stock.)
[Mr. Winnick’s] lawyer, Mr. Christensen, said that all Mr. Winnick’s stock sales were preplanned or tied to the normal course of business – including a sale of $123 million of shares in May 2001 that has drawn S.E.C. scrutiny.
In the months before that sale, Global’s managers were on tenterhooks about the company’s precarious finances, according to documents introduced in various lawsuits. One internal Global e-mail message from a customer service representative to a company vice president in March 2000 said the company was “losing customers left and right” because of “network problems” and “poor service.” Three months later, Leo Hindery, the company’s chief executive at the time, sent a memo to Mr. Winnick saying that Global’s business “niche” was “going to die.”
The J. P. Morgan lawsuit raises questions about what Mr. Winnick knew about Global’s finances. It says that Mr. Winnick and other Global Crossing executives “personally oversaw and reviewed Global Crossing’s financial results” and “were aware of Global Crossing’s precarious financial position.”
At meetings in April 2001, senior Global executives discussed that revenues were going to fall $1 billion short of earnings estimates that had already been shared with the public, according to memos uncovered by Congressional investigators. Mr. Winnick did not attend those meetings, but he sold his shares a month later – with, he told Congress, the approval of Global’s chief executive.
In early June 2001, about two weeks after Mr. Winnick sold those shares, Global’s lawyers closed the window on all insider stock sales, citing the company’s deteriorating finances. Although Mr. Winnick orchestrated most of Global’s biggest deals, raised all of the company’s initial financing, answered analysts’ questions at road shows, kept in daily contact with a string of executives and even supervised landscaping at Global’s headquarters in Beverly Hills, he told Congressional investigators that it was not until that point that he learned Global would not hit its numbers. (His lawyer says others at the company did the numbers-crunching.)

And, as with Mr. Lay and Enron, Mr. Winnick was not the only Global Crossing executive to profit from stock sales while the company was spiraling downward:

Other Global executives also profited handsomely from a wave of stock sales. As a whole, the company’s culture was, one former senior Global executive said, “just a hot-deal shop.”
“There was this dichotomy between this small cabal in Beverly Hills and thousands of people in the rest of the country,” said the former executive, who requested anonymity. “It was put together by a bunch of flippers who saw an amazing gravy train and nothing else.”

So, why are dozens of former Enron executives currently subject to criminal proceedings while no former Global Crossing executives are experiencing similar troubles? Frankly, there is no good explanation. The answer lies primarily in politics — a Republican administration could not afford politically to look as if it was going easy on Enron, which was a highly visible financial supporter of the President Bush’s campaign. Although Global Crossing and Mr. Winnick also contributed to both political parties, Mr. Winnick’s primary support was to former President Clinton, who was gone by the time that Global Crossing was going into the tank.
The discrepany in treatment between the Justice Department’s handling of Enron and Global Crossing highlights the high risk of arbitrary and capricious results that occur when government seeks to criminalize business behavior. As Professor Ribstein has pointed out on several occasions, criminalization of ordinary business behavior risks diluting the moral force of the law, not to speak of discouraging beneficial risk-taking that generates economic development and job creation.
And the counterproductive political activity does not end with criminalization. Sarbones-Oxley Act (“SOX”) was a political regulatory reaction to Enron and other business scandals of the early part of this decade, and Professor Ribstein’s post today points to yet another article that hints of the negative effects of such increased regulation:

In a nutshell, after SOX executive pay becomes less risky and therefore provides lower-powered incentives, and firms are managed more conservatively. The authors concede that they establish only a temporal and not a causal relationship, but the inference is there.
Hopefully politicians and voters will remember that, just as a speculative market bubble can have a regulatory hangover, so a “regulatory bubble” like SOX can put a long-term damper on the market. But I doubt it.

Given the current popularity of criminalizing ordinary business behavior among politicians, I share the Professor’s pessimism.