Mar, 2002 : Cable &Wireless, WorldCom, Others Defend Capacity Swaps

📅 March 22, 2002 - Executives from some of the world's largest communications providers defended their accounting practices yesterday before the U.S. House Financial Services subcommittee on investigations and oversight, which is investigating the bankruptcy of Global Crossing.
Representatives from Cable & Wireless, WorldCom and Qwest Communications all defended the practice of swapping network capacity as both lawful and helpful to the services provided by each company. Each firm either dealt with Global Crossing or its Asia Global Crossing subsidiary, USA Today reported. Global Crossing filed for Chapter 11 protection early this year, marking the telecom industry's biggest bankruptcy filing ever.
Under swapping agreements, telecoms would exchange network capacity and account the sale as revenue and the purchase as a capital expense.
"These transactions were entirely lawful, were reported in a manner in accordance with applicable accounting principles and were fully disclosed," Global Crossing Chief Executive John Legere and Chief Financial Officer Dan Cohrs told the subcommittee, according to Reuters.
Investigators, however, lashed out at the companies, Reuters said. "From where I sit, the whole thing you're talking about is nothing more than a much larger and more fancy Ponzi scheme,'' said Rep. Michael E. Capuano, a Massachusetts Democrat. "You bought something you didn't need with money you didn't have and sold it to someone who didn't need it."
The Securities and Exchange Commission is currently investigating the accounting practices of Global Crossing, and has requested additional information from Qwest and WorldCom regarding the matter. The Federal Bureau of Investigation is also looking in to the accounting practices of the telecom industry.