The FBI, which focuses strictly on criminal matters, has also begun investigating, although its inquiries fall far short of a formal probe, U.S. law enforcement sources said Friday.
The SEC has subpoenaed company documents, including e-mails, contracts and correspondence, said Tisha Kresler, an SEC spokeswoman. Kresler refused to comment on whether the FBI had become involved.
The SEC investigation is an expansion of earlier requests for information. The probe focuses on allegations made by Roy Olofson, vice president of finance until last November, that the company misstated revenue and expenses.
Global Crossing officials have said the charges are without merit and that they are cooperating with the investigation.
While it is not unusual for the S.E.C. to begin an investigation of an accounting issue, F.B.I. involvement is uncommon, according to The New York Times.
Olofson made his allegations last August in a letter to the firm's top lawyer, advising him the company was inflating revenue and cash flow to enhance the appearance of results.
Global Crossing said it had informed its accountants, Arthur Andersen, of Mr. Olofson's accusations, The Times says. But a spokesman for Andersen, already criticized for its handling of financial disclosures at the Enron Corporation, told The Times the firm first learned of Mr. Olofson's concerns only last month, many months after they were first voiced in a letter.
Concern has emerged over losses by the small investors in Global Crossing even as several of the company's high-ranking executives made money through stock deals before the bankruptcy filing, The Times reports. The stock, which closed yesterday at 7 cents, hit a high of $64.25 in 1999.
Among the shareholders of Global Crossing at one point was former President George Bush, who took an $80,000 speaking fee in stock that at the peak was worth $14 million, The Times says. It is not known when, or if, he sold his position.
The company has also been criticized for forgiving personal loans made to two of its top executives at a time when a bankruptcy filing was looming.
Olofson claimed the company boosted sales in the last few days of some quarters by roundtripping - booking a sale of capacity to a customer and then purchasing a similar amount of capacity back from the client. In the second quarter of 2001, Global Crossing did approximately 13 roundtrip transactions, he said.
Global Crossing was giving the impression that it was generating cash revenues when, in actuality, these transactions did not increase the cash position of the company in any material sense, Olofson's lawyer Brian Lysaght said in a statementhis week.
Global Crossing spent billions of dollars over the last five years building a global fiber optics network. When the Bermuda-based firm, which has executive offices in Beverly Hills, filed for bankruptcy protection Jan. 28 it listed $12.3 billion of debt and $22.4 billion of assets.
Olofson also charged that seven months before the company filed for bankruptcy protection, the company's chief financial officer wanted to warn investors that sales were slowing, but felt he couldn't because the chairman had just dumped nearly $124 million worth of stock, Lysaght said.
Global Crossing Chairman and founder Gary Winnick sold nearly 10 million shares on May 23. In all, he sold about $735 million of stock before bankruptcy filings, according to a review of regulatory filings by Thomson Financial/Lancer Analytics, which tracks insider data. A spokesman for Mr. Winnick has emphasized that he held onto more than 70 percent of his stake in the company, The Times reports.
Global Crossing said Olofson's claims are questionable as he is seeking a multimillion-dollar settlement following his termination in November.
Paul Murphy, one of Olofson's lawyers, said Global Crossing is engaging in a carefully orchestrated smear campaign against his client.
© MMII, CBS Worldwide Inc. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed. The Associated Press contributed to this report