Global Crossing suit allowed to proceed

Gary Winnick, the founder and former chairman of Global Crossing, must defend himself against claims that he and 22 former executives fraudulently misrepresented the company's finances, a federal judge ruled yesterday.

A group of banks, led by J. P. Morgan Chase & Company, sued Mr. Winnick in October for $1.7 billion, accusing him and the other former executives of engaging in a "massive scam" to conceal Global Crossing's decline so the company could borrow $2.25 billion two months before seeking bankruptcy protection in 2002.

Judge Gerard E. Lynch of Federal District Court in Manhattan denied the defendants' request to dismiss the suit, saying it was not clear whether the banks should have uncovered the suspected fraud. The judge's ruling means Mr. Winnick and the others may face a trial in the case.

The banks have "adequately alleged" that "falsehoods were perpetrated in order to preserve the company's ability to draw on a line of credit that was increasingly necessary for its day-to-day survival," Judge Lynch wrote.

Global Crossing, which spent $15 billion circling the globe with a fiber optic network, leased space on its network to rivals from which it rented capacity at the same time, helping both parties increase reported revenue. The transactions were the subject of investigations by the Securities and Exchange Commission, the Justice Department, and lawmakers.

In March, Mr. Winnick, Global Crossing, and some of the company's former lawyers agreed to pay $325 million to settle lawsuits brought by investors and employees to resolve claims that Mr. Winnick and others inflated revenue by improperly accounting for phone-service swaps.

Global Crossing sought Chapter 11 protection in January 2002 before it could pay back the $2.25 billion loan from the J. P. Morganled group. The company sold a 61.5 percent stake to Singapore Technologies Telemedia to exit bankruptcy in December.

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