Global Crossing Fraud Case Study

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Global Crossing fraud Description of the fraudulent activity that took place Global Crossing was a fiber optics company that allegedly engineered its finances to hide critical losses, thus deceiving shareholders. "The company accumulated $12.4 billion in debt building a worldwide fiber optic network. Global Crossing leased space on its 27-nation network to rivals from which it rented capacity at the same time, helping both parties boost reported revenue" (Global Crossing fraud lawsuit can proceed, 2004, LA Times). The company folded in 2002. How the fraudulent activity was discovered The Securities and Exchange Commission investigated Global Crossing for more than two years before finding the fraud. The company allegedly used 'capacity swaps' between itself and other entities, which it "booked as revenue and used to pump up its financial position in 2001" (Global Crossing settles with regulators, 2005, AP Wire). "Capacity swaps" are used to "fill gaps in its network and provide bandwidth to competitors" and are technically legal but critics alleged they were conducted to inflate revenue and did not serve a legitimate purpose (Global Crossing executives defend capacity swaps, 2002, Accounting SmartPros). What internal controls were lacking that allowed the fraud to continue? Global Crossing came to its ascent as an organization during the height of the bubble, when oversight over technology companies was fairly lax, given the lack of understanding of the
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