Members of the House Energy and Commerce Committee pressed former and current executives of Global Crossing and Qwest Communications today to determine whether the bandwidth swaps between the two companies were sham transactions timed just prior to quarterly reports and designed to artificially boost earnings statements, or legitimate business dealings that simply went awry.

Testifying before the oversight committee were Patrick Joggerst, former president of carrier sales for Global Crossing, Roy Olofson, Global Crossing’s erstwhile vice president of finance, and Robin Szeliga, currently Qwest’s executive vice president for real estate and procurement, but who was the carrier’s chief financial officer at the time the transactions in question took place.

During the morning session House members repeatedly characterized Global Crossing and Qwest as companies that would stop at nothing at the time of the swaps to meet analyst expectations and protect the value of their stock. While Joggerst acknowledged that Global Crossing sales executives often found themselves under a great deal of pressure to close deals at the end of a fiscal quarter – “They would literally watch the clock,” he said – he steadfastly maintained throughout his testimony that a short- or long-term business benefit existed for every transaction. However, Joggerst did admit at one juncture that he believed certain deals were overly aggressive.

“We needed additional capacity in Europe and in the U.S., and we had no presence in the Indian Ocean,” Joggerst said. “We believed that Global Crossing would continue to grow its network and would be one of the survivors.”

Joggerst added that Global Crossing had adequate capital at the time of the swaps to integrate the additional capacity into its network. “If it hadn’t, then there wouldn’t have been a business purpose. But I disagree that there was no business purpose ever,” for these transactions. However, Rep. James Greenwood, R-Pa., quoted from an internal Global Crossing memo that said the eastern European and Scandinavian markets “couldn’t support the numbers that are stated in the business case” associated with the transactions.

Olofson said he was fired soon after raising concerns about the validity of the transactions, and was told by management to “keep the information confidential.” Olofson likened the deals to “trading a red truck for a blue truck,” and said the revenue from the transactions never should have been posted.

“My letter [of August 6, 2001] never said the deals were shady, but I did point out that most of the IRUs we received were worthless,” he said.

Equally worthless was Global Crossing’s investigation into his concerns, said Olofson. “I thought Global Crossing would investigate in good faith. I was wrong. Their initial investigation was so inadequate they’ve had to launch a second investigation”

Rep. Billy Tauzin, R-La., who chairs the Energy and Commerce committee, accused Qwest of creating a culture where employees understood there would be dire consequences if the company didn’t hit its financial targets, but no consequences for “cutting corners.”

Szeliga strongly denied that such a culture existed. However when pressed by Tauzin, she acknowledged a handwritten note following a conversation with former Chairman and CEO Joseph Nacchio, President Afshin Mohebbi and General Counsel Drake Tempest that suggested Morgan Stanley be “quietly closed out” from future dealings with the carrier after the investment firm alleged Qwest had artificially inflated its income statements after its merger with U S West.

“Joe Nacchio was very angry with Morgan Stanley,” Szeliga said.

Szeliga also asserted that Qwest’s accounting of the swaps was within GAAP (generally accepted accounting principles), but could not explain why Qwest and Global Crossing accounted for the same transactions in different manners, despite having the same auditor, Arthur Andersen.

“I can’t speak for Global Crossing, but Qwest followed Arthur Andersen’s guidance,” as well as the guidance of its internal technical accounting team, Szeliga said.