Question

There are times management uses techniques to their discretion to improve a company’s performance. When ethics are low, they may use a misleading metric as a surrogate for revenue, earnings, or cash flow. Which misleading metric did Global Crossing use, and how could investors have protected themselves?

Answer 1

Hello Buddy,

The case of Global Crossing is quite an interesting one.

The most misleading metric used by Global Crossing, according to me, was one where Mr. Winnick of Global Crossing turned out to utilize the down fall of the company for his own personal gains. Common ways of doing so were by leasing offices and airplanes from companies or persons controlled by Mr Winnick Himself. Further, couple of business deals when cancelled by the opposite party required them to compensate the cancellation charges by way of purchasing Global Crossing's stock which was ofcourse sold to them by non other than Mr. Winnick from his share of the holding, allowing him to pocket all the gains there as well.

Investors could've protected themselves by studying in depth about the company or even just studying the basic filings made with the SEC. Even data such as offloading of shares of the senior executives and management of the company would've shown them that it is only prudent to sell the stock as early as possible.

I hope the above solution is what you were looking for. For any further queries or doubts in the solution, please feel free to drop a comment. Please do leave a positive feedback, Thank you :)