Global Policy Forum

By Richard Pérez-Peña

As Global Crossing, the troubled telecommunications company, made its long tumble toward bankruptcy, it became a big campaign contributor in New York — giving more than $200,000 in 18 months, most of it to Gov. George E. Pataki and his Republican allies.

Global Crossing and its executives, already big contributors to federal campaigns and candidates in their home base of California, began making modest contributions to New York State political committees in 1999, when the company bought the Frontier Corporation, a phone company based in Rochester.

Then, from April 2000 to October 2001, the company, its subsidiaries and its executives gave at least $65,000 to Mr. Pataki's re- election fund, $56,000 to the Republican majority in the State Senate, $36,000 to the state Republican Party, $22,000 to State Comptroller H. Carl McCall and $19,000 to the Democratic majority in the Assembly.

Over that year and a half, various arms of the company and its officials gave at least $223,000 to state campaigns, $112,000 of which came from Global itself. While those amounts would not be considered big donations from single corporations in national campaigns, at the state level, they are extraordinary. By comparison, Enron, another recently failed giant known for its campaign contributions, gave $23,000 to New York State committees during that period.

At the time of the contributions, Global Crossing was seeking the state's permission to sell Frontier and most of its assets to Citizens Communications of Connecticut for $3.6 billion in cash. That deal, completed last July, gave Global Crossing a badly needed infusion of money — though how much it needed was not widely known until the company's January bankruptcy filing.

The sale also allowed Global Crossing to shed Frontier's local phone service in several states, a business Global had no interest in, while keeping the Frontier long-distance network that fit with Global's long-range plans.

As part of that sale, Global Crossing tried to retain control of Frontier's nearly $700 million pension fund, even though most of the employees covered by that fund were moving to another company. The state's Consumer Protection Board and a union representing Frontier workers balked. Pataki administration regulators blocked the move before permitting the sale. But many Frontier employees have been left with badly depleted retirement funds because their 401(k) plans were heavily invested in Global stock.

Asked about the contributions, Michael McKeon, Mr. Pataki's chief spokesman, said, "The governor's proud of the fact that we have thousands of supporters from every walk of life." He also noted that the administration had blocked the pension fund raid, saying, "We put the people's interests first, and that's clearly what we did in this case."

Becky Yeamans, a Global Crossing spokeswoman, declined to comment on the Frontier sale or any other aspect of the company's business. As for the campaign contributions, she said, "Our senior executives and management team share a strong commitment to being good corporate citizens and that includes taking part in the political process."

Several company executives also declined to discuss the contributions for the record. But one, speaking on the condition that he not be named, said: "You have to understand, it was very, very important to us to be able to sell Frontier quickly. And besides, there was a sense that we wanted to establish ourselves as a player in New York, just as we had on the federal level."

Global Crossing and its top executives did not make any contributions to New York State political committees until it bought Frontier in 1999. Frontier had been a modest contributor, giving $37,000 over the preceding four years. The large contributions began on April 21, 2000, when Global Crossing gave $20,000 to the Republican State Committee. In October 2000, it gave $25,000 to the Senate Republican Campaign Committee and $15,000 to the Democratic Assembly Campaign Committee, the fund-raising arms of the majorities in the two houses of the Legislature. It gave $25,000 more to Senate Republicans in October 2001.

Gary Winnick, the chairman and co-founder of Global Crossing, gave $10,000 to Mr. McCall, a Democrat, in December 2000, and another $10,000 in January 2001. Mr. Winnick sent a memo to company executives in 2000, urging them to support Mr. McCall for governor, but it appears that they did not follow his lead.

Steven Greenberg, a spokesman for Mr. McCall, said the comptroller's office played no role in the Pataki administration's decision to allow the sale of Frontier. Mr. McCall is the sole trustee of the state's pension fund, which had invested about $35 million in the corporation last year, according to a state pension fund report. But Mr. Greenberg said Mr. Winnick's support of Mr. McCall did not influence Mr. McCall's decision to invest in Global Crossing.

By far the biggest burst of contributions occurred last June, as the sale of Frontier was being made final. Over three days, Global and various subsidiaries — most of them arms of Frontier — gave $20,000 to Mr. Pataki in seven separate contributions. (New York State law limits corporate contributions to candidates to $5,000, but companies routinely circumvent that restriction by giving in the names of subsidiaries, which is legal.)

In that same month, Mr. Winnick gave Mr. Pataki $15,000, and three other Global executives gave the governor $10,000 each: Thomas J. Casey, the chief executive; Joseph P. Clayton, who had headed Frontier and was president of Global Crossing North America; and Lodwrick M. Cook, Global's co-chairman and chief of legislative affairs. Also in that month, Global gave $15,000 to the Republican State Committee.

Dozens of smaller contributions from the company and its officials were sprinkled throughout that period.

Several state officials, in the administration and in the Legislature, said they did not know of anything in particular that the company hoped to gain from Albany, aside from approval of the Frontier sale, though they noted that the company would have had an interest in regulatory decisions on the extent of competition in the local and long-distance phone markets. "They never asked us for anything," said a top legislative aide said. "Maybe they just hadn't gotten around to it yet."

Global Crossing, founded in 1997, built an international network of telephone lines, particularly fiber optics, to provide data and voice transmission services to business. While it was legally based in Bermuda, its functional home was in the Los Angeles area, where most of its top executives lived.

Frontier, formerly Rochester Telephone, had made itself a major player in the telecommunications market by buying up other phone companies. It was a local phone operator with 1.1 million lines in more than 20 states, and had long-distance business that, while relatively small, competed successfully with AT&T, MCI and Sprint. It was also an innovator in providing Internet services, and was a major publisher of phone directories.

By 1999, Global's stock price had soared so high that it was able to use that stock to buy Frontier, though Frontier was, by most measures, the larger company. It was clear from the beginning that Global wanted Frontier's long-distance lines, not its local operations. In the next two years, as the market for phone networks boomed and the business saw one high-priced merger after another, the value of Frontier soared, and Global was able to sell the company — all except the long-distance portion — at a big profit.

The buyer was Citizens Communications, a Connecticut-based phone company. Some consumer advocates raised concerns that such consolidation would diminish the prospects for competition in the local phone service market. But the state's Public Service Commission, the panel appointed by the governor that regulates utilities, was prepared to give quick approval to the deal.

By last year, Frontier's pension funds were worth almost $700 million. As part of the sale, Global proposed to take that money with it, though most of the company's more than 2,000 employees would be transferring to Citizens, according to officials of the state, the Communications Workers of America and the Public Utilities Law Project, a consumer-protection group.

Those officials said it was the state's Consumer Protection Board that discovered the raid and alerted the C.W.A., which represents the bulk of Frontier's employees, and the Public Service Commission.

"It was pretty scary," said Linda A. McGrath, president of Communications Workers of America Local 1170, which represents more than 800 Frontier workers.

The Public Service Commission, as a condition of approving the sale, prevented Global from taking the pension money. A deal was worked out in which most of Frontier's pension fund — now worth about $550 million — followed the employees, transferring to Citizens, while a small fraction of the money stayed with Global Crossing. But Mrs. McGrath said that the transfer had not yet taken place and might be held up by Global's bankruptcy.

Meanwhile, many Frontier employees lost much of the retirement savings in their 401(k) plans. Those accounts were heavily invested in Global Crossing stock, some of which the company prohibited employees from selling. That prohibition was lifted when Frontier was sold last year, though by then Global stock had lost most of its value.

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