UNITED STATES DISTRICT COURTSOUTHERN DISTRICT OF NEW YOR K------------------------------------------------------x
In re GLOBAL CROSSING, LTD . MASTER FILE NO.ERISA LITIGATION 02 Civ. 7453 (GEL)
CONSOLIDATED AMENDED MASTER CLASS ACTION COMPLAINT OF ERISAPLAINTIFFS SCOTT JOHNSON, JANET MAHONEY, AND BRUCE HILL FOR PLAN-
WIDE RELIEF UNDER THE GLOBAL CROSSING EMPLOYEES' RETIREMEN TSAVINGS PLAN
ERISA Lead Counsel Committee :
KELLER ROHRBACK, LLPLynn Lincoln Sarko (Chairman)Gary A. GottoErin RileyKeller Rohrback LLP1201 Third Avenue, Suite 3200Seattle, Washington 98101-3052(206) 623-1900
BARRETT,JOHNSTON &PARSLEY
George E . BarrettDouglas S . Johnston, Jr.Timothy L . MilesBarre tt, Johnston & Parsley217 Second Avenue NorthNashville, Tennessee 37201(615) 244-2202
SCHIFFRIN & BARROWAYRichard SchiffrinMark TopazJoseph H . MeltzerSchiffrin & BarrowayThree Bala Plaza East, Suite 500Bala Cynwyd, Pennsylvania 19004(610) 667-7706
PREFATORY NOTE S
• On January 28, 2002, Defendant Global Crossing, Ltd ., filed for bankruptcyprotection in the United States Bankruptcy Court for the Southern District of NewYork. References herein to "Global Crossing" include Global Crossing, Ltd ., andits wholly-owned subsidiaries, including Global Crossing North America, Inc .("GCNA"). The bankruptcy case is on-going . A Plan of Reorganization wasconfirmed on January 2, 2003 . Because the Effective Date has not yet occurredunder the Plan of Reorganization, this action is stayed as to Global Crossingunless and until such time as the stay is lifted or relief from the stay is granted bythe bankruptcy court . At this time, Plaintiffs are not prosecuting this action vis-a-vis Global Crossing.
• At such time as the bankruptcy stay may be modified or lifted to permit furtherprosecution of this action against Defendant Global Crossing, Plaintiffs will sonotify the Court and will proceed against Defendant Global Crossing .
• All allegations contained herein are based on the investigation of counsel, exceptfor allegations pertaining to the named Plaintiffs, which are based on personalknowledge. As of the date of this complaint, Plaintiffs have received only limitedmaterials from Defendants in response to formal or informal discovery requests .As a result, it is likely that once the discovery process is underway, the roles ofadditional parties in the wrongdoing outlined below will be revealed and thewrongdoing itself will become further defined . In that event, Plaintiffs will seekleave to amend this complaint to add new parties and/or new claims against thoseparties and/or existing parties .
• Plaintiffs may, at or before the time they file a motion for class certification,include one or more additional proposed Class Representatives .
Plaintiffs Scott Johnson, Janet Mahoney and Bruce Hill, as Participants in the Global
Crossing Employees Retirement Savings Plan (the "Plan") allege the following for their
Consolidated Amended Master Class Action Complaint :
NATURE OF THE ACTION
1 . Plaintiffs bring this action pursuant to Sections 502(a)(2) and (a)(3) of the Employe e
Retirement Income Security Act ("ERISA") (29 U.S.C. § 1132(a)(2) and (a)(3)) . Each Plaintiff
is or was a Participant in the Global Crossing Employees' Retirement Savings Plan (collectively
with all plans merged or otherwise combined into the Global Crossing Employees' Retirement
Savings Plan, including the Frontier Corporation Employees' Retirement Savings Plan, referred
to herein as the "Plan") within the meaning of § 3(7) of ERISA, 29 U .S .C. § 1002(7) .
2. The claims set forth herein are for breach of fiduciary duty or co-fiduciary duty unde r
ERISA. The Defendants are claimed to have breached their fiduciary duties to Plaintiffs and the
other part icipants and beneficiaries of the Plan in violation of ERISA § 404, 29 U .S .C. § 1104, in
a variety of ways, especially in connection with the Plan's acquisition and holding of Global
Crossing stock. Pursuant to ERISA § 409, 29 U .S .C. § 1109, the Defendants are obliged to make
good to the Plan the losses resulting from the breaches of fiduciary duty. These losses have yet
to be calculated, but they will run to hundreds of millions of dollars. Under ERISA § 409,
Plaintiffs are also entitled to other appropriate equitable relief to redress the violations describe d
herein.
3. Because their claims are for Plan-wide relief and apply to the Participants and
Beneficiaries as a whole, and because ERISA § 502(a)(2), 29 U.S.C . § 1132(a)(2), authorizes
Plan participants such as Plaintiffs to sue for losses suffered by the Plan as a result of breaches of
fiduciary duty, and for other appropriate relief, Plaintiffs bring this action on behalf of
themselves and the class of all the Participants and Beneficiaries of the Plan for whose individua l
accounts the Plan held shares of stock of Global Crossing during the relevant period . In addition,
under § 502(a)(3) of ERISA (29 U .S.C. § 1132(a)(3)), Plaintiffs seek other equitable relief from
Defendants, including, without limitation, injunctive relief and, as available under applicabl e
law, constructive trust, restitution, and other monetary relief .
4 . The relevant period for purposes of the ERISA claims set forth in this Complaint i s
the period commencing with the first date on which any Defendant knew, or, in the reasonable
exercise of his or her fiduciary duties should have known, that investment in Global Crossing
stock under the Plan was inappropriate or imprudent, or that continued offering of Globa l
Crossing stock as a Plan investment alternative was inappropriate or imprudent . Such date is n o
later than January 1, 2000 . The period from that date to the present is referred to herein as the
"Class Period ."
JURISDICTION AND VENUE
5 . This Court has subject matter jurisdiction over this action pursu ant to 28 U.S.C. §
1331 (federal question) and the specific jurisdictional statute for claims of this type, ERISA §
502(e)(1), 29 U.S.C. § 1132(e)(1). The Court has personal jurisdiction over Defendants
pursuant to Fed . R. Civ. P. 4(k) .
6. Venue is properly laid in this dist rict pursuant to ERISA § 502(e)(2), 29 U .S .C .
§ 1132(e)(2), because the Plan was administered in this District, some or all of the fiduciar y
breaches for which relief is sought occurred in this District, and one or more of the Defendant s
maybe found in this District . Venue is also proper in this district under 28 U.S .C. § 1391(b) and
(c) because one or more of the Defendants resides in this District .
THE PLAN
7 . The Plan is an "employee pension benefit plan" within the meaning of ERIS A
§ 3(2)(A), 29 U . S.C . § 1002(2)(A). Further, it is an "eligible individual account plan" within the
mean ing of ERISA § 407(d)(3), 29 U .S.C. § 1107(d)(3) and also a "qualified cash or deferred
arrangement" within the meaning of I .R.C. § 401(k) (26 U.S.C. § 401(k)) . The Plan is not a
party to this action . Pursuant to ERISA, however, the relief requested in this action is for the
benefit of the Plan .
8. At all relevant times, Global Crossing was a sponsor of the Plan. '
9. At all relevant times, the Plan had two separate components : (1) a contributory
portion , which consisted of voluntary participant contributions , and (2) a matching component,
which consisted entirely of employer contributions .
10. At all relevant times, Part icipants in the Plan could contribute from 1% to 16 % of
their compensation , subject to certain limits desc ribed by the Internal Revenue Code .
11 . At all relevant times, Global Crossing matched pre-tax and after-tax contributions to
the Plan dollar-for-dollar up to 6 percent (3 percent p rior to January 1, 2001) of the Participants '
eligible compensation. During the Class Period and until 2002, all of the matching contribution s
were invested solely in Global Crossing common stock, and Participants were not permitted t o
redirect the investment thereof for a period of five years .
12. At all relevant times, the Participants in the Plan were presented with alternative
investment options represented to them as suitable for Participant contributions and Globa l
Crossing matching contributions . One of the alternative investment options was Global Crossing
common stock.
13 . At all relevant times, Global Crossing common stock was an available investment
for Participant contributions and matching contributions .
14. During the Class Period, the Plan was required by ERISA to provide to Participants
information with respect to the investment options available under the Plan . Certain information
was provided in the form of a Summary Plan Description ("SPD") . With respect the Global
Crossing common stock, the SPD stated : "Global Crossing Ltd . files regular reports with the
The Plan was originally formed and sponsored by Frontier Corporation as the Frontier Employees' RetirementSavings Plan . Frontier Corporation, a telephone company headquartered in Rochester, New York, was acquired byGlobal Crossing in a merger in September, 1999, and the Plan was continued as the Global Crossing EmployeesRetirement Savings Plan.
Securities and Exchange Commission as required by the Securities Exchange Act of 1934. You
should review the information regarding "Risk Factors" contained in the Global Crossing Annua l
Report on Form 10-K/A for the year ended December 31, 1999, filed with the Securities an d
Exchange Commission on September 21, 2000, and later filings incorporated by referenc e
herein ." As a result of this statement and incorporation by reference, all statements made in
Global Crossing's periodic SEC reports were communicated to Plan Participants .
15 . The Plan is not and never has been a "§404(c) plan," i.e ., a plan that complies with
the regulations promulgated by the Department of Labor under ERISA §404(c), 29 U .S.C.
§ 1104(c) and purports to relieve the Plan's fiduciaries of liability for the results of participants '
exercise of control over their investment decisions. In order to qualify as a §404(c) plan, a plan
must provide plan participants with a broad range of diversified investment options, libera l
opportunities to transfer assets among allocations , and sufficient information to make sound
investment decisions, and must put participants on notice of the intention to qualify unde r
§404(c) . 29 C.F.R. § 2550.404c. The Plan did not satisfy those requirements . As a result of the
failure to qualify as a §404(c) Plan , at all times the Defendants whose fiduciary responsibilitie s
included responsibility for the investment of Plan assets and the designation of Plan investmen t
alternatives remain liable for losses suffered as the result of the imprudent investment of Plan
assets , including investments made ostensibly at the direction, in whole or in part, of Pla n
Participants .
PlaintiffsPARTIES
16. Plaintiff Scott Johnson is, and at all relevant times has been, a Participant, as define d
in ERISA §3(7), 29 U.S.C. § 1002 (7), in the Plan . Mr. Johnson resides in Provincetown ,
Massachusetts .
17 . Plaintiff Janet Mahoney is, and at all relevant times has been, a Participant, as defined
in ERISA §3(7), 29 U.S.C. § 1002(7), in the Plan . Ms. Mahoney resides in Rochester, New York .
18. Plaintiff Bruce Hill was during the Class Period a Participant, as defined in ERIS A
§3(7), 29 U .S.C. §1002(7), in the Plan . Mr. Hill resides in Syracuse , New York .
Defendants
19. Defendant Global Crossing, Ltd. ("Global Crossing") is a Bermuda corporation .
Global Crossing was a sponsor of the Plan . Global Crossing was a fiduciary of the Plan withi n
the mean ing of ERISA § 3(21), 29 U .S.C. § 1002(21), in that it exercised discretionary authority
or discretionary control respecting management of the Plan, exercised authority or control
respecting management or disposition of the Plan's assets, and/or exercised discretionary
authority or discretionary responsibility in the administration of the Plan, including through th e
appointment of Plan fiduciaries . Global Crossing's fiduciary responsibilities extended to all
aspects of the Plan's administration and management, including, without limitation, the
investment of Plan assets, the designation of Plan investment alternatives, the appointment an d
monitoring of Plan fiduciaries, the avoidance of conflicts of interest and the communication s
made to Plan Participants . Further, to the extent that other Defendants acted in the course an d
scope of their employment with Global Crossing in the conduct giving rise to liability hereunder ,
Global Crossing is liable for the actions of such other Defendants under the doctrine o f
respondeat superior.
20. Defendant Gary Winnick ("Winnick") was at all relevant times Chairman of Globa l
Crossing's Board of Directors and a member of the Executive Committee of the Board o f
Directors (the "Executive Committee") . Winnick was involved extensively and personally in al l
major Global Crossing decisions and transactions, and was informed of all materia l
6
developments respecting the Company. As a director, Winnick participated in the appointment
of members of the "Plan Committee" (as defined in Paragraph 43), and was responsible for th e
on-going monitoring of the actions of Plan fiduciaries . Winnick's fiduciary duty to monitor Plan
fiduciaries included the duty to provide those fiduciaries with material information known t o
Winnick with respect to Plan investments, including Global Crossing Stock. Winnick personally
participated in the preparation and dissemination to Plan Participants of communications wit h
respect to the investment of their account balances in Global Crossing Stock, including, withou t
limitation, through his signing of SEC filings incorporated by reference in the SPD, and b y
participating in oral and written communications to Plan Participants that encouraged th e
investment of their Plan balances in Global Crossing stock . By virtue of his membership on the
Global Crossing Board of Directors, Plaintiffs are informed and believe that Winnick was a
member of the Plan Committee during the periods that the Board of Directors failed to appoint a
Global Crossing Employee Benefits Committee as required by the Plan . Winnick's fiduciary
responsibilities extended to all material aspects of the Plan's management, including, withou t
limitation, the investment of Plan assets, the designation of Plan investment alternatives, th e
appointment and monitoring of Plan fiduciaries and the providing to those fiduciaries of materia l
information, the avoidance of conflicts of interest and the communications made to Pla n
Participants .
21 . Defendant Dan J . Cohrs ("Cohrs ") was at all relevant times Global Crossing's Chief
Financial Officer and a member of the Plan Committee and of Global Crossing's Management
Committee (the "Management Committee") . Cohrs personally participated in the preparation
and dissemination to Plan Participants of communications with respect to the investment of thei r
account balances in Global Crossing Stock, including, without limitation, through his signing of
SEC filings incorporated by reference in the SPD. As a member of the Pl an Committee, Cohrs
was a fiduciary of the Plan within the mean ing of ERISA § 3(21), 29 U.S.C. § 1002(21), with
direct responsibility and authority with respect to the investment of Plan assets and th e
designation of Plan investment alternatives . In addition, because by his actions, including,
without limitation, his membership on the Plan Committee, Cohrs exercised discretionary
authority or discretionary control respecting management of the Plan, exercised authority or
control respecting management or disposition of the Plan's assets, and/or exercised discretionar y
authority or discretionary responsibility in the administration of the Plan, Cohrs was a fiduciar y
of the Plan within the meaning of ERISA § 3(21), 29 U .S.C. § 1002(21) . Cohrs's fiduciary
responsibilities extended to all aspects of the Plan 's administration and management , including ,
without limitation, the investment of Plan assets, the designation of Plan investment alternatives ,
the appointment and monitoring of Plan fiduciaries, the avoidance of conflicts of interest and th e
communications made to Plan Participants .
22. Defendant John L. Comparin ("Comparin") served at times relevant hereto as Senior
Vice President of Human Resources (August 1999-2000) and Executive Vice President o f
Human Resources (December 2000-present), and at all relevant times was a member of the Plan
Committee and a member of the Management Committee . As a member of the Plan Committee,
Comparin was a fiduciary of the Plan within the meaning of ERISA § 3(21), 29 U .S .C . §
1002(21), with direct responsibility and authority with respect to the investment of Plan asset s
and the designation of Plan investment alternatives . In addition, because by his actions ,
including, without limitation, his membership on the Plan Committee, Comparin exercise d
discretionary authority or discretionary control respecting management of the Plan, exercised
authority or control respecting management or disposition of the Plan's assets, and/or exercised
discretionary authority or discretionary responsibility in the administration of the Plan, Compari n
was a fiduciary of the Plan within the meaning of ERISA § 3(21), 29 U .S.C. § 1002(21) .
Comparin's fiduciary responsibilities extended to all aspects of the Plan's administration an d
management, including, without limitation, the investment of Plan assets, the designation of Pla n
investment alternatives, the appointment and monitoring of Plan fiduciaries, the avoidance o f
conflicts of interest and the communications made to Plan Participants .
23 . Defendant Joseph P. Perrone ("Perrone") was hired by Global Crossing as Senio r
Vice President, Finance, on or about May 1, 2000 . In December 2000, Perrone became
Executive Vice President, Finance . From and after October 1, 2000, Perrone was a member of
the Plan Committee and was a member of the Management Committee . As a member of the Plan
Committee, Perrone was a fiduciary of the Plan within the meaning of ERISA § 3(21), 29 U .S .C .
§ 1002(21), with direct responsibility and authority with respect to the investment of Plan asset s
and the designation of Plan investment alternatives . In addition, because by his actions ,
including, without limitation, his membership on the Plan Committee, Perrone exercise d
discretionary authority or discretionary control respecting management of the Plan, exercised
authority or control respecting management or disposition of the Plan's assets, and/or exercise d
discretionary authority or discretionary responsibility in the administration of the Plan, Perron e
was a fiduciary of the Plan within the meaning of ERISA § 3(21), 29 U .S .C. § 1002(21) .
Perrone's fiduciary responsibilities extended to all aspects of the Plan 's administration and
management, including, without limitation, the investment of Plan assets, the designation of Pla n
investment alternatives, the appointment and monitoring of Plan fiduciaries, the avoidance o f
conflicts of interest and the communications made to Plan Participants .
24. Defendant Linda Woodruff ("Woodruff') was, at all relevant times the Vice President
9
of Compensation and Benefits with general responsibility for day-to-day operations of the Plan .
In addition, Woodruff was a member of the Plan Committee . Woodruff was a fiduciary of the
Plan within the meaning of ERISA § 3(21), 29 U .S .C. § 1002(21), with direct responsibility and
authority with respect to the investment of Plan assets and the designation of Plan investmen t
alternatives . In addition, because by her actions, including, without limitation, her membership
on the Plan Committee and the day-to-day responsibility for Plan operations, Woodruff exercise d
discretionary authority or discretionary control respecting management of the Plan, exercised
authority or control respecting management or disposition of the Plan's assets, and/or exercise d
discretionary authority or discretionary responsibility in the administration of the Plan, Woodruf f
was a fiduciary of the Plan within the mean ing of ERISA § 3(21), 29 U.S.C. § 1002(21) .
Woodruff's fiduciary responsibilities extended to all aspects of the Plan 's administration and
management, including, without limitation, the investment of Plan assets, the designation of Pla n
investment alternatives, the appointment and monitoring of Plan fiduciaries, the avoidance o f
conflicts of interest and the communications made to Plan Participants .
25. Defendant William Norris ("Norris") was, at relevant times, the Director of Huma n
Resources and a member of the Plan Committee . Norris was a fiduciary of the Plan within the
meaning of ERISA § 3(21), 29 U .S.C. § 1002(21), with direct responsibility and authority with
respect to the investment of Plan assets and the designation of Plan investment alternatives . In
addition, because by his actions, including, without limitation his membership on the Pla n
Committee, Norris exercised discretionary authority or discretionary control respecting
management of the Plan, exercised authority or control respecting m anagement or disposition o f
the Plan' s assets , and/or exercised discretionary authority or discretionary responsibility in the
administration of the Plan, Norris was a fiduciary of the Plan within the meaning of ERIS A
10
§ 3(21), 29 U.S.C. § 1002(21) . Norris's fiduciary responsibilities extended to all aspects of the
Plan's administration and management, including, without limitation, the investment of Plan
assets, the designation of Plan investment alternatives, the appointment and monitoring of Pla n
fiduciaries, the avoidance of conflicts of interest and the communications made to Pla n
Participants .
26. Defendant K.P. Schirmuhly ("Schirmuhly") served at times relevant hereto as
Director of Compensation and as a member of the Plan Committee . Schirmuhly was a fiduciary
of the Plan within the meaning of ERISA § 3(21), 29 U .S.C. § 1002(21), with direc t
responsibility and authority with respect to the investment of Plan assets and the designation o f
Plan investment alternatives . In addition, because by his actions, including, without limitation ,
his membership in the Plan Committee, Schirmuhly exercised discretionary authority o r
discretionary control respecting management of the Plan, exercised authority or control
respecting management or disposition of the Plan's assets , and/or exercised discretionary
authority or discretionary responsibility in the administration of the Plan, Schirmuhly was a
fiduciary of the Plan within the meaning of ERISA § 3(21), 29 U .S.C. § 1002(21). Schirmuhly' s
fiduciary responsibilities extended to all aspects of the Plan 's administration and management,
including, without limitation, the investment of Plan assets, the designation of Plan investmen t
alternatives, the appointment and monitoring of Plan fiduciaries, the avoidance of conflicts o f
interest and the communications made to Plan Participants .
27. Defendant Robert Annunziata ("Annunziata") was one of Global Crossing's five
Chief Executive Officers, and was, at relevant times, a member of the Board of Directors and o f
the Executive Committee . As a director, Annunziata participated in the appointment of member s
of the Committee, and was responsible for the on-going monitoring of the actions of Pla n
11
fiduciaries. Annunziata's fiduciary duty to monitor Plan fiduciaries included the duty to provid e
those fiduciaries with material information known to Annunziata with respect to Pla n
investments, including Global Crossing Stock. As a director, Annunziata was a fiduciary of th e
Plan within the meaning of ERISA § 3(21), 29 U .S .C. § 1002(2 1), with direct responsibility for
appointment and monitoring of Plan fiduciaries . In addition, because by his actions, including ,
without limitation, his actions as a director, Annunziata exercised discretionary authority o r
discretionary control respecting management of the Plan, exercised authority or control
respecting management or disposition of the Plan's assets, and/or exercised discretionary
authority or discretionary responsibility in the administration of the Plan, Annunziata was a
fiduciary of the Plan within the meaning of ERISA § 3(21), 29 U.S.C. § 1002(21). Annunziata's
fiduciary responsibilities extended to the appointment and monitoring of Plan fiduciaries, and t o
the providing to those fiduciaries of material information .
28. Defendant William S . Cohen ("Cohen") served at relevant times relevant as a director
of Global Crossing and as a member of the Compensation Committee of the Board of Director s
(the "Compensation Committee") . As a director and member of the Compensation Committee ,
Cohen participated in the appointment of members of the Committee, and was responsible for th e
on-going monitoring of the actions of Plan fiduciaries . Cohen's fiduciary duty to monitor Plan
fiduciaries included the duty to provide those fiduciaries with material information known t o
Cohen with respect to Plan investments, including Global Crossing Stock . As a director an d
member of the Compensation Committee, Cohen was a fiduciary of the Plan within the meanin g
of ERISA § 3(21), 29 U.S.C. § 1002(21), with direct responsibility for appointment and
monitoring of Plan fiduciaries . In addition, because by his actions, including, without limitation ,
his membership on the Compensation Committee, Cohen exercised discretionary authority o r
12
discretionary control respecting management of the Plan, exercised authority or contro l
respecting management or disposition of the Plan's assets, and/or exercised discretionary
authority or discretionary responsibility in the administration of the Plan, Cohen was a fiduciar y
of the Plan within the meaning of ERISA § 3(21), 29 U .S .C. § 1002(21) . Cohen's fiduciary
responsibilities extended to the appointment and monitoring of Plan fiduciaries, and the
providing to those fiduciaries of material information .
29. Defendant Barry Porter ("Porter") was at all relevant times Senior Vice President an d
a director of Global Crossing . As a director, Porter participated in the appointment of members
of the Committee, and was responsible for the on-going monito ring of the actions of Plan
fiduciaries. Porter's fiduciary duty to monitor Plan fiduciaries included the duty to provide thos e
fiduciaries with material information known to Porter with respect to Plan investments, includin g
Global Crossing Stock. As a director, Porter was a fiduciary of the Plan within the meaning of
ERISA § 3(21), 29 U.S.C. § 1002(21), with direct responsibility for appointment and monitorin g
of Plan fiduciaries . In addition, because by his actions, including, without limitation, his action s
as a director, Porter exercised discretionary authority or discretionary control respectin g
management of the Plan, exercised authority or control respecting management or disposition o f
the Plan's assets, and/or exercised discretionary authority or discretionary responsibility in the
administration of the Plan, Porter was a fiduciary of the Plan within the meaning of ERISA
§ 3(21), 29 U.S .C. § 1002(2 1) . Porter's fiduciary responsibilities extended to the appointment
and monitoring of Plan fiduciaries, and to the providing to those fiduciaries of materia l
information .
30. Defendant Lodwrick M . Cook ("Cook") was at relevant times a director of and co-
chairman of the Board of Global Crossing and a member of the Compensation Committee, th e
13
Executive Committee and the Management Committee . As a director and member of the
Compensation Committee, Cook participated in the appointment of members of the Committee,
and was responsible for the on-going monitoring of the actions of Plan fiduciaries . Cook's
fiduciary duty to monitor Plan fiduciaries included the duty to provide those fiduciaries with
material information known to Cook with respect to Plan investments, including Global Crossing
Stock. Cook also personally participated in the preparation and dissemination to Plan
Participants of communications with respect to the investment of their account balances in
Global Crossing Stock, including, without limitation, through his signing of SEC filings
incorporated by reference in the SPD . As a director and member of the Compensation
Committee, Cook was a fiduciary of the Plan within the meaning of ERISA § 3(21), 29 U .S .C .
§ 1002(21), with direct responsibility for appointment and monitoring of Plan fiduciaries . In
addition, because by his actions, including, without limitation, his membership on th e
Compensation Committee and participation in communications to Plan Participants, Cook
exercised discretionary authority or discretionary control respecting management of the Plan,
exercised authority or control respecting management or disposition of the Plan's assets, and/or
exercised discretionary authority or discretionary responsibility in the administration of the Plan ,
Cook was a fiduciary of the Plan within the meaning of ERISA § 3(21), 29 U .S.C. § 1002(2 1) .
Cook's fiduciary responsibilities extended to the appointment and monitoring of Plan fiduciaries,
and the providing to those fiduciaries of material information, and to the preparation and
dissemination of communications to Participants .
31 . Defendant Geoffrey J .W. Kent ("Kent") was at relevant times a director of Global
Crossing and a member of the Compensation Committee of the Global Crossing Board of
Directors . As a director and member of the Compensation Committee, Kent participated in the
14
appointment of members of the Committee, and was responsible for the on-going monitoring of
the actions of Plan fiduciaries . Kent's fiduciary duty to monitor Plan fiduciaries included the
duty to provide those fiduciaries with material information known to Kent with respect to Plan
investments, including Global Crossing Stock. Kent also personally participated in the
preparation and dissemination to Plan Participants of communications with respect to the
investment of their account balances in Global Crossing Stock, including, without limitation,
through his signing of SEC filings incorporated by reference in the SPD. As a director and
member of the Compensation Committee, Kent was a fiduciary of the Plan within the meaning of
ERISA § 3(21), 29 U.S.C. § 1002(2 1), with direct responsibility for appointment and monitoring
of Plan fiduciaries . In addition, because by his actions, including, without limitation, his
membership on the Compensation Committee, Kent exercised discretionary authority or
discretionary control respecting management of the Plan, exercised authority or control
respecting management or disposition of the Plan's assets, and/or exercised discretionary
authority or discretionary responsibility in the administration of the Plan, Kent was a fiduciary of
the Plan within the meaning of ERISA § 3(21), 29 U .S .C . § 1002(21) . Kent's fiduciary
responsibilities extended to the appointment and monitoring of Plan fiduciaries and the providing
to those fiduciaries of material information, and to the preparation and dissemination of
communications to Participants .
32 . Defendant Mark Attanasio ("Attanasio") was at relevant times a director of Globa l
Crossing, a member of the Compensation Committee of the Global Crossing Board of Directors,
and a member of the Executive Committee. As a director and member of the Compensation
Committee, Attanasio participated in the appointment of members of the Committee, and was
responsible for the on-going monitoring of the actions of Plan fiduciaries . Attanasio's fiduciary
15
duty to monitor Plan fiduciaries included the duty to provide those fiduciaries with material
information known to Attanasio with respect to Plan investments, including Global Crossing
Stock. As a director and member of the Compensation Committee, Attanasio was a fiduciary of
the Plan within the meaning of ERISA § 3(21), 29 U .S.C. § 1002(21), with direct responsibility
for appointment and monitoring of Plan fiduciaries . In addition, because by his actions,
including, without limitation, his membership on the Compensation Committee, Attanasio
exercised discretionary authority or discretionary control respecting management of the Plan,
exercised authority or control respecting management or disposition of the Plan's assets, and/or
exercised discretionary authority or discretionary responsibility in the administration of the Plan,
Attanasio was a fiduciary of the Plan within the meaning of ERISA § 3(21), 29 U .S.C. §
1002(21) . Attanasio's fiduciary responsibilities extended to the appointment and monitoring of
Plan fiduciaries, and to the providing to those fiduciaries of material information .
33 . Defendant Thomas J. Casey ("Casey") was at all relevant times Vice Chairman of
Global Crossing's Board of Directors and was Global Crossing's Chief Executive Officer until his
removal from that position on October 4, 2001 . At relevant times, Casey was a member of the
Board of Directors of GCNA, a member of the Executive Committee and a member of the
Management Committee. Casey personally participated in the preparation and dissemination to
Plan Participants of communications with respect to the investment of their account balances i n
Global Crossing Stock, including, without limitation, through his signing of SEC filings
incorporated by reference in the SPD. As a director of Global Crossing and GCNA, Casey
participated in the appointment of members of the Committee, and was responsible for the on-
going monitoring of the actions of Plan fiduciaries . As a director, Casey was a fiduciary of the
Plan within the meaning of ERISA § 3(21), 29 U .S.C. § 1002(21), with direct responsibility for
16
appointment and monitoring of Plan fiduciaries . Casey's fiduciary duty to monitor Plan
fiduciaries included the duty to provide those fiduciaries with material information known t o
Casey with respect to Plan investments , including Global Crossing Stock. In addition, becaus e
by his actions, including, without limitation, his actions as a director and his participation i n
communications to Plan Participants, Casey exercised discretionary authority or discretionar y
control respecting management of the Plan, exercised authority or control respecting
management or disposition of the Plan's assets, and/or exercised discretionary authority o r
discretionary responsibility in the administration of the Plan, Casey was a fiduciary of the Plan
within the meaning of ERISA § 3(21), 29 U .S .C. § 1002(21) . Casey's fiduciary responsibilities
extended to the appointment and monitoring of Plan fiduciaries and the providing to thos e
fiduciaries of material information, and to the preparation and dissemination of communication s
to Plan Participants .
34. Defendant Jack M . Scan lon ("Scanlon") was at relevant times a director of Global
Crossing. Scanlon personally participated in the preparation and dissemination to Plan
Participants of communications with respect to the investment of their account balances i n
Global Crossing Stock, including, without limitation, through his signing of SEC filing s
incorporated by reference in the SPD . As a director, Scanlon participated in the appointment o f
members of the Committee, and was responsible for the on-going monitoring of the actions of
Plan fiduciaries. Scanlon's fiduciary duty to monitor Plan fiduciaries included the duty to
provide those fiduciaries with material information known to Scanlon with respect to Plan
investments, including Global Crossing Stock . As a director, Scanlon was a fiduciary of the Plan
within the meaning of ERISA § 3(21), 29 U .S .C. § 1002(21), with direct responsibility for
appointment and monitoring of Plan fiduciaries In addition, because by his actions, including ,
17
without limitation, his actions as a director and his participation in communications to Plan
Participants, Scanlon exercised discretionary authority or discretionary control respecting
management of the Plan, exercised authority or control respecting management or disposition of
the Plan's assets, and/or exercised discretionary authority or discretionary responsibility in the
administration of the Plan, Scanlon was a fiduciary of the Plan within the meaning of ERISA §
3(21), 29 U.S.C. § 1002(2 1) . Scanlon's fiduciary responsibilities extended to the appointment
and monitoring of Plan fiduciaries, and the providing to those fiduciaries of material information .
35. Defendant Leo J . Hindery ("Hindery") was at relevant times a director of Global
Crossing, Chief Executive Officer of Global Crossing and a member of the Executive
Committee. Hindery personally participated in the preparation and dissemination to Plan
Participants of communications with respect to the investment of their account balances in
Global Crossing Stock, including, without limitation, through his signing of SEC filings
incorporated by reference in the SPD . As a director, Hindery participated in the appointment of
members of the Committee, and was responsible for the on-going monitoring of the actions of
Plan fiduciaries. Hindery's fiduciary duty to monitor Plan fiduciaries included the duty to
provide those fiduciaries with material information known to Hindery with respect to Plan
investments, including Global Crossing Stock . As a director, Hindery was a fiduciary of the Plan
within the meaning of ERISA § 3(21), 29 U .S.C. § 1002(21), with direct responsibility for
appointment and monitoring of Plan fiduciaries . In addition, because by his actions, including ,
without limitation, his actions as a director and his participation in communications to Plan
Participants, Hindery exercised discretionary authority or discretionary control respecting
management of the Plan, exercised authority or control respecting management or disposition of
the Plan's assets, and/or exercised discretionary authority or discretionary responsibility in th e
18
administration of the Plan, Hindery was a fiduciary of the Plan within the meaning of ERISA §
3(21), 29 U.S.C. § 1002(21) . Hindery's fiduciary responsibilities extended to the appointment
and monitoring of Plan fiduciaries, and to the providing to those fiduciaries of materia l
information .
36. Defendant David L . Lee ("Lee") was at relevant times a director of Global Crossing .
Lee personally participated in the preparation and dissemination to Plan Participants of
communications with respect to the investment of their account balances in Global Crossing
Stock, including, without limitation, through his signing of SEC filings incorporated by reference
in the SPD. As a director, Lee participated in the appointment of members of the Committee,
and was responsible for the on-going monitoring of the actions of Plan fiduciaries . Lee's
fiduciary duty to monitor Plan fiduciaries included the duty to provide those fiduciaries with
material information known to Lee with respect to Plan investments, including Global Crossing
Stock. As a director, Lee was a fiduciary of the Plan within the meaning of ERISA § 3(21), 29
U.S.C . § 1002(21), with direct responsibility for appointment and monitoring of Plan fiduciaries .
In addition, because by his actions, including, without limitation, his actions as a director and hi s
participation in communications to Plan Participants, Lee exercised discretionary authority or
discretionary control respecting management of the Plan, exercised authority or control
respecting management or disposition of the Plan' s assets, and/or exercised discretionary
authority or discretionary responsibility in the administration of the Plan, Lee was a fiduciary of
the Plan within the meaning of ERISA § 3(21), 29 U .S.C. § 1002(21) . Lee's fiduciary
responsibilities extended to the appointment and monitoring of Plan fiduciaries, and to the
providing to those fiduciaries of material information .
37. Defendant Joseph P. Clayton ("Clayton") was at relevant times a member of the
19
Board of Directors of Global Crossing, a member of the Board of Directors of GCNA, and a
member of the Management Committee . Clayton personally participated in the preparation and
dissemination to Plan Participants of communications with respect to the investment of thei r
account balances in Global Crossing Stock, including, without limitation, through his signing o f
SEC filings incorporated by reference in the SPD . As a director of Global Crossing and GCNA,
Clayton participated in the appointment of members of the Committee, and was responsible fo r
the on-going monitoring of the actions of Plan fiduciaries . Clayton's fiduciary duty to monitor
Plan fiduciaries included the duty to provide those fiduciaries with material information know n
to Clayton with respect to Plan investments, including Global Crossing Stock . As a director ,
Clayton was a fiduciary of the Plan within the meaning of ERISA § 3(21), 29 U .S.C. § 1002(21) ,
with direct responsibility for appointment and monitoring of Plan fiduciaries . In addition,
because by his actions, including, without limitation, his actions as a director and hi s
participation in communications to Plan Participants, Clayton exercised discretionary authority o r
discretionary control respecting management of the Plan, exercised authority or control
respecting management or disposition of the Plan's assets, and/or exercised discretionar y
authority or discretionary responsibility in the administration of the Plan, Clayton was a fiduciary
of the Plan within the meaning of ERISA § 3(21), 29 U.S.C. § 1002(21). Clayton's fiduciary
responsibilities extended to the appointment and monitoring of Plan fiduciaries, and to th e
providing to those fiduciaries of material information .
38. Defendant Abbott L . Brown ("Brown") was at relevant times a member of the Boar d
of Directors of Global Crossing and a member of the Board of Directors of GCNA . As a director
of Global Crossing and GCNA, Brown part icipated in the appointment of members of th e
Committee, and was responsible for the on-going monitoring of the actions of Plan fiduciaries .
20
Brown's fiduciary duty to monitor Plan fiduciaries included the duty to provide those fiduciaries
with material information known to Brown with respect to Plan investments, including Global
Crossing Stock . As a director, Brown was a fiduciary of the Plan within the meaning of ERISA §
3(21), 29 U .S.C. § 1002(21), with direct responsibility for appointment and monitoring of Plan
fiduciaries . In addition, because by his actions, including, without limitation, his actions as a
director and his participation in communications to Plan Participants, Brown exercised
discretionary authority or discretionary control respecting management of the Plan, exercised
authority or control respecting management or disposition of the Plan's assets, and/or exercised
discretionary authority or discretionary responsibility in the administration of the Plan, Brown
was a fiduciary of the Plan within the meaning of ERISA § 3(21), 29 U .S.C . § 1002(21) . Brown's
fiduciary responsibilities extended to the appointment and monitoring of Plan fiduciaries, and to
the providing to those fiduciaries of material information .
39. Defendant James F . McDonald ("McDonald") was at relevant times a director o f
Global Crossing and a member of the Compensation Committee of the Global Crossing Board of
Directors . As a director and member of the Compensation Committee, McDonald participated in
the appointment of members of the Committee, and was responsible for the on-going monitoring
of the actions of Plan fiduciaries . McDonald personally participated in the preparation an d
dissemination to Plan Participants of communications with respect to the investment of their
account balances in Global Crossing Stock, including, without limitation, through his signing of
SEC filings incorporated by reference in the SPD . As a director and member of the
Compensation Committee, McDonald was a fiduciary of the Plan within the meaning of ERISA
§ 3(21), 29 U.S.C. § 1002(21), with direct responsibility for appointment and monitoring of Plan
fiduciaries. McDonald's fiduciary duty to monitor Plan fiduciaries included the duty to provid e
21
those fiduciaries with material information known to McDonald with respect to Plan
investments, including Global Crossing Stock. In addition, because by his actions, including ,
without limitation his membership on the Compensation Committee and participation i n
connection with communications to Plan Participants, McDonald exercised discretionar y
authority or discretionary control respecting management of the Plan, exercised authority or
control respecting management or disposition of the Plan's assets, and/or exercised discretionary
authority or discretionary responsibility in the administration of the Plan, McDonald was a
fiduciary of the Plan within the meaning of ERISA § 3(21), 29 U.S.C. § 1002(21) . McDonald' s
fiduciary responsibilities extended to the appointment and monitoring of Plan fiduciaries, and t o
the providing to those fiduciaries of material information .
40. Defendant Douglas H. McCorkindale ("McCorkindale") was at relevant times a
director of Global Crossing, a member of the Compensation Committee, and a member of th e
Executive Committee . As a director and member of the Compensation Committee ,
McCorkindale participated in the appointment of members of the Committee, and wa s
responsible for the on-going monitoring of the actions of Plan fiduciaries . McCorkindale' s
fiduciary duty to monitor Plan fiduciaries included the duty to provide those fiduciaries with
material information known to McCorkindale with respect to Plan investments, including Global
Crossing Stock. McCorkindale personally participated in the preparation and dissemination to
Plan Participants of communications with respect to the investment of their account balances i n
Global Crossing Stock, including, without limitation, through his signing of SEC filing s
incorporated by reference in the SPD . As a director and member of the Compensation
Committee, McCorkindale was a fiduciary of the Plan within the meaning of ERISA § 3(21), 2 9
U.S.C. § 1002(21), with direct responsibility for appointment and monito ring of Plan fiduciaries
22
In addition, because by his actions, including, without limitation, his membership on th e
Compensation Committee and participation in connection with communications to Pla n
Participants, McCorkindale exercised discretionary authority or discretionary control respectin g
management of the Plan, exercised authority or control respecting management or disposition o f
the Plan's assets , and/or exercised discretionary authority or discretionary responsibility in the
administration of the Plan, McCorkindale was a fiduciary of the Plan within the meaning of
ERISA § 3(21), 29 U.S.C. § 1002(21). McCorkindale 's fiduciary responsibilities extended to the
appointment and monitoring of Plan fiduciaries, and to the providing to those fiduciaries o f
material information .
41 . Fictitious Defendants John Does 1-30 are residents of the United States and are or
were members of the Committee during the Class Period . Their identity is now unknown to
Plaintiffs . Once their identity is discovered, Plaintiffs will seek leave to amend to join them
under their true names .
42. Defendants Winnick, Cohen, Cook, Kent, Attanasio, Casey, Scanlon, Hindery, Lee ,
Clayton, Brown, McDonald and McCorkindale are referred to herein collectively as the "Director
Defendants." Defendants Winnick, Cohrs, Comparin, Perrone, Cook, Attanasio, Casey, Hinder y
and McCorkindale are referred to herein as the "Board Committee Defendants ." Defendant s
Cohrs, Comparin, Perrone, Woodruff, Norris and Schirmuhly, and any other Defendant who wa s
a member of the Global Crossing Board of Directors during a time that it failed to appoint an
Employee Benefits Committee as required by the Plan, are referred to herein collectively as th e
"Plan Committee Defendants ." Defendants Global Crossing, Winnick, Cohrs, Kent, Clayton ,
Cook, Casey, Hindery, Lee, Brown, McDonald, McCorkindale and Scanlon are referred to herei n
as the "Communications Defendants ."
23
FIDUCIARY STATU S
43. ERISA requires every plan to provide for one or more named fiducia ries , who wil l
have "authority to control and manage the operation and administration of the plan ." ERISA
§ 402(a)(1) (29 U.S.C . § 1102(a)(1)). Instead of delegating fiduciary responsibility for the Plan
to external service providers, as is permitted by ERISA, the Company chose instead to internaliz e
the fiduciary function . In the document governing the Plan, Global Crossing, acting as Plan
Sponsor, designated as Named Fiduciary the "Employee Benefits Committee" (`BBC"), a non-
juridical entity appointed by the Global Crossing Board of Directors . As a result, the EBC and
its members were Plan Fiduciaries . Plaintiffs are informed and believe that at certain times
during the Class Period, the Global Crossing Board of Directors failed to appoint an EBC, bu t
instead permitted certain other committees, including the Frontier Management Benefit s
Committee (the "FMBC"), the Frontier Management Investment Committee ("FMIC") and th e
Frontier Employee Benefits Commi ttee (the "FEBC") to exercise various authority and discharge
various responsibilities of the EBC with respect to the Plan . During any period that the Globa l
Crossing Board of Directors failed to appoint an EBC as required by the Plan, the Global
Crossing Board of Directors effectively was the EBC and therefore the members of the Board o f
Directors had the direct fiduciary responsibility to discharge the functions of the EBC as
contemplated by the Plan . Further, du ring any such time, the FMBC, the FMIC and the FEBC
and their respective members were also Plan fiduciaries . The EBC and FMBC, FMIC and
FEBC, to the extent such committees other than the EBC exercised any authority or discharged
responsibility with respect to the Plan, and the Board of Directors during any period that it failed
to appoint the EBC as required by the Plan, are referred to herein collectively as the "Plan
Committee." The Plan Committee had general administrative and oversight authority with
24
respect to the Plan, including the authority and responsibility to designate from time to time th e
investment funds that would be available for investment under the Plan . Because the Plan
Committee, and each committee or board comprised by the Committee, are not juridical entities ,
their respective members are also named fiduciaries of the Plan .
44. ERISA also treats as a fiduciary not only persons explicitly named as fiduciaries
under § 402(a)(1), but persons whose behavior entails the conduct of fiduciary functions . ERISA
§ 3 (21) (A) (i) (29 U .S .C. § 1102 (21)(A)(i) makes a person ( including a juridical person such as
the Company) a fiduciary "to the extent . . . he exercises any discretionary authority or
discretionary control respecting management of such plan or exercises any authority or control
respecting management or disposition of its assets . . . ."
45 . During the Class Period, the Plan Committee Defendants and the Communication s
Defendants performed fiduciary functions under this standard, and thereby acted as fiduciaries o f
the Plan under ERISA.
46. An employer also acts in a fiduciary capacity under ERISA when it misleads
employees about the character and prospects of Global Crossing for the purpose of affecting the
employees' ERISA plan elections . During the Class Period, Global Crossing's communications
with Plan participants, including Global Crossing's SEC filings incorporated by reference int o
the communications provided to Participants, included material misrepresentations an d
omissions to induce them to continue to invest in and maintain investments in Global Crossing' s
shares in the Plan and to accept at face value investments in Global Crossing's shares with th e
employer match contributions . Global Crossing thereby also acted as a fiduciary under ERISA .
SCOPE OF DEFENDANTS' FIDUCIARY RESPONSIBILITIE S
47. ERISA permits the fiduciary function to be shared among various individuals and
25
entities . Given ERISA's functional conception of a fiduciary, absent formal discovery it i s
impossible to know exactly which fiduciaries exercised which fiduciary functions . Based on the
information available to Plaintiffs, the Defendants' fiduciary responsibility was at least partiall y
allocated among Global Crossing, the Plan Committee and its members , and the Global Crossing
Board of Directors and its members .
48. The EBC (and the other committees or board included in the definition of "Pla n
Committee" as set forth in Paragraph 43) as the Plan Administrator was presumptivel y
responsible for all fiduciary functions . Only if a fiduciary function is effectively delegated
pursuant to ERISA § 405(c) (29 U.S .C. § 1105(c)) may a named fiduciary limit its fiduciary
responsibility . With respect to the fiduciary issues involved here, no such delegation occurred .
Because the Plan Committee was simply an internal agency of Global Crossing, with no separat e
legal existence, and was populated entirely by Global Crossing employees appointed by Globa l
Crossing's Board of Directors who acted in the ordinary course and scope of their employment ,
ordinary principles of vicarious liability impose on Global Crossing fiduciary responsibility for
their actions. Further, because the Plan Committee lacked an independent legal existence, its
members were personally fiduciaries with respect to the fiduciary functions of the Plan
Committee .
49 . The Committee was appointed by the Global Crossing Board of Directors . Thus the
Board of Directors, and the individual members thereof, were Plan fiduciaries with respect to th e
appointment of Committee members . Their fiduciary obligation in this regard extended to the
obligation to monitor the Plan fiduciaries that were appointed, and to provide relevant materia l
information to those appointees .
26
NATURE OF DEFENDANTS ' FIDUCIARY DUTIES
50. ERISA imposes extensive duties on fiduciaries which they must discharge in the
exercise of their fiduciary responsibility, and in some cases even outside their own sphere of
responsibility . ERISA § 404(a)(1)(A), 29 U .S.C. § 1104(a)(1)(A) imposes on a plan fiduciary a
duty of loyalty -- that is, a duty to "discharge his duties with respect to a pl an solely in the interes t
of the participants and beneficiaries and . . . for the exclusive purpose of . . . providing benefits to
participants and their beneficiaries . . . ." Section 404(a)(1)(B) also imposes on a plan fiduciary a
duty of prudence -- that is, a duty to "discharge his duties with respect to a plan solely in the
interest of the participants and beneficiaries and . . .with the care, skill, prudence, and diligence
under the circumstances then prevailing that a prudent man, acting in a like capacity and familiar
with such matters would use in the conduct of an enterprise of a like character and with like
aims . . . ."
51 . A plan fiduciary's duties of loyalty and prudence include a duty to disclose and
inform. This duty entails : 1) a negative duty not to misinform ; 2) an affirmative duty to inform
when the fiduciary knows or should know that silence might be harmful ; and 3) a duty to convey
complete and accurate information material to the circumstances of participants and
beneficiaries . This duty to disclose and inform recognizes the disparity that may exist between
the training and knowledge of the fiduciaries, on the one hand, and the participants an d
beneficiaries, on the other . In a plan with various funds available for investment, this duty to
inform and disclose also includes : 1) the duty to impart to plan participants material information
of which the fiduciary has or should have knowledge that is sufficient to apprise the average plan
participant of the risks associated with investing in any particular fund ; and 2) the duty not to
make material misrepresentations .
27
52. A fiduciary's duties of loyalty and prudence also entail a duty to conduct an
independent investigation into, and continually to monitor, the merits of the investmen t
alternatives in the plan, including employer securities, to ensure that each investment is a suitabl e
option for the plan.
53. The fiduciary duty of loyalty also entails a duty to avoid conflicts of interest and to
resolve them promptly when they occur .
54. A fiduciary may not avoid his fiduciary responsibilities by relying solely on th e
language of the plan documents .
55 . Under ERISA § 405, 29 U.S .C. § 1105, a fiduciary is also liable as a co-fiduciary if he
participates knowingly in, or knowingly undertakes to conceal, the fiduciary breach of another, i f
his own fiduciary breach has enabled another fiduciary to commit a breach , or if he has
knowledge of a breach by such other fiduciary, unless he makes reasonable efforts under the
circumstances to remedy the breach.
FACTUAL BACKGROUND OF BREACHES OF FIDUCIARY DUTY
56. As set forth in greater detail in Paragraphs 74 through 108 below, throughout the
Class Period Defendants knew, or in the exercise of reasonable care should have known, tha t
Global Crossing stock was an imprudent and inappropriate investment for Plan assets and an
inappropriate investment option for Plan Participants . Several Defendants personally sold
enormous amounts of Global Crossing stock, and many Defendants participated in extensive
internal communications regarding various aspects of the Company's troubles . Despite these
circumstances, and their knowledge that the investment in Company stock was for much of th e
Class Period the largest Plan investment (representing over 50% of the Plan assets at one time) ,
Defendants took no steps to monitor or evaluate the prudence of the continuing investment i n
28
Global Crossing stock or to otherwise act as prudent fiduciaries for the Plan .
BREACHES OF FIDUCIARY DUTY
• The Duty to Disclose and Inform.
57. As alleged above , a fiduciary's duties include a duty to disclose and inform. This
duty entails : 1) a negative duty not to misinform ; 2) an affirmative duty to inform when the
fiduciary knows or should know that silence might be harmful ; and 3) a duty to convey complete
and accurate information material to the circumstances of participants and beneficiaries . This
duty to disclose and inform recognizes the disparity that may exist, and in this case did exist ,
between the training and knowledge of the fiduciaries, on the one hand, and the participants an d
beneficiaries, on the other. In a plan with various funds available for investment, like the Plan ,
this duty to inform and disclose also includes : 1) the duty to impart to plan participants material
information of which the fiduciary has or should have knowledge that is sufficient to apprise th e
average plan participant of the risks associated with investing in any particular fund ; and 2) the
duty not to make material misrepresentations .
58. During the Class Period, all of the Defendants breached their fiduciary duties to
disclose and inform with respect to the Plan's use of employer stock as a plan investment . From
the beginning of the Class Period and before, any investment in employer stock in the Plan wa s
an undiversified investment in a single company's stock whose public price was based on
expectations of continued rapid growth . As a result, any such investment carried with it an
inherently high degree of risk . The nature of the risk associated with Company stock change d
fundamentally when Frontier Corporation merged into Global Crossing, but Defendant s
provided to Plan Participants no information regarding this circumstance or its implications fo r
their retirement savings . These risks made the Defend ants ' duty to provide complete and
29
accurate information about investing in Company stock in the Plan even more important tha n
would otherwise be the case. Rather than providing complete and accurate information to the
Plan's participants and beneficiaries regarding the risks of investing in the Company stock fund
in the Plan, Defendants withheld and concealed material information during the Class Period ,
and instead actively misled the participants and beneficiaries of the Plan about the Company' s
earnings prospects and business condition, thereby encouraging participants and beneficiaries o f
the Plan to continue to make and to maintain substantial investments in Company stock in th e
Plan. This duty was within the scope of the fiduciary duties of the Plan Committee Defendant s
and the Communications Defendants, and all of those Defendants breached it .
59. As alleged above, the duty to disclose and inform via communications concerning th e
Plan was squarely within the responsibility of the Plan Committee and its members and th e
Communications Defendants . All of these Defendants breached this duty in at least two ways .
First, they did so by failing to disclose the material business problems which made Globa l
Crossing an unsuitable retirement investment. The members of the Committee, many of who m
were senior executives of Global Crossing, had actual knowledge of the material busines s
problems or should have known of them . Second, they also failed to provide complete and
accurate information about the extreme risk of a single stock investment, much less a single stoc k
investment in one's employer, including the risks associated with Global Crossing' s
businessmodel and the comparison of those risks to the historic risks associated with investmen t
in Frontier Corporation stock .
60. The Global Crossing Board of Directors and its members had duties to monitor the
Plan Committee members and to provide relevant information to them . Plaintiffs are informed
and believed that the Board and its members utterly failed to discharge these duties . No
30
meaningful action was taken to monitor any Plan fiduciary . Moreover, the individual Board
members, who were in possession of extensive information with respect to the imprudence o f
investment in Global Crossing stock (and who in certain cases personally sold substantial
amounts of Global Crossing stock during the Class Period), failed to provide this information t o
Committee members . Further, the Defendants who sold Global Crossing stock personally durin g
the Class Period were obligated to inform the Plan Committee of their decision to do so and o f
the reasons therefore; Plaintiffs are informed and believe that no such disclosure was made .
• The Duty to Monitor Investment Alternatives
61. As alleged above, a fiduciary's duties also entail a duty to conduct an independent
investigation into, and continually to monitor, the merits of the investment alternatives in a plan ,
including employer securities, to ensure that each investment is a suitable option for the plan .
62. From the inception of the Class Period, all of the members of the Committee breache d
this duty of investigation and monitoring with respect to Global Crossing stock . During the
Class Period, because of the material business problems described above, neither Globa l
Crossing nor the other Defendants could have reasonably made a determination that th e
Company stock fund was a suitable investment for the Plan . As senior executives, several of the
members of the Plan Committee had actual knowledge of these problems . In the exercise of due
diligence, all of the Plan Committee members should have had knowledge of these problems .
• The Duty to Avoid Conflicts of Interes t
63 . Global Crossing, the Plan Committee, the Board of Directors and their member s
breached their duty to avoid conflicts of interest and to promptly resolve them when the y
occurred by continuing to offer Company stock as a Plan investment option during the Clas s
Period, by failing to engage independent fiduciaries who could make independent judgments
31
concerning the Plan's investment in company stock and the information provided to participant s
and beneficiaries concerning it, and, generally, by failing to take whatever steps were necessary
to ensure that the fiduciary of the Plan did not suffer from a conflict of interest, includin g
notification of the Department of Labor of the questionable transactions which made employer
stock an unsuitable investment for the Plan . Global Crossing, the Director Defendants and th e
Board Committee Defendants, possessed of actual knowledge of the material business problems
which made company stock both an unsuitable investment alternative and made th e
communications about it grossly inaccurate, plainly breached this duty. Other individual
fiduciaries may have breached it as well, depending on their knowledge of the material business
problems described above .
• The Duty to Depart from the Plan Document s
64. As alleged above, a fiduciary may not avoid his fiduciary responsibilities by relying
solely on the language of the plan documents . While the basic structure of a plan may b e
specified, within limits , by the plan sponsor, the fiduciary, including a plan sponsor -fiduciary,
may not blindly follow the plan document if to do so leads to an imprudent result . ERISA
§404(a)(1)(d), 29 U.S .C. § 1104(a)(1)(D) .
65. To the extent that Global Crossing, the Plan Committee or its members, followed th e
direction of the Plan documents, for example, in continuing to place the match in company stoc k
during the Class Period, they further breached their fiduciary duties .
• Co-Fiduciary Liability
66 . As alleged above , a fiduciary may be liable for the fiduciary breach of another if he
participated in the breach, if his own breach enabled it, or it he has knowledge of it . Each
Defendant possessed of actual knowledge of the material business problems described above, i s
32
liable as a co-fiduciary for any breaches of the other fiduciaries .
CAUSATION
67. The Plan suffered a loss, and Plaintiffs and the other Class members were damaged,
because substantial assets in the Plan were invested in Global Crossing stock during the Class
Period in violation of Defendants' fiduciary duties . As fiduciaries, Defendants were responsible
for the prudence of investments in the Plan during the Class Period unless participants in the Plan
themselves exercised effective and informed control over the assets in the Plan in their individual
accounts pursuant to ERISA section 404(c) and the regulations promulgated under it . Those
provisions were not complied with here ; instead of taking the necessary steps to ensure effective
participant control by complete and accurate disclosure and regulatory compliance, Defendants
did exactly the opposite . As a consequence, Participants in the Plan did not control the Plan's
assets that were invested in Global Crossing stock, and Defendants remained entirely responsible
for ensuring that such investments were and remained prudent. Defendants' liability to Plaintiffs
for damages stemming from imprudent Plan investments in Global Crossing stock is therefore
established upon proof that such investments were or became imprudent and resulted in losses in
the value of the assets in the Plan during the Class Period, without regard to whether or not the
Participants relied upon statements, acts, or omissions of Defendants .
68. Plaintiffs further contend that the Plan suffered a loss, and Plaintiffs and the othe r
Class members were damaged, by Defendants' above-described conduct during the Class Period
because Defendants' materially deceptive statements, acts and omission were fundamentally
designed to deceive Plaintiffs and the other Class members about the prudence of making and
maintaining investments in the Global Crossing Stock Fund . Where a breach of fiduciary duty
consists of, or includes, misrepresentations and omissions material to a decision by a reasonabl e
33
participant that results in harm to the participant, the participant is presumed as a matter of law t o
have relied upon such misrepresentations and omissions to his or her detriment . Here ,
Defendants' above-described statements, acts and omissions constituted misrepresentations and
omissions that were fundamentally deceptive concerning the prudence of investments in Globa l
Crossing stock and were material to any reasonable person's decision about whether or not t o
invest or maintain any part of their Plan assets in Global Crossing stock during the Class Period .
Plaintiffs and the other Class members are therefore presumed to have relied to their detriment
on Defendants' deceptive statements, acts, and omissions .
REMEDY FOR BREACHES OF FIDUCIARY DUTY
69. ERISA § 502 (a) (2), 29 U.S.C. § 1132(a)(2), authorizes a plan participant to bring a
civil action for appropriate relief under § 409, 29 U.S .C. § 1109 . Section 409 requires "any
person who is a fiduciary . . . who breaches any of the . . . duties imposed upon fiduciaries . . . to
make good to such plan any losses to the plan . . . ." Section 409 also authorizes "such other
equitable or remedial relief as the court may deem appropriate . . . ."
70. With respect to the calculation of the losses to a Plan, breaches of fiduciary duty result
in a presumption that, but for the breaches of fiduciary duty, the participants and beneficiaries in
the Plan would not have made or maintained their investments in the challenged investment and ,
where alternative investments were available, that the investments made or maintained in th e
challenged investment would have instead been made in the most profitable alternativ e
investment available . In this way, the remedy restores the values of the Plan 's assets to what they
would have been if the Plan had been properly administered .
71 . Plaintiffs and the Class are therefore entitled to relief from the Defendants in the form
of. 1) a monetary payment from the Defendants to the Plan to make good to the Plan the losses t o
34
the Plan resulting from the breaches of fiduciary duties alleged above in an amount to be prove n
at trial based on the principles described above , as required by ERISA § 409(a), 29 U.S.C.
§ 1109(a) ; 2) injunctive and other appropriate equitable relief to remedy the breaches alleged
above, as provided by ERISA § 502(a)(2)&(3), 29 U .S .C. § 1132(a)(2)&(3) ; 3) reasonabl e
attorney's fees and expenses as provided by ERISA § 502(g), 29 U.S.C. § 1132(g), the common
fund doctrine, and other applicable law; 4) taxable costs ; and 5) interest on some or all of these
amounts as provided by law .
CLASS ALLEGATIONS
72. Plaintiffs bring the Claims for Relief contained herein on behalf of themselves and a s
a class action under the provisions of Rule 23 of the Federal Rules of Civil Procedure on behalf
of all members of a Class, defined as follows :
All current or former Participants in the Global Crossing Employees' Retirement
Savings Plan and all plans merged or otherwise combined into the Global Crossin g
Employees' Retirement Savings Plan, including the Frontier Corporation Employees '
Retirement Savings Plan, for whose individual accounts the Plan held shares of Globa l
Crossing stock at any time from January 1, 2000 to the present . Excluded from the Clas s
are officers and directors of Global Crossing, members of their immediate families, an d
the heirs, successors or assigns of any of the foregoing.
73. The requirements for maintaining this action as a class action under Fed . R. Civ. P .
23(a), (b)(1), and (b)(2) are satisfied in that :
(a) The members of the Class are so numerous that joinder of all members is
impracticable. Although the exact number of Class members is unknown to
Plaintiffs at this time and can only be ascertained through appropriate discovery,
Plaintiffs are informed and believe that there were, during the relevant tim e
35
period, thousands of participants in the Plan, a substantial number of whom had
given instructions that some or all of their account balances in the Plan be
invested in one or more Global Crossing stock funds maintained by the Plan .
(b) There are questions of law and fact common to the Class, including the
following: whether Defendants were fiduciaries of the Plan during the relevant
time period; whether Defendants breached the fiduciary duties they owed to
members of the Class by imprudently maintaining the Global Crossing stock
funds as investment options under the Plan ; whether Defendants breached the
fiduciary duties they owed to members of the Class by, inter alia, imprudently
allowing and/or directing the Plan to purchase and hold Global Crossing stock ;
whether the Plan and the Class members were injured by such breaches ; whether
defendants must make the Plan whole for its losses pursuant to ERISA §409, 29
U.S.C. §1109; and whether such losses should be allocated to Class members'
individual Plan accounts .
(c) Plaintiffs are members of the Class and their claims are typical of the claims
of the members of the Class, as Plaintiffs and all members of the Class sustained
injury arising out of Defendants' wrongful conduct in breaching their fiduciary
duties and violating ERISA as complained of herein .
(d) Plaintiffs will fairly and adequately protect the interests of the members of the
Class. Plaintiffs have no interests antagonistic to or in conflict with those of the
other Class members . Plaintiffs are represented by attorneys who specialize in
ERISA and class action litigation .
(e) Prosecution of separate actions by members of the Class would create a risk of
inconsistent adjudications with respect to individual members of the Class which
would establish incompatible standards of conduct for Defendants . Alternatively,
adjudications with respect to individual members of the Class would, as a
practical matter, be dispositive of the interests of the other members not parties to
the adjudications, or substantially impair or impede their ability to protect thei r
36
interests, particularly in light of the fact that Plaintiffs seek to obtain relief on
behalf of the Plan as a whole .
(f) Defendants have acted and/or failed to act, on grounds generally applicable to
the Class, thereby making appropriate monetary relief, final injunctive and other
equitable relief with respect to the Class as a whole .
SUBSTANTIVE ALLEGATIONS CONCERNING GLOBAL CROSSING
74. Global Crossing was founded in 1997 . It grew rapidly in its first few years, making
its founders and other insiders enormously wealthy in the process . It became a widely-hel d
public company, with the retirement savings of thousands of its employees invested heavily in
the Company's stock through the Plan . Sadly, when the realities of the marketplace would n o
longer accommodate continued spectacular growth, those entrusted with responsibility for th e
investment of Plan assets failed to act appropriately to protect the retirement savings of th e
Participants . Instead, they blindly continued to keep Plan assets invested in Comp any stock, unti l
what once had been over $250 million in Company stock had become essentially worthless .
75. Soon after its founding, the Company began the process of completing what i t
described as the world's first integrated global fiber optic Internet Protocol ("IP") based networ k
(the "Network") . The Network, largely subsea, is vast by any standard . It reaches 27 countries
and more than 200 major cities, and it spans 101,000 route miles .
76 . The Company grew rapidly and raised more than $20 billion from stock investors and
debt holders to build the Network . Between 1997 and 2000, the Company's short-term
borrowings and long-term debt increased exponentially, from $312 million in 1997 to $7 . 2
billion in 2000, according to the Company's Form 10-K for the year ended December 31, 2000 .
77. Initially, the Company generated revenue largely through wholesale bandwidt h
capacity sales in the form of indefeasible rights to use ("IRUs") fiber optic capacity . These
37
contracts would generally grant to the purchaser the right to use portions of the Network for a
period of several years or longer. Because of the size of these transactions and the nature o f
service offered by Global Crossing (largely subsea service), the number of potential IR U
customers was limited .
78 . The recognition of revenue from IRU sales, and Global Crossing's ability to continue
to experience substantial growth in revenues from such sales, was a critical component of it s
business model .
79. Beginning in 1999, several circumstances began to emerge that would profoundly
affect Global Crossing's business and its long-term prospects . These circumstances included :
a. Increased Competition . While Global Crossing had enjoyed limite d
competition for its subsea service, other carriers announced subsea projects
that would come on line in 1999-2001 and subject Global Crossing to
substantial competition and price pressure .
b . Increased Sppply. On-going technical advancements enabled fiber optic cable
users to transmit dramatically increased quantities of data over a given amoun t
of fiber optic capacity . This had the effect of increasing exponentially th e
supply of fiber optic capacity of the type offered by Global Crossing .
c . Declining Prices . As a result of increased competition and supply, an d
declining growth in demand, the prices that Global Crossing could achiev e
declined dramatically. For example, on one transoceanic route the price for an
STM-1, a standard unit of capacity sold by Global Crossing, declined from
1998 to 2001 by a breathtaking 99 .5% .
d . Evolving Customer Demands . Global Crossing faced increasing custome r
38
demands for flexible bandwidth products to multiple destinations . By January
1, 2000, Global Crossing was forced to modify its form contract to provide for
such flexible products rather than the fixed bandwidth product it had sol d
previously . While with respect to fixed bandwidth transactions Global
Crossing had historically recognized revenue upon the activation of circuits ( a
practice that was severely curtailed by the Financial Accounting Standard s
Board in 1999, as discussed in the following paragraph), with flexibl e
bandwidth transactions, Global Crossing would be forced to amortize th e
revenue of the life of the transaction - often several years or longer.
e . FIN 43 . Effective July 1, 1999, the Financial Accounting Standards Board
("FASB") adopted FASB Interpretation No. 43 ("FIN 43"), which limited the
availability of sales-type lease accounting (under which all revenue i s
recognized upon the activation of circuits) for IRU transactions . While Globa l
Crossing had historically employed sales-type lease transactions , by January 1 ,
2000, it became clear that under FIN 43, most or all of Global Crossing IRU
transactions would have to be accounted for as operating leases, with th e
effect that revenue would have to be amortized over the life of the deal . The
effect of this change was to greatly reduce the earnings that Global Crossing
would be able to report consistent with GAAP.
80. The convergence of these circumstances by the end of 1999 made investment in
Global Crossing Stock as of January 1, 2000, highly speculative, a fact that would have been
clear to any Defendant who had conducted a thorough and impartial review of availabl e
information with respect to Global Crossing and the telecommunications industry generally .
39
While Wall Street continued to price the stock as if the Company's historic growth patterns
would continue unabated, corporate insiders, including several Defendants herein, understoo d
that the bursting of the bubble was simply a matter of time . Protecting their own personal
interests, Defendants Winnick and other executives engineered a spectacular insider sell-off ,
commencing in April, 2000. The following summarizes sales by Defendants of their personal
Global Crossing stock during the Class Period :
SHARESNAME DATE PRICE SOLD PROCEEDS
J . Casey 04/11/00 $33.200 83,895 $2,785,31404/11/00 $33.200 11,552 $383,52604/12/00 $33.150 3,395 $112,54404/12/00 $33.150 24,659 $817,44604/13/00 $31 .190 10,186 $317,70104/13/00 $31 .190 73,976 $2,307,31 1Totals : 207,663 $6,723,842
J. Clayton 04/11/00 $33 .200 91,925 $3,051,91 004/12/00 $33 .150 27,018 $895,64704/13/00 $31 .000 81,057 $2,512,76708/10/00 $29.500 70,000 $2,065,00008/11/00 $29.500 50,000 $1,475,00 008/14/00 $29.500 80,000 $2,360,00009/05/00 $36.050 100,000 $3,605,00 005/22/01 $15.570 10,250 $159,59305/22/01 $15.820 20 $31605/22/01 $15.850 1,005 $15,92905/22/01 $15.900 30,000 $477,00005/23/01 14.700 4,107 $60,373Totals : 545,382 $16,678,535
D. Cohrs 04/11/00 $33 .200 31,901 $1,059,11 304/11/00 $33 .200 10,000 $332,00004/12/00 $33 .150 12,315 $408,24204/13/00 $31 .000 36,947 $1,145,35703/06/01 $13 .920 75,000 $1,044,00003/06/01 $13 .930 75,000 $1,044,750Totals : 241,163 $5,033,46 2
40
L. Cook 04/10/00 $33 .000 300,000 $9,900,00005/15/01 $11 .690 200,000 $2,338,00005/16/01 $12.150 300,000 $3,645,00005/16/01 $14.570 263,688 $3,841,934Totals : 1,063,688 $19,724,934
J. Scanlon 04/11/00 $33 .200 106,043 $3,520,62 804/11/00 $33 .200 45,446 $1,508,80704/12/00 $33 .150 31,165 $1,033,12004/12/00 $33 .150 13,358 $442,81 804/13/00 $31 .000 93,505 $1,898,65504/13/00 $31 .000 40,074 $1,242,29408/17/00 $32 .580 140,400 $4,574,23203/06/01 $13.930 158,748 $2,211,36005/25/01 $14.270 70,000 $998,900Totals : 698,739 $18,430,833
G. Winnick 12/27/99 $3.330 230,000 $765,90004/10/00 $33 .000 4,495,941 $148,366,05304/11/00 $33 .200 11,552 $383,52604/12/00 $33 .150 3,395 $112,54404/13/00 $31 .190 10,186 $317,70 108/16/00 $3.330 230,000 $765,90005/23/01 $12.380 9,976,781 $123,512,549Totals : 14,727,855 $273,458,274
B. Porter 04/10/00 $33.000 100,000 $3,300,00004/10/00 $33.000 1,149,014 $37,917,462Totals : 1,249,014 $41,217,462
GRAND TOTALS : 18,733 ,504 $381 ,264,342
81 . Despite these personal decisions to sell Global Crossing stock, no Defendant took an y
step whatsoever to protect the interests of Plan Participants who had their own modest retiremen t
nest eggs invested in Company stock. Participants were not informed of the change d
circumstances that made Global Crossing stock highly speculative, nor were they apprised of th e
reasons for the decisions of the corporate insiders to sell . Further, even in the face of this
enormous insider sell-off, no Defendant conducted any analysis or review of the sell-off or th e
41
reasons for it, or of its implications for the continued holding of Global Crossing stock in the
Plan and the continued offering of Global Crossing stock as a Plan investment alternative . This
abrogation of fiduciary responsibility was particularly outrageous in light of the origins of the
bulk of the assets in the Pl an. As of January 1, 2000, the substantial majority of Plan assets
represented the retirement savings amassed over the years by Participants who were employees o f
Frontier Corporation, which was merged into Global Crossing in September, 1999 . Prior to the
merger, the retirement savings invested in Frontier Corporation stock were invested in a stabl e
utility stock. Global Crossing stock, with its extraordinary risk and volatility, was a
fundamentally different investment proposition . Under these circumstances, the fiduciary
responsibility of Plan fiduciaries with respect to the prudence of the Plan investment in Globa l
Crossing stock was particularly stringent .
82. Global Crossing attempted to mask the effect of the circumstances described in
Paragraph 79 by promoting in its public announcements not its GAAP results (which , in light of
FIN 43, showed little if any earnings), but instead its recurring adjusted EBITDA (Earning s
Before Income, Taxes, Depreciation and Amortization), which included the future revenue under
IRU sales . By this approach, Global Crossing banked on the continued willingness of Wal l
Street to value the Company not on its GAAP earnings but on recurring adjusted EBITDA. This
reliance on the investing public's willingness to indulge in an unorthodox valuation modality on
an on-going basis further compounded the highly speculative nature of investment in Globa l
Crossing stock. Moreover, this approach ignored the stark reality of the marketplace tha t
increased competition and dropping prices would erode dramatically Global Crossing's result s
going forward no matter how they were accounted for . Defendants who were responsible for th e
investment of Plan assets and the designation of Plan investment alternatives knew, or in th e
42
exercise of reasonable prudence should have known, that Global Crossing stock was highl y
speculative and therefore imprudent as a vehicle for retirement savings .
83. As 2000 progressed, internal alarms continued to sound throughout Global Crossing' s
hierarchy concerning the Company' s business model and prospects .
84. On June 5, 2000, then-CEO Hindery wrote a memo to Winnick , Casey and Cook,
expressing serious concerns regarding Global Crossing's business risks and long-term prospect s
and the risks associated with Company stock . Hindery colorfully noted :
"[L]ike the resplendently colored salmon going up river to spawn, at the end of ourjourney our niche too is going to die rather than live and prosper .
The stock market can be fooled, but not forever, and it is fundamentally insightfuland always unforgiving of being misled . . . . [T]he stock market is every day realizingmore the perilousness of the access/transport strategy over the long term, despite Y Mprofitable outcomes in the near term as data services explode and "new builds" lead todisintermediation from incumbents . "
Although Hindery and the recipients of his June 5, 2000 memo each were Plan fiduciaries, non e
undertook any action whatsoever to evaluate the prudence of the Plan's enormous investment i n
Global Crossing stock (which was over $150 million at the time), or the appropriateness o f
Global Crossing as a Plan investment alternative .
85 . Similar concerns were expressed by Robin Wright, Senior Vice President in charge of
capacity sales, in an email circulated among Global Crossing senior executives in late August ,
2000, discussing revenue targets :
"I am very concerned about the number for IRUs here . . . . If I have a VERY good 4Q, Imay make the original target of $573M for 2000 . I think a jump from there to $820M isunreasonable . We need to be realistic about the fact that there will be a great deal morecompetition in 2001 . We will not be the only game in the Atlantic and Pacific .
We have been raising this issue since 1Q: we are seeing a migration from IRUs to leases,and the implications are huge .
43
As you know, prices are dropping fast and, to some extent , we are our own worst enemy.When saddled with an unreasonable revenue expectations (sic), we do the crazy deals atthe end of the quarter . This, in turn , causes prices to drop . . . . "
In forwarding her email to COO Walsh, Ms . Wright noted that the IRU target was really a "plug
number" used to meet Wall Street's expectations, and that with respect to the revenue forecas t
for 2001, it "ain 't gonna happen . "
86. Despite the softening of the wholesale market for bandwidth and the concerns
expressed by Ms . Wright, Global Crossing continued to project cash revenues for the year 200 1
of between $7 .1 and $7 .2 billion, claiming that sales of b andwidth capacity would "remain a
strong cash generator" and that, in any event, the Company had long planned to shift its busines s
emphasis from selling bandwidth capacity to competing against its own customers to provide
higher margin, value-added, customized services to global corporations . The value-added
customized services included transmission of telephone communications, fund transfers ,
electronic trading, media content transfers and Internet access .
87. Plaintiffs are informed and believe that to obscure its weakening operating results, in
2000 Global Crossing began to engage in "swap" transactions, i .e., transactions between Global
Crossing and other carriers in which each would sell to the other equivalent amounts o f
bandwidth at equivalent prices . In connection with these swap transactions, Global Crossin g
booked the " sale" as current revenue, while booking the "purchase" as a capital item to be
amortized over a period of years . Moreover, the capacity purchased in many of these swap
transactions was not needed by or economically useful to Global Crossing . As a result, thes e
transactions had no economic substance or legitimate business purpose, but instead wer e
designed solely to fabricate revenues and earnings . On information and belief, some or all of the
Director Defendants and the Board Committee Defendants had actual knowledge of thes e
44
circumstances .
88. Plaintiffs are further informed and believe that in addition, in 2000, Global Crossin g
recorded as capital expenditures at least $68 million in operating expenses relating to th e
integration of Frontier Corporation information systems . This had the effect of increasing Global
Crossing's reported earnings and operating cash flow for 2000 . This action was in violation o f
GAAP, and rendered Global Crossing's financial statements for 2000 as filed with the SEC and
announced to the public materially misleading. On information and belief, some or all of th e
Board Committee Defendants had actual knowledge of these circumstances .
89. By early 2001, Global Crossing 's inability to meet its forecast through the use of
orthodox business transactions became the subject of much attention within the Company . On
February 5, 2001, Brain Fitzpatrick, Global Crossing's co-Vice President for sales, circulated a n
email in preparation for an "emergency" conference call in which he noted that the existing dea l
pipeline would not be adequate to meet the forecast for the current quarter, and that instea d
Global Crossing would "need to pull some pretty big rabbits out of our hat within the next fe w
weeks . . . . "
90. Those "big rabbits" took the form of an increasing number of swap transactions . In
the first quarter, Global Crossing entered into a swap transaction with 360networks that closed a t
the very end of the quarter. To consummate the transaction, from which Global Crossin g
reported $150 million in revenue, Global Crossing purchased $200 million in capacity fro m
360networks and advanced the difference of $50 million in cash to 360networks . Global
Crossing was aware at the time of the transaction that 360networks was in precarious financia l
condition, and in fact 360networks went into bankruptcy within weeks of the Global Crossin g
transaction . Although it recognized the extraordinary risk of the 360networks deal (which
45
ultimately cost Global Crossing at least $50 million), it nonetheless went forward with it becaus e
it was the only way Global Crossing could continue to ostensibly meet Wall Street's earnings an d
cash flow expectations. Defendants Winnick, Casey, and Cook were fully apprised of the
360networks transaction and approved it as members of the Executive Committee .
91 . Similarly, in March, 2001, Global Crossing entered into a transaction with Qwest i n
which each party bought capacity from the other, and $100 million checks were exchanged. The
capacity cross-purchased was balanced out between the parties so that the transaction was truly a
wash. Global Crossing was so determined to close this transaction in the first quarter, that it wa s
willing to purchase whatever was necessary to put the deal in place, even if the purchases were o f
no business value to Global Crossing. In the words of Senior Vice-President Robin Wright, "Fo r
the rest, we are buying waves, local loops, co- lo, whatever to come to parity. We are
swapping $100 million checks this quarter." (emphasis added) .
92. In April, 2001, Casey reported at a Management Meeting attended by Cook, Cohrs ,
Perrone, Comparin, Clayton and others that in the first quarter, Global Crossing had entered into
a staggering $600 million in swap transactions . Speaking to the second quarter, he noted, "W e
do not have room for more reciprocal deals . We need to sell some of what we bought in last Q' s
reciprocal deals to help cash flow for 2Q deals . "
93 . Conditions in the marketplace continued to deteriorate, however. As noted in a
May 8, 2001, email from Brian Fitzpatrick to Clayton and others discussing the current year
forecasts, "Given the dramatic downturn in the capacity markets throughout all regions of the
world we currently foresee a potential gap of approx . $750M." Two days later, however, Casey,
in a conference call, reported first quarter earnings, and assured analysts that "We have not
lowered our guidance over these last months as so many other people have . . . . We feel good
46
about our performance in the first quarter and as we've said a couple of times here we are no t
changing our guidance for the year . "
94. Global Crossing's business problems threatened its compliance with critical financin g
covenants by May, 2001 . An email dated May 17, 2001 to Perrone, Cohrs and others, described
the "very serious potential impact of first quarter EBITDA within the GX restricted group falling
so substantially below plan . . . . The consequences of violating this financial covenant ar e
SEVERE and the time period in which to fix it is SHORT . . . ." As noted in a response to this
email addressed to Perrone, "This is the definition of panic . . . . "
95 . An email exchange between James Gorton, Global Crossing's General Counsel, and
Casey, dated May 31/June 1, 2001, reveals the prevalence at Global Crossing of the swa p
transactions and the degree of consternation that existed at the Company's most senior levels :
GORTON: "Are we paying our sales people the same if they do a `reciprocal deal'(swap) as when they make a straight sale . Of course we should not be -we have to find a way to incentivize sales people not to seek the easy wayout. It is just too critical an issue to our cash flow"
CASEY: "Let me make sure I understand your position here : if we don't get thesedeals, we miss our quarters ; if we don't incentivize the sales force, theywon't do these deals . Therefore, unless you have evidence that thereare $600 million of non-reciprocal deals out there this quarter (and, ofcourse, increasing amounts in all future quarters) that our sales forceis ignoring (out of spite?), we'll change the comp plan in a mannerthat is almost assured to cause us to lose more than 50% of our IRUbusiness . Do I have that right? If so, please focus on legal issueshenceforth . Thanks for sharing." (emphasis added)
GORTON: "Incentives, Tom. Not that you do not pay them, you just do not pay themas much, because one is more valuable to the Company than the other. Iam focusing on our cash flow and our covenant defaults in our loanagreements. Whether or not those are legal issues , I do not know, but I doknow that they are vitally important."
96. A June 23, 2001 email written by Robin Wright regarding a Qwest transaction is als o
illuminating of the absence of any business justification for the swap transactions :
47
"This is an issue that keeps raising it 's ugly head . As we've agreed, because we areboth being delivered what we probably don't want in the long run, we have agreed, onboth sides, that the repurchase price is the actual amount paid, not the fair market value .You both know the issue , we are taking capacity in order to help with revenuerecognition issues . . . . (emphasis added) .
97. By August, 2001, the issue of telecommunications swaps was gaining attention in th e
press, to the dismay of Global Crossing executives . As noted by Cohrs in an email dated
August 3, 2000, discussing Qwest's adverse publicity, "The story says that Qwest is booking
sales type lease revenue as GAAP revenue and not breaking it out. At least we get credit for
breaking it out . The bad news is that this is raising visibility on the swap issue ." (emphasi s
added) .
98. One effect of the swap transactions was that Global Crossing had purchased an
enormous quantity of capacity for which it had no use . On September 4, 2001, Wesley Winkler,
Global Crossing's Senior Vice President of Strategic Sales, noted that he had "been charged with
the daunting task of figuring out how to sell the junk we obtained over the past few quarters o f
reciprocal deals ."
99. On September 6, 2001, Clayton received an email candidly assessing the lack of
substance of the swap transactions :
"No one on the team is suggesting that we enter into any of the following deals undernormal operating conditions . Each of the deals require almost a 1 :1 reciprocal purchaseon our behalf. We will need to align upwards of $500-600M in cash to execute thefollowing . "
100. In fact, the Company was unable to offset the declining wholesale carrier demand
for bandwidth capacity with the sale of customized provider services because, unbeknownst t o
investors, it had no viable plan for establishing itself as a provider of data services, it lacke d
sufficient experience to compete with well-established service providers, and it therefore had few
if any corporate clients. Consequently, the Company's cash revenue and recurring adjuste d
48
EBITDA declined and fell well below the Company's projections .
101 . The full extent of Global Crossing's cash flow crisis, and its failure to compete in
the market for customized communications services, began to emerge on October 4, 2001 . On
that date, the Company issued a string of stunning announcements : cash revenues in the third
quarter would be approximately $1 .2 billion, $400 million less than the $1 .6 billion expected b y
a consensus of analysts surveyed by Thomson Financial/First Call . The cash revenue shortfall
was purportedly the result of a "sharp falloff' in wholesale IRU sales to carrier customers. The
Company further announced that it expected recurring adjusted EBITDA to be "significantly les s
than $100 million," compared to forecasts of $400 million. The Company also announced that it
was going to sell off its IPC division, which was a provider of desktop trading systems to th e
global financial community . The announced sale was a concession that the Company had been
unable to provide the type of higher- margin value-added services that it had promised would
make up for declining revenues from capacity sales .
102. Separately, the Company announced that Casey, the Company's fourth CEO in a s
many years, was stepping down and that Global Crossing was in preliminary talks to merge wit h
its affiliate Asia Global Crossing in an effort to attain operating cost savings of $15 million t o
$25 million annually . Following these announcements , the Company' s share p riced plunged by
49% to $1 .07 per share .
103 . In its October 2001 issue, Forbes Magazine published an article about Gary
Winnick, Chairman of Global Crossing's Board of Directors, and Global Crossing that contrasted
Winnick's considerable fortune, derived in large part from his sale of millions of Global Crossin g
shares at artificially inflated prices, with the sharply declining fortunes of Global Crossing and it s
shareholders . The article was entitled "The Fiber Boom Made Gary Winnick Very Rich. Pity
49
About His Company," and stated, in pertinent part :
[Winnick] and his family pocketed more than $600 million by cashing instock over the past two years, even as Global Crossing struggled with a lethal debtload, falling prices and an industry in turmoil . He also arranged to sell, forexample, 10 million shares in May, at $12 . Good timing. Today the stock tradesat below the $1 mark, a tumble Winnick says he never saw coming . Global'smarket cap has fallen from a high of $54 billion to $650 million . The companycarries a $6 .7 billion debt load, much of it junk bonds that now trade at 18 centson the dollar . Its secured bank debt trades at 67 cents on the dollar . Lenders aresitting on losses of $3 .9 billion .
What caused this g rief? A supply bubble . . . .
But some blame falls on Winnick himself, an enthralling salesman whopreferred dealmaking to managing. He ran through four chief executives in threeyears . And while Global billed itself as a network operator, it lacked corporateclients and acted more like a construction company, dependent on laying newfiber to sell to carriers . As the glut worsened - demand would have had to grow16-fold annually to keep up with the building binge waged by Global Crossingand others - the company increased fiber swaps and booking them in a way thatartificially, though legally, juiced earnings .
104. On October 17, 2001, The Globe and Mail published an art icle containing it s
assessment of the Global Crossing debacle :
Mr. Winnick's undersea fibre-optic brainchild, Global Crossing, isdrowning in billions of dollars of debt, and is nearly 98 percent below its peakstock price .
Yet, its founder won't be needing personal handouts any time soon . Theformer colleague of disgraced junk-bond king Michael Milken has cashed in morethan $600-million (U.S .) worth of shares since taking the company public a yearafter getting it off the ground in 1997 .
Along the way, Mr . Winnick raised billions in debt and equity, with thehelp of lead investment banker Canadian Imperial Bank of Commerce, to build avast undersea network capable of handling a rapidly expanding flow of globalvoice and data traffic .
He also acquired four telecom operators in the United States and Britain toprovide crucial cash flow.
50
No other company on its own had ever dreamed up such a vastundertaking solely with private financing .
The nearly completed Global Crossing network was a classic case of"Build it, and they will come." Mr. Winnick and his dwindling group ofsupporters are still waiting.
105. In summary, for 2001, Global Crossing made numerous false and misleading
statements regarding its results and financial position, including in SEC filings incorporated by
reference in to the SPD. These included :
a. Global Crossing Ltd . substantially inflated its Cash Revenues and
Adjusted EBITDA by including $150 million in IRU sales for which Global
Crossing Ltd. never received the $150 million in cash .
b. In announcing its financial results, Global Crossing Ltd .
substantially inflated its Cash Revenues, Adjusted EBITDA, and IRU Sales
because a substantial portion of the approximately $507 million of exchanges of
capacity and services occurred where identical or substantially similar amounts of
cash were exchanged at approximately the same time ("roundtripping" the cash) .
c. In announcing its financial results, Global Crossing Ltd .
substantially inflated amounts reported in "Cash Revenues" as IRU Sales, by
including $63 million received as prepayment for future services where the cash
received was "roundtripped" by Global Crossing Ltd. at approximately the same
time. These prepayments would never have been included in GAAP revenues
prior to the FASB rule change and therefore did not reflect a proper "apples to
apples" comparison and should not have been included in "Cash Revenues ."
d. In announcing its results, Global Crossing Ltd . substantially
inflated amounts reported in "Cash Revenue" as IRU Sales for the period, by
including $170 million of cash receipts for a sale of capacity that had occurred in
the third quarter of 2000.
51
106. Throughout the Class Period, Plan Participants were not provided with complete
and accurate information regarding Global Crossing stock . The misstatements included in SE C
filings were transmitted directly to Plan Participants through their incorporation by reference into
the SPD . Moreover, the Company maintained a culture of promotion of the stock, through
meetings and other communications with Plan Participants, including meetings an d
communications participated in or authored by Winnick an d other Defendants .
107. Further, throughout the Class Period, Global Crossing and the Committe e
members failed to monitor the prudence or appropriateness of Global Crossing stock as an
investment vehicle for Plan assets, or as an appropriate Plan investment alternative . Despite the
enormous sell-off by insiders, the rapid erosion of the Company's business results and prospects ,
and the general downturn in the telecommunications industry, Global Crossing and the
Committee members stood idly by while the retirement savings of Plan Part icipants were
decimated .
108. In addition, the Director Defendants and the Board Committee Defendants faile d
to monitor the performance by the Committee members of their fiduciary obligations, or to
provide to the Committee members information concerning Global Crossing that the Directo r
Defendants knew was relevant to the discharge by the Commi ttee members of their fiduciary
obligations .
FIRST CLAIM FOR RELIEF
Claim for Breach of Fiduciary Duty of PrudenceAgainst Global Crossing, All Plan Committee Defendants ,
Director Defendants and Board Committee Defendants[ERISA §§404(a)(1), 409, 502(a)(2) and (3), 29 U.S.C. §§1104(a)(1),1109, 1132(a)(2) and (3) ]
109. Plaintiffs incorporate the allegations contained in the previous paragraphs of thi s
Consolidated Amended Master Complaint , as though fully set forth herein .
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110. ERISA §404(a)(1), 29 U.S.C. §1104(a)(1), requires, inter alia, that a plan
fiduciary discharge his, her or its duties with respect to a plan solely in the interest of the
participants and beneficiaries and for the exclusive purpose of providing benefits to participant s
and their beneficiaries, with the care, skill, prudence, and diligence under the circumstances then
prevailing that a prudent person acting in a like capacity and familiar with such matters would
use in the conduct of an enterprise of a like character and with like aims .
111 . The Defendants' selection, monitoring, and continuation of the investment
alternatives under the Plan were subject to the above-described fiduciary duties . By their acts
and omissions Defendants failed to act prudently by continuing Global Crossing stock as an
investment alternative under the Plan. The Defendants thereby breached each of these fiduciar y
duties. Global Crossing and the Plan Committee Defendants were obligated to monitor and
evaluate, among other things, information concerning the Company's structure, performance and
prospects, including information made public by the Company . Had Global Crossing or the Plan
Committee Defendants done so, they would have taken appropriate action, including one or more
of the following: (i) eliminating the Global Crossing stock as an investment option under the
Plan; (ii) adopting an appropriate divestment policy with respect to Global Crossing stock in the
Plan; (iii) appointing an independent fiduciary to evaluate whether Global Crossing stock should
remain an investment option under the Plan and/or determine an appropriate strategy for
divestment; (iv) adopting a policy for limiting the amount of Global Crossing stock that could be
held in the Plan; and/or (v) notifying the Secretary of Labor of the situation. However, Global
Crossing and the Plan Committee Defendants failed to discharge their fiduciary obligations and
instead continued to manage, direct, and approve investment of assets of the Plan in Global
Crossing stock and maintained the Global Crossing Stock as an investment alternative . Thus ,
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Global Crossing and the Plan Committee Defendants breached their fiduciary duties by failing to
prudently invest the Plan 's assets .
112. Each of the Board Committee Defendants and the Director Defendants (i )
participated knowingly in or undertook to conceal an act or omission described in this Claim o f
another fiduciary, knowing such act or omission was a breach, or (ii) by failed to discharge his ,
her, or its duties, enabled another fiduciary to commit a breach described in this Claim, or (iii )
had knowledge of the breach of fiduciary duty described in this Claim and failed to mak e
reasonable efforts to remedy such breach, and therefore was also a co-fiduciary liable for th e
breaches committed by each other fiduciary under ERISA §405, 29 U.S.C. § 1105 .
113. ERISA §409, 29 U.S .C . §1109, provides, inter alia, that any person who is a
fiduciary with respect to a plan and who breaches any of the responsibilities , obligations, or
duties imposed on fiduciaries by ERISA shall be personally liable to make good to the plan an y
losses to the plan resulting from each such breach and to restore to the plan any profits the
fiduciary made through use of the plan 's assets . ERISA §409 further provides that suc h
fiduciaries are subject to such other equitable or remedial relief as a court may deem appropriate ,
including removal of the fiduciary .
114. ERISA §502(a)(2), 29 U.S .C. §1132(a)(2), permits a plan participant to bring a
suit for relief under ERISA §409 .
115. As a consequence of Defendants' breaches of fiduciary duty, the Plan suffere d
losses. These losses resulted in reductions in the value of the Plan accounts of Plaintiffs and the
Class members. If Global Crossing and the Plan Committee Defendants at all times ha d
discharged their fiduciary duties to prudently invest the Plan's assets, the losses suffered by th e
Plan would have been minimized or avoided . Therefore, as a direct and proximate result of th e
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breaches of fiduciary and co-fiduciary duties alleged herein, the Plan, and indirectly Plaintiffs
and the other Class members, lost hundreds of millions of dollars .
116. As a further consequence of their breaches of fiduciary duty, Defendants Casey,
Clayton, Cohrs, Cook, Scanlon, Porter and Winnick profited through the sale of Global Crossin g
stock. Pursuant to ERISA §409, these Defendants are liable to disgorge such profits .
117. The Plan is entitled to the imposition of a constructive trust on any amount by
which any Defendant was unjustly enriched through his breach of fiduciary duty, to equitable
restitution , and to other appropriate equitable monetary relief to redress the breaches of fiduciary
duty by Global Crossing and the Defendants desc ribed in this Claim .
118. Notwithstanding the ostensible direction of investments in Global Crossing stock
by the Plan's participants, Global Crossing and the Plan Committee Defendants are responsibl e
for the Plan's purchases and retention of Global Crossing stock during the relevant time. Global
Crossing and the Plan Committee Defendants are not entitled to the protections of ERIS A
§404(c)(1)(B), 29 U.S.C. §1104(c)(1)(B), because the Plan's participants did not exercis e
independent control over their accounts by reason of the facts that the Defendants subjected them
to improper influence with respect to the Plan's investments in Global Crossing stock and the
Defendants failed to provide participants with complete and accurate information with respect t o
Global Crossing stock and instead provided false and misleading information . By law, the Plan' s
purchases of Global Crossing stock are deemed to have been made at the direction of Globa l
Crossing and the Plan Committee Defendants, and the Board Committee Defendants and Boar d
Defendants have co-fiduciary liability with respect thereto .
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SECOND CLAIM FOR RELIEF
Claim for Breach of Fiduciary Duty To Monitor Plan FiduciariesAgainst All Board Committee Defendants and Director Defendants
[ERISA §§404(a)(1), 409 , and 502(a)(2) and (3), 29 U .S .C. §§1104(a)(1),1109 , and 1132(a)(2) and (3)]
119. Plaintiffs incorporate the allegations contained in the previous paragraphs of thi s
Consolidated Amended Master Complaint as if set forth fully herein .
120. At all relevant times, the Board Committee Defendants and the Director
Defendants were and acted as fiduciaries , within the me aning of ERISA § 3(21)(A), 29 U.S.C .
1002(21)(A), with respect to the Plan to the extent that they were charged with, responsible for ,
and/or otherwise assumed, the duty of selecting, monitoring, and, when and if necessary ,
removing other fiduciaries .
121 . A fiduciary' s duties of loyalty and prudence also entail a duty to conduct an
independent investigation into, and to monitor, the merits of the investment alternatives in th e
Plan, including employer securities, to ensure that each investment is suitable . Thus, in
connection with their duties to monitor the Plan's other fiduciaries, the Board Committee
Defendants and the Director Defendants were responsible for monitoring the manner in whic h
those fiduciaries were investing the Plan's assets within the fund options, as well as th e
investment of profit sharing contributions .
122. As fiduciaries with knowledge that Plan was being invested in Global Crossin g
stock by investing fiduciaries, the Board Committee Defendants and the Director Defendants also
had an affirmative duty to disclose to the Plan Committee Defendants such material facts about
the financial condition of the Company that these Defendants knew or should have known the
Plan Committee Defendants needed in order to make sufficiently-informed decisions, based o n
accurate information, concerning those investments .
123. The Board Committee Defendants and the Director Defend ants breached the
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fiduciary and co-fiduciary duties they owed to Plan Participants by :
• failing to adequately monitor the Plan fiduciaries' investment of the Plan's assets ;• failing to adequately monitor the Plan's other fiduciaries' implementation of the terms
of the Plan, including but not limited to the investment of the Plan's assets, theestablishment of an investment policy, and the ongoing monitoring of that policy andthe Plan's investments ;
• failing to disclose to the Plan Committee Defendants and the other investingfiduciaries material facts concerning the financial condition of Global Crossing thatthey knew or should have known were material to prudent investment decisionsconcerning the use of Global Crossing stock in the Plan ;
• failing to remove fiduciaries who they knew or should have known were not qualifiedto loyally and prudently manage the Plan's assets ;
• failing to conduct an independent investigation into and to monitor the merits ofinvesting the Plan's assets in Global Crossing stock ;
• knowingly participating in the Plan Committee Defendants' breaches by knowinglyaccepting the benefits of those breaches, both personally and on behalf of theCompany; and
• failing to remedy those fiduciaries' breaches, having knowledge of them .
124. If the Board Committee Defendants and Director Defendants had at all time s
carried out their fiduciary duties to monitor the Plan's fiduciaries, including discharging thos e
engaged in breaches of fiduciaries' duties and those with conflicts of interest (and replacing th e
discharged fiduciaries with qualified fiduciaries), the losses suffered by the Plan would have been
minimized or avoided . Therefore, as a direct and proximate result of the breaches of fiduciary
and co-fiduciary duties alleged herein , the Plan, and indirectly Plaintiffs and the other class
members, lost millions of dollars .
125 . Each of the Board Committee Defendants and Director Defendants (i) participated
knowingly in or undertook to conceal an act or omission described in this Claim of anothe r
fiduciary, knowing such act or omission was a breach, or (ii) by failing to discharge his, her, o r
its duties, enabled another fiduciary to commit a breach described in this Claim, or (iii) ha d
knowledge of the breach of fiduciary duty described in this Claim and failed to make reasonabl e
efforts to remedy such breach, and therefore was also a co-fiduciary liable for the breaches
57
committed by each other fiduciary under ERISA §405, 29 U.S.C . § 1105 . As discovery
progresses in these cases, Plaintiffs will seek leave to amend this Complaint to identify thos e
Defendants in addition to the Board Committee Defendants and the Director Defendants with co-
fiduciary liability as described in this paragraph.
126 . As a further consequence of their breaches of fiduciary duty, Defendants Casey,
Clayton, Cohrs, Cook, Scanlon, Porter and Winnick profited through the sale of Global Crossin g
stock. Pursuant to ERISA §409, these Defendants are liable to disgorge such profits .
127 . The Plan is entitled to the imposition of a constructive trust on any amount by
which any Defendant was unjustly enriched through his breach of fiduciary duty, to equitable
restitution, and to other appropriate equitable monetary relief to redress the breaches of fiduciary
duty by Global Crossing and the Defendants described in this Claim .
THIRD CLAIM FOR RELIEF
Claim for Breach of Fiduciary Duty By Providing Incomplete and Misleading InformationAgainst All Plan Committee Defendants and Communications Defendants
[ERISA §§404(a)(1), 409, and 502 (a)(2) and (3), 29 U.S .C. §§1104(x)(1),1109, and 1132 (a)(2) and (3) ]
128. Plaintiffs incorporate the allegations contained in the previous paragraphs of thi s
Consolidated Amended M aster Complaint as though fully set forth herein .
129. By making material misrepresentations to the Plan's participants in their capacity
as Plan fiduciaries, Global Crossing, the Plan Communication Defendants and th e
Communication Defendants breached their fiduciary duties to act solely in the interests of the
participants and to act prudently .
130. Moreover, ERISA fiduciaries have a duty to speak truthfully, to not mislead
participants and to disclose truthful information on their own initiative when participants nee d
such information to exercise their rights under the plan.
131 . In a plan with various funds available for investment, this duty to inform and
58
disclose also includes : (1) the duty to provide to plan participants material information of which
the fiduciary has or should have knowledge that is sufficient to advise the average pla n
participant of the risks associated with investing in any particular fund ; and (2) the duty to refrain
from material misrepresentations .
132. Global Crossing, the Plan Committee Defendants and the Communication s
Defendants breached their fiduciary and co-fiduciary duties by failing to provide Participants and
Beneficiaries with complete and accurate information regarding Global Crossing stock, b y
transmitting incomplete, false and misleading communications to Plan Participants, and b y
misleading participants and beneficiaries regarding the soundness of Global Crossing stock, an d
the prudence of investing their retirement benefits in Global Crossing stock .
133 . The breaches of fiduciary duties described in this Claim caused or are presumed t o
have caused Participants in the Plan to continue to make and to maintain substantial investment s
of their Plan accounts in the Global Crossing stock at a time when the Defendants knew o r
should have known that the Fund was not a prudent investment option .
134. Each of the Board Committee Defendants and Director Defendants (i) participated
knowingly in or undertook to conceal an act or omission described in this Claim of another
fiduciary, knowing such act or omission was a breach, or (ii) by failing to discharge his, her, o r
its duties, enabled another fiduciary to commit a breach described in this Claim, or (iii) ha d
knowledge of the breach of fiduciary duty described in this Claim and failed to make reasonabl e
efforts to remedy such breach, and therefore was also a co-fiduciary liable for the breaches
committed by each other fiduciary under ERISA §405, 29 U.S.C. §1105 . As discovery
progresses in these cases, Plaintiffs will seek leave to amend this Complaint to identify thos e
Defendants in addition to the Board Committee Defendants and Director Defendants with co-
59
fiduciary liability as described in this paragraph .
135. In addition, Defendants Casey, Clayton, Cohrs, Cook, Scanlon, Porter and
Winnick were unjustly en riched by their breaches of fiduciary duty.
136. The Plan is entitled to the imposition of a constructive trust on any amount by
which any Defendant was unjustly enriched through his breach of fiduciary duty, to equitabl e
restitution, and to other appropriate equitable monetary relief to redress the breaches of fiduciary
duty described in this Claim .
137. Plaintiffs and the Class members relied upon and/or are presumed to have relied
upon the Defendants' material misrepresentations by directing that the Plan purchase Globa l
Crossing stock, which reliance was to the detriment of Plaintiffs, the Class members, and th e
Plan because the Plan purchased Global Crossing stock and incurred losses on those investments ,
which losses resulted in reductions in the value of the Plan accounts of Plaintiffs and the Clas s
members .
FOURTH CLAIM FOR RELIEF
Claim for Breach of Fiduciary Duty To Avoid Conflicts of InterestAgainst All Plan Committee Defendants, Board Committee Defendant s
and Director Defendant s[ERISA §§404(a)(1), 409 , and 502 (a)(2) and (3), 29 U .S .C. §§1104(a)(1), 1109 , and 1132 (a)(2) and (3) ]
138. Plaintiffs incorporate the allegations contained in the previous paragraphs of thi s
Consolidated Amended Master Complaint as if fully set forth herein .
139. The fiduciary duty of loyalty also entails a duty to avoid conflicts of interest and
to resolve them promptly when they occur . A fiduciary must always administer a pl an with an
"eye single" to the interests of the participants and beneficiaries, regardless of the interests of th e
fiduciaries themselves or the plan sponsor .
140. The Plan Committee Defend ants , the Board Commi ttee Defendants and the
60
Director Defendants breached their duty to avoid conflicts of interest and to promptly resolv e
them when they occurred by continuing to allow Company Stock as a Plan Investment during th e
Class Period, by continuing to participate in various Company compensation programs tha t
created a substantial personal interest in certain Defendants to maintain a high public price fo r
Global Crossing Stock, by failing to engage independent fiduciaries and/or advisors who coul d
make independent judgments concerning the Plan's investments in Company Stock and the
information provided to participants and beneficiaries concerning it, and generally by failing t o
take whatever steps were necessary to ensure that the Plan's fiduciaries did not suffer from a
conflict of interest . Rather than resolve these conflicts of interest, the Plan Committe e
Defendants, Board Committee Defendants and Director Defendants instead continued to exercis e
fiduciary responsibility with respect to the Plan and in doing so advanced and served the interests
of Global Crossing and their personal interests to the detriment of the interests of Pla n
Participants, for example by maintaining the Plan's investment in Global Crossing stock and
maintaining Global Crossing stock as a Plan investment alternative after they knew or shoul d
have known that such actions were imprudent and not in the interests of Plan Participants or
Beneficiaries .
141. If the Plan Committee Defendants , the Board Committee Defendants and the
Director Defendants had at all times discharged their fiduciary duties to avoid conflicts o f
interest, including by resigning if necessary , the losses suffered by the Plan would have been
minimized or avoided . Therefore, as a direct and proximate result of the breaches of fiduciary
and co-fiduciary duties alleged herein, the Plan, and indirectly Plaintiffs and the other clas s
members, lost millions of dollars .
142. As a further consequence of their breaches of fiduciary duty, Defendants Casey,
61
Clayton, Cohrs, Cook, Scanlon, Porter and Winnick profited through the sale of Global Crossin g
stock. Pursuant to ERISA §409, these Defendants are liable to disgorge such profits .
143 . The Plan is entitled to the imposition of a constructive trust on any amount b y
which any Defendant was unjustly enriched through his breach of fiduciary duty, to equitabl e
restitution, and to other approp riate equitable monetary relief to redress the breaches of fiduciary
duty by Global Crossing and the Defendants described in this Claim .
FIFTH CLAIM FOR RELIE FCausing the Plan to Engage in a Prohibited Transaction by Giving More than Adequate
Consideration for Shares of Global Crossing Stock Contributed to or Acquired by the PlanAgainst the Plan Committee Defendants and Global Crossin g
[ERISA §§ 406 and 407, 29 U.S.C. §§1106 and 1107]
144. Plaintiffs incorporate the allegations contained in the previous paragraphs of thi s
Consolidated Amended Master Complaint as if fully set forth herein .
145. At all relevant times, Defendants acted as fiduciaries within the meaning of
ERISA 3(21)(A), 29 U.S.C.§ 1002(21)(A) .
146. The general duties of loyalty and prudence imposed by § 404 of ERISA ar e
supplemented by a detailed list of transactions which are expressly prohibited by ERISA Section
406 of ERISA, 29 U .S .C. § 1106, and are considered "per se" violations because they entail a
high potential for abuse. One such prohibited transaction is the direct or indirect acquisition b y
a fiduciary on behalf of the plan of any qualified employer security unless such acquisition is fo r
"adequate consideration." ERISA Section 406(a)(1)(E), 29 U.S.C. § 1106(a)(1)(E) ; ERISA
Section 408 (e), 29 U.S.C. § 1108(e) . Thus, pursuant to these provisions of ERISA, the fiduciaries
of the Plan were prohibited from causing the Plan to accept as employer contributions o r
otherwise acquire shares of Global Crossing stock as an investment for the Plan unless no mor e
than adequate consideration was paid for the shares .
147. Global Crossing and the Plan Committee Defendants, by their actions and
62
omissions in (1) authorizing or causing the Plan to continue offering Global Crossing stock as an
investment option for the Plan, (2) permitting participants to invest in Global Crossing stock, an d
(3) accepting matching contributions in the form of Global Crossing stock or investing matchin g
contributions in Global Crossing stock, at a time when they knew or should have known that th e
price per share at which the Plan was acquiring or accepting Global Crossing stock was mor e
than adequate consideration for such shares, caused the Plan to engage in transactions tha t
Defendants knew or should have known constituted a direct or indirect acquisition on behalf o f
the Plan of Global Crossing stock in violation of Sections 406(a)(1)(E) and 407(a) of ERISA, 2 9
U.S.C. §§ 1106(a)(1)(E) and 1107(a) .
148. Because the price at which the Defendants caused or allowed the Plan to accept o r
acquire shares of Global Crossing stock exceeded fair market value, and, therefore, was mor e
than adequate consideration, the prohibited transactions are not exempt under the provisions o f
Section 408 (e)(1) of ERISA; 29 U.S .C. § 1108(e)(1) .
149. As a result , the Plan's acquisitions of the stock were prohibited transactions, and
per se violations of ERISA §§ 406(a)(1)(E) and 407(a), 29 U .S.C. §§ 1106(a)(1)(E), and 1107(a) .
Under §§ 409(a) and 502(a)(2) and (3) of ERISA, 29 U .S .C. §§ 1109(a) and 1132(a)(2) and (3) ,
the Court has the equitable power to redress such violations by undoing the prohibite d
transactions through rescission . In the present case, the appropriate remedy would be for the
Court to require Defendants to restore to the Plan the full value of all contributions used to
purchase Global Crossing stock for more than adequate consideration during the Class Period .
150. In addition, in order to fully restore the Plan and its participants to the positio n
they would have been in had the fiduciaries of the Plan not engaged in the prohibited transaction s
alleged in this Complaint, the Plaintiffs are entitled to recover the amount the contributions i n
63
Global Crossing stock would have earned had such amounts been instead invested in the bes t
performing alternative investment in the Plan .
151. Each of the Board Committee Defendants and Director Defendants (i) participate d
knowingly in or undertook to conceal an act or omission described in this Claim of anothe r
fiduciary, knowing such act or omission was a breach, or (ii) by failing to discharge his, her, o r
its duties, enabled another fiduciary to commit a breach desc ribed in this Claim, or (iii) had
knowledge of the breach of fiduciary duty described in this Claim and failed to make reasonabl e
efforts to remedy such breach , and therefore was also a co-fiduciary liable for the breaches
committed by each other fiduciary under ERISA §405, 29 U.S.C. §1105 . As discovery
progresses in these cases, Plaintiffs will seek leave to amend this Complaint to identify thos e
Defendants in addition to the Board Committee Defendants and Director Defendants with co-
fiduciary liability as described in this paragraph .
PRAYER FOR RELIEF
WHEREFORE, Plaintiffs pray that the Court :
A. Certify this action as a cl ass action pursuant to Fed. R. Civ. P. 23;
B. Declare that the Defendants, and each of them, have breached their ERIS A
fiduciary duties to the Plan's participants and beneficiaries ;
C. Declare that the Defendants, and each of them, are not entitled to the protection o f
ERISA §404(c)(1)(B), 29 U.S.C. §1104(c)(1)(B);
D. Issue an order compelling the Defendants to make good to the Plan all losses t o
the Plan resulting from these breaches, including lost return on investments that would hav e
resulted from prudent and diversified investment of the Plan's assets, and to restore to the Pla n
all profits the Defendants made through use of the Plan' s assets ;
64
E. Impose a constructive trust on any amounts by which any Defendant was unjustly
enriched at the expense of the Plan as the result of a breach of fiduciary duty.
F. Order equitable restitution and other appropriate equitable monetary relief against
the Defendants .
G. Award such other equitable or remedial relief as may be appropriate, including th e
permanent removal of the Defendants from any positions of trust with respect to the Plan and th e
appointment of independent fiduciaries to administer the Plan ;
I. Enjoin Defendants, and each of them, from any further violations of their ERIS A
fiduciary responsibilities , obligations , and duties ;
J. Order the Defendants or their successor fiduciaries to allocate the Plan's
recoveries to the accounts of all Plan participants who had any portion of their account balances
invested in any Global Crossing stock fund maintained by the Plan in proportion to the accounts '
losses attributable to the decline in Global Crossing stock prices ;
K. Award Plaintiffs their attorneys' fees and costs pursuant to ERISA §502(g), 29
U.S.C. § 1132(g), and/or the Common Fund doctrine ; and
L. Award such other and further relief as the Court deems equitable and just .
65
Dated : January 2 , 2003
Respectfully Submitted By
Lynn Lincoln SarkoGary A. GottoErin M. RileyKeller Rohrback, LLP1201 Third Avenue, Suite 3200Seattle, Washington 98101-3052206-623-1900 (Seattle)602-248-0088 (Phoenix)Lead Counsel for ERISA Plaintiffs
George E. BarrettDouglas S. Johnston, Jr.Timothy L . MilesBarrett, Johnston & Parsley217 Second Avenue NorthNashville, Tennessee 37201(615) 244-2202
Richard SchiffrinMark TopazJoseph H. MeltzerSchiffrin & BarrowayThree Bala Plaza East, Suite 500Bala Cynwyd, Pennsylvania 19004(610) 667-770 6
ERISA LEAD COUNSEL COMMITTEE
Edwin J. MillsStull, Stull & BrodySix East 45th Stree tNew York, New York 10017(212) 687-7230
Jerold C . FeuersteinKriss & Feuerstein, LLP360 Lexington Avenue, Suite 1300New York, New York 10017(212) 661-2900
ERISA LIAISON COUNSEL
66