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Terry McAuliffe, the Chairman of the Democratic National Committee, should be forced to answer questions about possible insider trading in Global Crossing that netted him millions.

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DNC’s Slease Factor

Terry McAuliffe, the Chairman of the Democratic National Committee, should be forced to answer questions about possible insider trading in Global Crossing that netted him millions.

As the stock market continues to tumble, Americans who once planned to retire are finding that their life savings have evaporated.

Although Terry McAuliffe is currently employed as Chairman of the Democratic National Committee, he could retire today thanks to the $18 million he pocketed from possible insider trading in Global Crossing. Meanwhile, shareholders have lost some $50 billion as a result of Global Crossing’s bankruptcy.

McAuliffe has predictably sought to divert attention from his role in this scandal by hurling stones from his glass house at the White House. He asked of President Bush, "How can he restore confidence to Wall Street when he has engaged in the same practices he condemns today?"

McAuliffe was apparently making reference to the President’s sale of stock in Harken Energy more than a decade ago, a transaction that the Securities and Exchange Commission thoroughly investigated and found no wrongdoing.

Even with 57 lawsuits filed by Global Crossing employees and shareholders now before U.S. District Judge Gerard Lynch in Manhattan, Congress has a duty to the shareholders defrauded by the company to conduct a full investigation.

The House Energy and Commerce Committee has begun the fact-finding process, but it is imperative that both the House and Senate conduct hearings and subpoena McAuliffe to testify.

On what basis did he decide to sell his shares of Global Crossing, pocketing an $18 million profit from a $100,000 investment shortly before the company’s collapse?

At the time he sold his shares, McAuliffe served on the board of directors of the now-bankrupt Telergy, a telecommunications company based in Syracuse, New York that "swapped capacity" with Global Crossing.

Global Crossing made such swaps days before it was required to release quarterly earnings estimates in order to meet projections. It doesn’t take an economist to realize that two profit-seeking companies making an arms-length transaction would only swap assets of equal value. To create the illusion that it was profitable and thereby deceive investors, Global Crossing inflated the value of what it received in such swaps.

McAuliffe was on the board of Telergy when its swap with Global Crossing was executed. As The Washington Times reported on September 12, 2002, "Mr. McAuliffe sold his Global Crossing shares in the fall of 1999.

In other words, Mr. McAuliffe reaped his huge Global Crossing profit during the quarter following the month that his firm, Telergy, helped to inflate Global Crossing’s revenues-and, hence, its stock price." Of course, McAuliffe knew to cash out his shares right before the clock ran out on Global Crossing’s funny money swaps.

While they have him on the hot seat, McAuliffe should also be asked about another questionable windfall he received from a commercial real estate investment with the International Brotherhood of Electrical Workers Pension Fund.

According to a December 12, 1999 New York Times article, McAuliffe’s return was an amazing $2.45 million on an original investment of $100. The "County Run" project, which involved apartment complexes and shopping centers near Orlando lost money for the Pension Fund.

The Clinton Labor Department fined the Fund managers and forced them to pay restitution. However, McAuliffe has never been called to account for his role in skimming a profit off the backs of union workers.

Moreover, on April 4, 1999, the Washington Post reported that the Justice Department charged Prudential Insurance with paying McAuliffe an illegal $375,000 consulting fee in 1997. Prudential settled the civil suit and prosecutors failed to pursue McAuliffe.

It is time for Congress to finally bring Terry McAuliffe to Capitol Hill to answer for his insider deals that have come at the expense of American shareholders and workers. To enact the necessary corporate reforms to prevent future fiascos like Global Crossing and County Run, Congress must first get to the bottom of what went wrong and McAuliffe represents a piece in that puzzle.

As the political party that professes to represent "the people" against the powerful, this is an opportunity for congressional Democrats to put principle, as well as the best interests of millions of defrauded American shareholders and workers, ahead of partisanship.

Written By

Mr. Ganske is a Fellow at the American Freedom Center (www.americanfreedomctr.org), a public policy institute based in Austin, Texas.

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