Global Crossing duo face fraud suit

A lawsuit filed against the former general counsel and an in-house lawyer at Global Crossing has been allowed to proceed, despite a US federal judge voicing doubts over the strength and practicality of the case against them.

In August, Judge Gerard Lynch of the Southern District of New York denied a motion put forward by James Gorton, the former general counsel of the bankrupt international voice and data carrier, and in-house lawyer Jackie Armstrong, to dismiss them from the $1.7bn (£950m) lawsuit.

The two in-house counsel were among 23 former executives of Global Crossing who were named in the lawsuit JPMorgan Chase v Winnick, which was filed by JPMorgan Chase and a syndicate of major banks following Global Crossing’s bankruptcy in 2002.

The banks, which had loaned Global Crossing more than $2bn (£1.12bn), claim that the executives initiated fraudulent transactions prior to the company entering bankruptcy to inflate revenue and disguise the company’s financial position.

Gorton and Armstrong had sought to have themselves dismissed from the matter on the basis that they did not know, or did not assist in, the alleged fraudulent ‘swap’ transactions.

Gorton also claimed that he had opposed one swap transaction and initiated an investigation, undertaken by his former firm Simpson Thacher & Bartlett, after a whistleblower had brought the scheme to light.

Judge Lynch said the banks had made a sufficient case that a fact-finder could infer that the two in-house counsel were aware and involved in the alleged scam.

However, he also expressed reservations over the strength of the banks’ claims against the lawyers, stating that many facts were subject to “conflicting interpretations” and that they did not appear “particularly potent”.

The case follows the payment of $325m (£181.3m) by Global Crossing executives last year to settle employee and shareholder litigation. Simpson Thacher also paid $19.5m (£10.9m) at the time to avoid any potential claims regarding its investigation into the whistleblower’s claims.

JPMorgan Chase was represented by Milbank Tweed Hadley & McCloy.

Gorton, now a partner at Latham & Watkins, was represented by Morvillo Abramowitz Grand Iason & Silberberg, while Armstrong turned to LeBoeuf Lamb Green & MacRae.