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DA, SEC Charge Former Tyco Execs

Sep 12, 2002 | AP

Three former Tyco International executives who allegedly pillaged their company of tens of millions of dollars were charged Thursday with financial crimes, Manhattan District Attorney Robert Morgenthau said Thursday.

The criminal charges were announced less than an hour after the Securities and Exchange Commission filed a civil complaint against the three for failing to disclose tens of millions of dollars in low- or no-interest loans they took from the company.

Former CEO L. Dennis Kozlowski and former chief financial officer Mark H. Swartz were each charged by the district attorney with enterprise corruption. Former general counsel Mark A. Belnick was charged with falsifying business records.

The district attorney said Kozlowski and Swartz stole more than $170 million from the company, and obtained $430 million through fraudulent sales of securities.

Belnick falsified records to cover up $14 million in improper loans he received from Tyco, Morgenthau said.

The three, once the top executives in the company, were to be arraigned later Thursday.

Morgenthau said the DA's office had moved to freeze $600 million in assets belonging to Kozlowski and Swartz.

The SEC charged that Kozlowski used $242 million from an employee loan program designed to help workers purchase Tyco stock to instead pay for yachts, fine art, jewelry, luxury apartments and vacations. It accused Swartz of misusing $32 million in company funds and Belnick of $14 million.

The executives also failed to disclose when they forgave the loans to themselves, the commission contended.

The three "treated Tyco as their private bank, taking out hundreds of millions of dollars of loans and compensation without ever telling investors," said Stephen M. Cutler, the SEC's director of enforcement. "Defendants put their own interests above those of Tyco's shareholders. Those shareholders deserved better than to be betrayed by the management of the company they owned."

The SEC said it had worked with the Manhattan District Attorney's office, which was to bring related criminal charges. The investigation was continuing, the SEC said in a statement.

The agencies seek to recoup the accused's ill-gotten gains, the SEC said.

The new charges against Kozlowski are on top of a 14-count indictment he already faces. They include evading sales tax on $13 million worth of art, including works by Renoir and Monet.

In addition, Tyco was to file a lawsuit against Kozlowski as early as Thursday seeking the return of the former executive's severance pay, along with his income and benefits since 1997, an amount estimated to be at least $250 million, The Times said.

Kozlowski, who resigned from Tyco in June a day before being indicted, has pleaded innocent.

Also in June, Tyco filed suit in federal court in Manhattan accusing Belnick of failing to disclose $35 million in compensation and loans. The company said Belnick also concealed from the board the criminal investigation that led to Kozlowski's resignation.

The New York Times and The Wall Street Journal first reported the expected charges Thursday.

Stephen Kaufman, an attorney for Kozlowski, declined comment to the Journal. Charles Stillman, an attorney for Swartz, said his client "is a perfectly decent man who remains proud of the work he did at Tyco."

Reid Weingarten, who represents Belnik, told the Journal his client "did not do one blessed thing wrong while at Tyco."

Tyco, a conglomerate based in Bermuda but headquartered in Exeter, had $34 billion in sales last year. The company makes everything from security systems to electronic components, telecommunications systems, medical devices and plastics.

The company's stock has dropped sharply this year because of questions about its accounting and liquidity and the various investigations of the company and Kozlowski.

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