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Deal: Tyco Pays, Probe Goes Away

Oct 24, 2002 | Portsmouth Herald Tyco International Ltd. will pay $5 million to end an investigation by the state’s Bureau of Securities Regulation into allegations of misconduct by former company officials, misuse of corporate funds, filing false regulatory statements and making transactions without proper corporate approval.

The company, which is incorporated in Bermuda and headquartered in Exeter, signed a consent agreement with the securities bureau without admitting to any of the state’s allegations. Those allegations included questions as to whether Tyco’s board of directors, specifically regarding its audit and compensation functions, failed to exercise its fiduciary responsibilities by allowing "misdeeds" to occur when it failed to "reasonably control and supervise the audit and compensation functions."

The settlement comes as Tyco was poised to announce its fourth-quarter results this morning before the market opens. Tyco stock closed up 51 cents at $13.94 per share Wednesday on the news of the settlement.

The state securities bureau said its investigation included review of subpoenaed corporate documents, and filings and statements on the activities of Tyco and such former executives as Dennis Kozlowski, former chairman and chief executive officer; Mark Swartz, former chief financial officer and board member; Mark Belnick, former chief corporate counsel; and Frank Walsh, former board member.

"The actions by these named Tyco employees represent the highest form of corporate mistrust and greed. Through their actions, shareholders suffered and investor confidence in public companies was further shaken," said Mark Connolly, deputy secretary of state and director of securities regulation for New Hampshire.

"The failures of Tyco are especially relevant and significant to New Hampshire because the company maintains its corporate headquarters in the state and because many of these illegal activities were initiated in New Hampshire," Connolly also stated.

Kozlowski and Swartz face criminal charges that they stole hundreds of millions of dollars from Tyco during their tenure there. In addition, Tyco is pursuing legal action against Kozlowski, Swartz, Belnick and Walsh, in part in an effort to recoup some of the company funds it charges the former officials misused.

The state securities bureau said Wednesday that Kozlowski, Swartz and Belnick improperly took millions of dollars in interest-free loans from Tyco.

"Kozlowski, one of the highest-paid corporate executives in the nation, further enriched himself through a variety of schemes involving the use of corporate funds for his personal benefit, including purchasing millions of dollars of home furnishings, artwork and lavish entertainment," the bureau said in its announcement of the settlement.

Kozlowski, who has also been charged in the state of New York with evading sales tax on art purchases, has become a poster boy in recent months for corporate misconduct, in the wake of Tyco filings with the U.S. Securities and Exchange Commission that state the former executive spent thousands of dollars in company money on items ranging from a dog umbrella stand to a shower curtain.

Tyco’s $5 million settlement with the state will fund two programs: a statewide education program for investors designed to help them "better understand the workings, risk and fundamentals of securities investing;" and a corporate governance program through the University System of New Hampshire to "stimulate meaningful discussion and understanding of corporate governance issues and the need for higher ethical standards among business leaders nationally," according to the bureau.

In addition, Tyco will pay $100,000 to cover the costs of the bureau’s investigation, according to the company, and has agreed to file a report with the state on the practices and procedures it is instituting to comply with federal and state securities laws as well as corporate governance standards.

"We believe this consent agreement is in the best interests of our shareholders and employees and reflects the company’s commitment to a continued presence in New Hampshire," said Edward Breen, Tyco’s current chairman and CEO. "This agreement resolves and puts behind us the issues raised by New Hampshire’s Board of Securities Regulation. The terms of this agreement ... also underscore the absolute commitment of Tyco’s new management to establishing and enforcing the highest standards of corporate behavior."

Connolly, who met with Breen earlier this week to discuss the bureau’s findings, stated Wednesday that the settlement "demonstrates a new direction for Tyco."

"We all now recognize the excesses of the long bull market. That is the first chapter of our collective national experience," Connolly said in his announcement of the settlement. "The next chapter is how we as a society react to that excess by bringing about needed reform in corporations as well as capital markets. Public confidence will follow as a result."

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