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E-Mails Show Tyco's Lawyers Had Concerns About Books

Dec 27, 2002 | Wall Street Journal Newly discovered e-mails written by attorneys at Tyco International Ltd.'s (TYC, news) former outside law firm reveal that they knew about personal use of corporate funds by former Tyco Chairman L. Dennis Kozlowski and a host of accounting problems at the company in early 2000, Friday's Wall Street Journal reported.

The e-mails written by Wilmer, Cutler & Pickering partners Lewis Liman and William McLucas -- have been obtained by the Manhattan district attorney's office and the Securities and Exchange Commission in their continuing investigation into Tyco and some of its former top executives, according to people familiar with the matter. Part of the SEC's probe involves whether the conglomerate and Wilmer Cutler withheld relevant information that would have helped the SEC in an informal inquiry it launched in 1999 into Tyco's accounting practices, the people say. The SEC ended the informal inquiry in July 2000 without action.

In one e-mail reviewed by The Wall Street Journal, Mr. Liman came across a document relating to Mr. Kozlowski's personal use of company money in a binder that was to be produced to the SEC. In a March 23, 2000, e-mail to Tyco's general counsel at the time, Mark Belnick, Mr. Liman wrote: "There are payments to a woman whom the folks in finance describe to be Dennis's girlfriend." The payments, totaling $100,000 in the form of a "loan," were to Karen Mayo, now Mr. Kozlowski's wife.

In the e-mail, Mr. Liman called the payments "an embarrassing fact," but added that he believed they couldn't be withheld from the SEC due to document requests the agency had made. Mr. Belnick disagreed in an e-mail the following day, saying it was "non-responsive" to the SEC's requests and therefore didn't need to be produced.

The e-mails highlight the sensitive role of corporate lawyers who receive evidence of potential fraud involving their clients. In the Tyco matter, Messrs. Liman and McLucas had a duty to protect the company's shareholders, not corporate executives. Yet the lawyers don't appear to have been legally obligated to turn over the sensitive documents to the SEC unless they were relevant to an SEC document request.

"There's no legal obligation to rat out the client," says Alan Bromberg, a professor at Southern Methodist University's law school. "And if the documents aren't responsive, it's OK to withhold them."

Mr. Liman didn't return several phone calls this week seeking comment. Mr. McLucas, a former SEC enforcement chief who now is heading his firm's investigation of WorldCom Inc. said he couldn't comment because of attorney- client privilege. But a person with knowledge of his communications with Tyco at the time says he and Mr. Liman did advise Tyco officials orally to correct certain of the problems they identified and cited in the e-mails. Reid Weingarten, a lawyer for Mr. Belnick, wasn't available to comment. Walter Montgomery, a Tyco spokesman, declined to comment, as did Stephen Kaufman, a lawyer for Mr. Kozlowski. Officials at the Manhattan district attorney's office and the SEC also declined comment.

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