Ex-Exec Files Suit Against TycoNov 20, 2002 | Palm Beach Post
A former Sensormatic Electronics executive filed suit Tuesday against Tyco International and its board after a scandal involving Tyco's top executives has left its share price in shambles.
Ron Premuroso, the former president of the company's International Retail Division, is the first former Sensormatic executive to file suit against Tyco. Tyco bought Sensormatic a year ago.
Tyco's Fire and Security Division and its home burglar-alarm unit, ADT Ltd., are based in Boca Raton.
Premuroso accuses Tyco's board of drafting a deal in November 2001 at an artificially inflated stock price.
"Tyco's empire was built upon a falsehood," Premuroso said in his suit, filed in Palm Beach County Circuit Court. The company could not be reached for comment.
After former Tyco Chief Executive Dennis Kozlowski in late January floated a plan to break up the $36 billion conglomerate into four parts, "a veritable flood of incriminating information" about Tyco and its finances were disclosed in media reports, the suit said.
Among the disclosures were Tyco's $20 million payment to Director Frank Walsh and a charity he controlled; Kozlowski and Chief Financial Officer Mark Swartz's sale back to the company of millions of dollars in Tyco stock; and Tyco's failure to report about $8 billion in deals over three years to the SEC.
As a result, the company's 1999 and 2000 financial statements overstated profit and understated expenses, the suit said.
In addition, the breakup plan itself was a shock to investors who bought the stock at a high price while the Bermuda-based company grew through a series of deals.
The Manhattan District Attorney's Office later charged Kozlowski and Swartz with defrauding the company of $600 million.
Even before the January breakup plan was announced, Tyco (NYSE: TYC) shares had begun to fall from a high of $59.76 a share on Dec. 5 last year.
They closed Tuesday at $16.55, up 51 cents a share.
Tyco bought Sensormatic, which made anti-theft systems, for about $2.2 billion in stock and $116 million in assumed debt.
The ex-Sensormatic investors received slightly less than one share of Tyco for roughly every two shares of Sensormatic they held.
At the time, Tyco shares were trading in the high $40s to low $50s, while Sensormatic shares were trading in the low $20s.
Under terms of the deal, a Sensormatic shareholder with 100 shares would have received 49 shares of Tyco worth about $2,437.75 based on the stocks' average price.
As of Tuesday's close, those shares are worth only $810.95.