Ex-Tyco Director Walsh Pleads Guilty to FraudDec 17, 2002 | Washington Post
Former Tyco International Ltd. board member Frank E. Walsh pleaded guilty to felony fraud charges today and agreed to pay $22.5 million to settle allegations that he took an improper $20 million payment related to Tyco's 2001 acquisition of CIT Group Inc.
Walsh, 61, resigned from Tyco in February after being challenged by other board members regarding the payment. He is the fourth former official of the Bermuda-based conglomerate--and the only director--to be targeted by New York District Attorney Robert Morgenthau and the Securities and Exchange Commission.
Former Tyco chief executive L. Dennis Kozlowski, former chief financial officer Mark H. Swartz and former general counsel Mark A. Belnick were all indicted on multiple criminal charges this summer. All have pleaded not guilty. Prosecutors allege that Kozlowski and Swartz conspired to steal hundreds of millions from Tyco by circumventing most board members and buying the silence of other employees by handing out generous loans that were later forgiven.
Morgenthau has been pursuing Walsh for months on suspicion that the $20 million payment, allegedly awarded as a finder's fee for his help with the CIT acquisition, was actually made to keep Walsh quiet as Kozlowski and Swartz siphoned money from the firm. Walsh chaired Tyco's compensation committee and sat on the board's corporate governance committee.
Tyco filed suit against Walsh earlier this year over the payment. In the lawsuit, Tyco said the board learned of the finder's fee in January of this year, after reading about it in a proxy statement, and immediately demanded that Walsh return the money. The suit said Walsh refused, walking out of a board meeting with a dismissive "adios" when asked to give back the $20 million.
A criminal complaint filed against Walsh today largely tracks claims made in the lawsuit. The complaint says Kozlowski and Walsh presented the CIT acquisition to Tyco's board without disclosing the fee, $10 million of which went directly to Walsh with another $10 million donated to the Community Foundation of New Jersey, a charity Walsh recommended.
The Tyco case, in which Kozlowski allegedly stole millions to purchase lavish homes and furnish them with expensive art and other decorations, including a $6,000 shower curtain, has come to symbolize the worst corporate excesses of the late 1990s boom years. Morgenthau has also said he chose to pursue Tyco because it is run from New Hampshire and New York City but is incorporated in Bermuda to avoid U.S. taxes, a practice the New York district attorney has harshly criticized.
Walsh's guilty plea today settles the criminal fraud charges as well as civil charges filed simultaneously by the SEC. Had Walsh not made a deal with prosecutors, he could have faced up to four years in prison and a fine of twice the money he received as part of the alleged fraud.
Walsh did not comment today. His attorneys also declined to comment. A spokesman released a statement saying Walsh "took full responsibility for a decision he made as a board member of Tyco International to solicit and accept a payment in exchange for brokering a corporate acquisition for Tyco International without making immediate disclosure of the payment."
The statement said Walsh "took these actions today after lengthy discussions with his family and with the goal of bringing to a close a painful and intense chapter in a long and otherwise fruitful business career. With this behind him, Frank Walsh intends to focus on his philanthropic interests and activities, including running the Sandy Hill Foundation, which he formed as his family's foundation 17 years ago." According to the statement, Walsh will repay the $10 million given to the Community Foundation of New Jersey himself and the charity will be allowed to keep the money donated by Tyco.
Walsh was a Tyco director from 1992 through February of this year. Tyco is among the world's largest makers of security systems, electrical connectors, under-sea fiber optic cable and other devices. Kozlowski once hoped to turn the conglomerate into a miniature version of General Electric. But that vision has collapsed, and the firm's shares have been battered this year. Tyco stock was trading at around $16.95 this afternoon, down about 1 percent on the day. It once traded near $60 per share.