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Former Tyco Board Member Pleads Guilty

Dec 17, 2002 |

A former member of Tyco's board pleaded guilty on Tuesday to felony charges, becoming the first non-executive director to face criminal prosecution in the round of US corporate scandals.

Frank Walsh, who resigned as a director of the US conglomerate in February, failed to disclose a $20m payment from the company for helping Dennis Kozlowski, the former chief executive, with the ill-fated takeover of CIT, the finance group.

Half of that payment went to charity. On Tuesday Mr Walsh agreed to repay the whole amount to Tyco, as well as a $2.5m fine to the state and city of New York.

Mr Walsh also said he would resign from three boards of non-profit associations, and agreed with the Securities and Exchange Commission never to serve as a director or officer of a public company again.

The criminal prosecution of Mr Walsh is likely to send another shiver through US boardrooms. Robert Morgenthau, the Manhattan district attorney, led the prosecution using New York's broadly worded state securities law, the Martin Act. The SEC also filed a civil suit against Mr Walsh.

Companies are already having difficulty recruiting independent directors. Insurers have increased the cost of covering directors' defence fees.

Mr Walsh's lawyers argued in court on Tuesday that the 61-year-old former chairman of Wesray Capital, an investment company, had made only a "small mistake" in not disclosing the $20m payment to fellow Tyco directors after he put Mr Kozlowski in touch with CIT's chief executive.

But the judge, Michael Obus, dismissed that argument. "This was a serious mistake," he said.

Revelations of the payment to Mr Walsh marked the beginning of the decline and fall of Mr Kozlowski. He and Mark Swartz, then chief financial officer, were forced to defend the payments in January as the Tyco share price fell. CIT had to be sold and Mr Kozlowski and Mr Swartz were charged with corruption by Mr Morgenthau in September. They have pleaded not guilty to charges that they looted more than $170m from the conglomerate and a further $430m by fraudulent stock sales.

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