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Former Tyco CEO Likely To Face Charges Over Unauthorized Pay

Sep 12, 2002 | The Wall Street Journal

New York prosecutors are expected to file criminal charges against Tyco International Ltd.'s former chief executive, L. Dennis Kozlowski, and two other former company officials related to millions of dollars they received in unauthorized compensation, attorneys with knowledge of the matter told The Wall Street Journal.

The charges by the Manhattan district attorney could be filed within the next week, and possibly as soon as today, these people said. Among the charges being considered against Mr. Kozlowski is at least one count of grand larceny, which could carry a penalty of up to 25 years in jail, the attorneys said. An investigation by The Wall Street Journal last month revealed that Mr. Kozlowski appears to have taken at least $77 million in money from the company that wasn't previously disclosed to the board.

Attorneys for Tyco's former chief financial officer, Mark Swartz, and former general counsel, Mark Belnick, were notified by prosecutors last week that their clients could be charged with criminal violations of New York state's securities-fraud statute, according to people with knowledge of the situation. The attorneys were given an opportunity to dissuade prosecutors from filing the charges, a common practice with potential white-collar defendants.

The Securities and Exchange Commission also is likely to file its own civil charges against the three former Tyco executives, according to people familiar with the matter. The SEC is expected to move at the same time any criminal charges are filed, they said.

The case could still take a sudden turn. Prosecutors or a New York grand jury could decide that there's insufficient evidence to charge some or all of the former Tyco executives, or the executives could strike last-minute plea-bargain arrangements that could avert any potential indictments.

Separately, Tyco's board is expected to meet today to consider a plan to nominate as many as five new directors to the 11-person board, people familiar with the company said. The move comes as Edward Breen, Tyco's newly appointed CEO, is trying to clean house at Tyco, which has been rocked by Mr. Kozlowski's earlier indictment on tax evasion and reports about Tyco's huge undisclosed payments to him and other executives and directors.

Any new charges would dramatically increase the legal peril for Mr. Kozlowski, who in June was indicted on felony and misdemeanor charges of conspiring to evade payment of more than $1 million in sales taxes on costly artwork. He pleaded not guilty to those charges.

Stephen Kaufman, Mr. Kozlowski's attorney, declined to comment on his discussions with prosecutors. Charles Stillman, a New York attorney who is representing Mr. Swartz, said: "Mark Swartz is a perfectly decent man who remains proud of the work he did at Tyco." Reid Weingarten, an attorney representing Mr. Belnick, said Mr. Belnick "did not do one blessed thing wrong while he was at Tyco."

John Moscow, the lead prosecutor in the Manhattan District Attorney's office on the case, declined to comment. An SEC spokeswoman also declined to comment.

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