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Fund Manager Testifies at Tyco Exec Trial

Jan 13, 2004 | AP

A hedge fund manager testified Tuesday that Tyco International Ltd.'s former chief executive, L. Dennis Kozlowski, assured in a January 2002 conversation that company's board had signed off on a $20 million investment banking fee for a director.

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Several directors have previously testified that they didn't find out about the payment until they saw a draft proxy in January 2002 and then asked the recipient, Frank Walsh, to give the money back.

Leon Cooperman, chairman and CEO of Omega Advisors, said he called Kozlowski on Jan. 29, 2002, after reading a Wall Street Journal article that indicated the company had made payments of $10 million to Walsh and $10 million to a charitable trust where Walsh was a trustee for his work on helping secure Tyco's merger with CIT Group Inc.

Tyco issued a press release later that day, saying the board had approved the fee.

Based on the conversation with Kozlowski, Cooperman bought Tyco shares worth about $50 million over two days. He continued to buy the stock as the price fell, convinced the market was overreacting.

Kozlowski and Mark Swartz, Tyco's ex-chief financial officer, are on trial in New York State Supreme Court in Manhattan, charged with improperly using Tyco funds to enrich themselves and others. Each faces up to 30 years in prison. They have denied wrongdoing.

Defense attorneys have argued the board gave Kozlowski the authority to pay whatever fees he felt were appropriate in mergers. One ex-director testified the board never approved investment banking fees.

Cooperman testified that he wouldn't have bought a single share of Tyco for Omega Advisors in January 2002 if he had known the board didn't approve the fee and, assuming he didn't have insider information, that he would have sold every share he owned at the time.

"Being a hedge fund, I would short this stock with impunity," Cooperman said.

Defense attorneys continued their cross-examination Tuesday of William Peter Slusser, an ex-Tyco director.

Slusser, who took copious notes of board meetings and conversations he had with board members, said when asked by Charles Stillman, an attorney for Swartz, that he couldn't remember if minutes were taken for a number of board "huddles" informal meetings by the board or its compensation committee.

Stillman repeatedly asked Slusser about whether there was a board meeting on specific dates and whether minutes were kept.

Slusser answered again and again that he couldn't necessarily tell from his notes if there was a board meeting and if minutes were kept without reviewing the two side-by-side.

Slusser said the huddles were often by phone, but stressed the board recorded minutes at its formal meetings.

Defense attorneys, while objecting to Slusser's notes being admitted into evidence, have stuck a line of questioning that suggests the board didn't necessarily record all of its decisions in the minutes and may have approved some of the compensation that prosecutors say was unauthorized.

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