SEC Asks Tyco If It Withheld Data In Earlier InquiryNov 25, 2002 | The Wall Street Journal
The Securities and Exchange Commission missed a chance to root out possible accounting problems at Tyco International Ltd. about two years before the company's woes began to surface, Monday's Wall Street Journal reported.
In the latest twist in the Tyco case, the SEC has asked Tyco to investigate whether the conglomerate and its then-outside law firm withheld relevant information that would have helped the agency in its 1999-2000 inquiry into Tyco's accounting practices, say people with knowledge of the matter.
Had the SEC received the information it sought or pressed harder for it the agency might have continued the earlier accounting inquiry, the people say. Instead, the SEC ended its informal inquiry in July 2000 without action. A former senior Tyco executive persuaded the SEC to close its investigation before all the data came to light, said people familiar with the matter. The SEC declines to comment.
The new line of questioning was sparked by the recent discovery of documents the SEC never received, said people with knowledge of the matter. Among them: memoranda between two former top Tyco financial executives discussing ways Tyco would help U.S. Surgical slow its growth after Tyco agreed to acquire that company but months before the $3.17 billion purchase was completed in 1998, said people who have viewed them. (Such a move would have enabled U.S. Surgical to show faster growth once it was acquired.) In one, a former Tyco executive termed the Tyco plan for U.S. Surgical "financial engineering."
In 1999, an outside law firm for Tyco provided reams of material to the SEC. But there also were a number of significant documents that weren't handed over to the agency before it closed the inquiry, most of them involving U.S. Surgical.
The SEC reopened a broad investigation into Tyco in June of this year, after L. Dennis Kozlowski, Tyco's former chief executive, was charged with evading New York state sales tax by the Manhattan District Attorney's office. Mr. Kozlowski and former Chief Financial Officer Mark Swartz also face charges that they reaped $600 million in illicit gains from the company. Both men have denied the allegations.
The re-examination of the 1999-2000 accounting inquiry is the latest example of the SEC's failure to avail itself of an opening to get out front of a troublesome situation before it blew up for investors. The SEC is also playing catch-up with its current investigation into apparent conflicts between the investment banking and research arms of securities firms, an area in which it had poked around, although never seriously investigated, until New York State Attorney General Eliot Spitzer took it on this year.
The SEC recently asked Tyco to identify every U.S. Surgical document that wasn't provided to the agency in 1999 and 2000, say people with knowledge of the matter. Walter Montgomery, a Tyco spokesman, said the company is "fully cooperating" with the SEC, turning over all documents related to the U.S. Surgical acquisition. A person close to Tyco said the company doesn't expect the renewed inquiry into the U.S. Surgical acquisition to affect current financial results.