Tyco Details Extravagance Of Ex-CEOSep 18, 2002 | The Los Angeles Times For former Tyco International Ltd. Chief Executive L. Dennis Kozlowski, $2,200 apparently wasn't an extravagant price to pay for a wastebasket. Nor was $15,000 for an umbrella stand--at least, not when the purchases were made with the company's money.
In a report submitted Tuesday to federal regulators, Tyco claimed that Kozlowski bought these items, and others, at shareholder expense. The filing, which marks the latest revelations of alleged executive excess in the wave of corporate scandals this year, also adds new details about Kozlowski's use of corporate loan and bonus programs to carry out what prosecutors last week said was a deliberate looting of the conglomerate since 1995.
Tyco, which ousted Kozlowski in June, now asserts that he misappropriated tens of millions of dollars of company funds during his tenure. Kozlowski, 55, was indicted on corruption and grand larceny charges last week in Manhattan. Two other senior executives also were charged.
The information in the company's report sent Tuesday to the Securities and Exchange Commission echoes the indictment, but includes additional allegations of abuse--listing outlays such as $6,000 for a shower curtain and more than $1 million for a Roman-themed birthday party in Sardinia for Kozlowski's wife. The report stunned even some veteran critics of corporate practices.
"It's like going to a buffet and stuffing your pockets with everything in sight," said Charles Elson, a corporate governance specialist at the University of Delaware.
Kozlowski's lawyer, Stephen Kaufman, did not return phone calls seeking comment. He has said the indictment represented unproven allegations.
In a year in which a number of chief executives have faced charges of financial malfeasance and self-dealing, the cases brought against Kozlowski by prosecutors and the company allege an elaborate scheme in which shareholder funds were systematically used without authorization by the company's directors.
For example, the report alleges that Kozlowski--whom the company has described as one of the highest-paid CEOs in the U.S. in the 1990s--had Tyco buy his home in New Hampshire at three times its market value in 2000.
Kozlowski frequently donated money to charities in his own name, using company funds, the report said. In one case, he gave $1.3 million to preserve the Squam Swamp in Nantucket, Mass. The land was next to his own estate and the donation prevented the land from being developed.
The company also alleges that Kozlowski enriched dozens of other Tyco employees with unauthorized bonuses and benefits.
Kozlowski struck a compensation deal with Mark Belnick, the former chief corporate counsel, that gave Belnick an incentive to aid Kozlowski's diversion of company funds, the company said. Kozlowski secretly promised to tie Belnick's annual bonus to his own, the report said.
In another instance, the report said, Kozlowski directed that the company forgive relocation loans given to 51 employees and pay the income taxes they would have owed. The deal cost Tyco almost $96 million, about one-third of which went to Kozlowski.
Tyco contends that Kozlowski and the other executives who have been indicted--Belnick, 55, and Mark H. Swartz, 42, the company's former chief financial officer--went to great lengths to mask their actions from the company's board.
The report said the 51 employees whose loans were forgiven were forced by Kozlowski to sign confidentiality agreements, forbidding them from disclosing the deals. Some were barred from keeping duplicate copies of the agreements.
The company revealed the names of a number of high-ranking executives whose company loans were forgiven at Kozlowski's direction. Several of them have repaid their loans, the report said.
. It was not clear whether more Tyco employees could be charged with wrongdoing.
Other than Kozlowski, Swartz and Belnick, the other employees thought their compensation packages had been approved by Tyco directors, a Tyco spokesman said, and they believed the compensation was proper.
Swartz's attorney said in a statement Tuesday that his client is innocent and the report "does not change that fact." Belnick's attorney did not return a phone call.
The report was compiled by a special Tyco investigative committee headed by prominent attorney David Boies. Tyco is one of several companies that have hired law firms to conduct corporate investigations following the disclosure of accounting troubles or other problems.
Tyco described the report as far more extensive than required by law but said it was undertaken to restore investor confidence in the company.
Tyco, which had sales of $36 billion last year from products including undersea cables, alarm systems and electronic components, stressed Tuesday that it would not have to restate its books to account for the millions it alleges were stolen by Kozlowski. In part, that is because bonuses and other payments were masked by previously recorded write-offs, Tyco said.
However, new Chief Executive Edward D. Breen has ordered an internal audit of the company's books.
Kozlowski, once considered a master deal maker who transformed Tyco with hundreds of mergers in the 1990s, was ousted by the company in early June and indicted a day later in a case brought by Manhattan Dist. Atty. Robert Morgenthau on charges of evading sales taxes on purchases of expensive artwork.
Morgenthau returned last week with a broader indictment alleging corruption.
Meanwhile on Tuesday, Kozlowski and Swartz, in a court appearance, said they were having trouble raising bail because their assets have been frozen by Morgenthau's office. Kozlowski must post a $100-million bond secured by $10 million in cash or property, while Swartz must post a $50-million bond secured by $5 million in assets. The men are due in court on Thursday for another hearing on the matter.