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Tyco Sues Two Former Officers For $40 Million In Trade Profits

Kozlowski, Swartz Broke Federal Rule, Company Charges

Dec 10, 2002 | Bloomberg News

Tyco International Ltd. sued its former chief executive, Dennis Kozlowski, and its former chief financial officer, Mark Swartz, to recover $40million of their "short-swing" profits from trading the conglomerate's stock.

Tyco said yesterday that Kozlowski and Swartz violated a federal rule that requires insiders who buy and later sell company stock within a six-month period to relinquish their profits. The lawsuit was filed in Manhattan federal court.

Kozlowski and Swartz are battling state criminal charges in New York that they engaged in a $600 million theft and fraud scheme. Each of the two former officials, who pleaded not guilty, faces 30 years in prison on enterprise-corruption, grand-larceny, and conspiracy charges. Tyco has already sued Kozlowski, Mark Belnick, a former general counsel, and Frank Walsh, a former director.

Such suits are "not terribly common, because most officers and directors are well-enough advised that they don't usually violate" short-swing trading rules, said David M. Becker, a lawyer and a former general counsel to the U.S. Securities and Exchange Commission.

Kozlowski and Swartz "engaged in numerous transactions within six-month periods involving Tyco stock and stock options," the lawsuit said.

Stephen E. Kaufman, Kozlowski's attorney, and Charles Stillman, Swartz's attorney, could not be reached for comment. A Tyco spokesman, Gary Holmes, said that the lawsuit "speaks for itself" and declined to comment further.

Tyco said that Kozlowski violated the Securities and Exchange Commission's short-swing rule 31 times from August 1, 2000, when he exercised an option to buy 392,000 shares, to Jan. 30, when he bought 225,000 shares.

Tyco said that Swartz violated the rule 36 times from August 1, 2000, when he exercised an option to buy 196,000 shares, to April 26, when he bought 209,000 shares.

Kozlowski and Swartz presided over more than $64billion in acquisitions in a five-year period, building the company into the biggest maker of security systems, undersea fiber-optic cable, electronic connectors and industrial valves. The company has operations in the Triad.

Kozlowski was ousted in June. Swartz, who left in August, is in arbitration with the company. This is the first suit that Tyco, based in Bermuda and run from Exeter, N.H., has filed against Swartz.

The two men were accused by a Manhattan grand jury of stealing $170 million in unauthorized compensation and $430 million through stock manipulation. Kozlowski earlier was charged with evading $1million in New York taxes on art he purchased.


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