A former director of Tyco International Ltd. (TYC) pleaded guilty Tuesday to taking an undisclosed $20 million payment from the company.
Frank E. Walsh Jr., who until February was Tyco’s lead director, pleaded guilty to a criminal complaint that charges him with colluding with former Tyco chief executive, L. Dennis Kozlowski, to receive an undisclosed finder’s fee for brokering Tyco’s $9.5 billion purchase of CIT Group Inc. (CIT). In July, Tyco spun off CIT in an initial public offering of stock that raised $4.6 billion.
“I deeply regret my conduct,” Mr. Walsh told Judge Michael Obus in New York state court.
Mr. Walsh also settled related Securities and Exchange Commission charges, agreeing to return the $20 million payment. He also agreed to be barred from serving as officer or director of a public company.
Mr. Walsh, 61 years old, of Convent Station, N.J., was immediately sentenced after pleading guilty. Judge Obus didn’t impose a prison term but instead ordered Mr. Walsh to pay, in addition to the $20 million in restitution, $2.5 million to the city and state in lieu of a fine and $250,000 to the district attorney’s office to cover the costs of the prosecution.
He could have received up to four years in prison for violating the antifraud provision of the Martin Act, New York’s general business law.
Mr. Walsh “has certainly acknowledged his mistake,” the judge said. “Although his sentence does not involve incarceration, it is a significant sanction.”
After the hearing, Prosecutor John Moscow said Walsh didn’t have a cooperation agreement but “if he is called to testify at trial he will testify truthfully.”
Mr. Kozlowski and former Tyco financial chief Mark H. Swartz are expected to go to trial in the spring on charges of looting $170 million from the company. Former Tyco general counsel Mark Belnick was separately charged with falsifying business records and would likely go on trial after Messrs. Kozlowski and Swartz.
Tyco’s board became aware of the fee paid to Mr. Walsh in early January 2002 and demanded his resignation. The company sued him in June to recover the money, claiming he had breached his fiduciary duties.
A Tyco spokesman declined to comment on Mr. Walsh’s guilty plea or how it could affect the suit, which is still pending.
At a press conference, District Attorney Robert Morgenthau called the charges an unprecedented case of “malfeasance” by a company’s director.
According to the charges, Messrs. Walsh and Kozlowski submitted the proposed CIT acquisition to Tyco’s board without disclosing that Mr. Walsh would receive the hefty finder’s fee. After the purchase was completed, the payment wasn’t included in Tyco’s filing with the SEC.
Messrs. Walsh and Kozlowski later agreed for Walsh to keep $10 million and contribute another $10 million to a charity, the Community Foundation of New Jersey, according to the complaint.
Mr. Walsh is returning $20 million of his own resources to Tyco, allowing the charity to continue to have full use of the funds, a spokesman for Mr. Walsh said.
During the court proceeding, Mr. Walsh’s attorney, Joel Cohen, described his client as a “God-fearing” man who has long given to charity. “Helping others is what moves him,” he told the judge. “This prosecution has taken one snapshot of his life — snapshots can be unfair.”
He added that Mr. Walsh would “never be able to put this event behind him.”