Convent Station resident Frank Walsh, the former director of Tyco International, pleaded guilty Tuesday to securities fraud for secretly reaping millions of dollars while conducting a company takeover for his firm.
In a plea bargain with Manhattan District Attorney Robert Morgenthau, Walsh, 61, avoided jail but received a fine and was ordered to pay back the money he gained.
Walsh admitted he failed to tell his own Board of Directors that the manufacturing conglomerate he headed paid $20 million in finder’s fees in exchange for his help in brokering Tyco’s acquisition of CIT Group, a financial services company, in 2001. Half was paid directly to Walsh and half was donated in his name to a charity.
In the plea deal, Walsh agreed to repay Tyco the entire $20 million and pay a $2.5 million fine.
Walsh made the plea deal the same day he was arrested and charged with violating the Martin Act, the state’s general business law. Walsh was a Tyco director from 1997 until last February, the month after the payment became public.
In a statement from Morgenthau, the Tyco-CIT deal resulted in a loss of about $7 billion for Tyco.
Joel Cohen, Walsh’s lawyer, said he believed his client had earned the money he received from Tyco and had tried but failed to have prosecutors try Walsh on civil rather than criminal charges.
At the hearing, prosecutors said that when Walsh learned of Tyco’s interest in buying CIT., he arranged a meeting in 2001 between Tyco Chief Executive Officer L. Denis Kozlowski and CIT’s chief executive. After the meeting Kozlowski told Walsh he would receive an investment banking fee or finder’s fee if the acquisition were completed.
Following the hearing, attorneys for Walsh handed over four checks totaling the $20 million in restitution.
Along with the $10 million payment to Walsh, Tyco contributed another $10 million in his name to the Community Foundation of New Jersey, a charity Walsh had recommended. The payments were made in July 2001 but the Tyco board of directors did not learn of it until six months later.
The charity will be allowed to keep the money because it will be repaid through Walsh’s personal funds
The disposition of the case against Walsh is but the tip of the iceberg in matters concerning Tyco. Kozlowski and Tyco Chief Financial Officer Mark Swartz have both been indicted for stealing more than $600 million from Tyco and are expected to go to trial in June.