Ex-Tyco director Frank Walsh turned on the water works yesterday, weeping as he pleaded guilty to a felony charge of taking a secret $20 million payment from his former employer and lying about it.
Walsh, arrested in the morning, admitted he failed to inform his fellow directors about the hefty payout and similarly misled the Securities and Exchange Commission.
To settle the charges, Walsh agreed to repay Tyco the entire $20 million, even though half went to a charitable foundation he controls.
He also agreed to pay New York city and state each $1.125 million in lieu of fines and pay $250,000 to the Manhattan District Attorney’s office to cover prosecution costs.
Finally, Walsh settled with the Securities and Exchange Commission by agreeing to resign from several corporate boards of privately owned firms and to be barred in the future from any involvement in publicly traded companies.
Under the terms of his plea deal, Walsh won’t spend a single day in jail.
Walsh, 61, wiped away tears as defense attorney Joel Cohen said his wealthy client was “a daily churchgoer” who has spent the last decade in charitable works.
Cohen said he and attorney Andrew Lawler “feel Frank Walsh truly earned” his finder’s fee, but they agreed he made a mistake by intentionally failing to disclose it.
Walsh, of Convent Station, N.J., told the court that Tyco’s former chief Dennis Kozlowski offered the fee after Walsh helped Tyco buy The CIT Group, a financial services company.
After the purchase was made in June 2001 for $9.2 billion, Walsh said Kozlowski and Tyco’s former finance chief Mark Swartz signed off on his fee, though it was never disclosed to the company’s board of directors.
Kozlowski and Swartz were indicted earlier this year on numerous fraud charges, including looting Tyco of $170 million and making the Walsh payment. Those charges are pending.
Walsh is not required to testify against the pair when they come to trial next year. But prosecutor John Moscow said he’s confident Walsh would testify if asked.
Thomas Newkirk, associate director of enforcement for the SEC, said Walsh’s guilty plea was “an important milestone to deter corporate wrongdoing.”
He said as an outside director and head of Tyco’s compensation committee, Walsh “had a duty to protect shareholder interests,” but instead took millions.
Manhattan District Attorney Robert Morgenthau said Tyco lost $7 billion in the CIT deal when it was forced to sell the unit for a fraction of its purchase price in an effort to pay down a crushing debt load.
Defense lawyers said Walsh agreed to plead guilty to a low-level felony after it became clear Moscow would not let Walsh settle the case in civil court.
“He points no fingers at anyone but himself for his mistake,” Cohen said, noting: “It’s a sad reality that a lifetime of good deeds falls by the wayside.”
Manhattan Supreme Court Justice Michael Obus said Walsh’s mistake was “serious” because it involves “the confidence of the public in publicly traded corporations.”
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