The former lead director of Tyco International Inc. pleaded guilty Tuesday to a securities fraud charge for failing to tell his own board that the company was paying him a multimillion-dollar finder’s fee for his role in an acquisition deal.
Frank E. Walsh, 61, admitted he did not disclose $20 million in payments for helping broker Tyco’s acquisition of finance company CIT Group last year. Walsh was arrested Tuesday and charged with violating the Martin Act, the state’s general business law.
Walsh agreed to repay the fees and pay a $2.5 million fine as part of a settlement with the Manhattan district attorney’s office.
In a criminal complaint filed Tuesday, prosecutors charge that when Walsh learned of Tyco’s interest in buying the CIT Group, he arranged a meeting in early 2001 between then-chief executive Dennis Kozlowski and CIT’s chief executive officer.
After the meeting, Kozlowski told Walsh that if the acquisition was successful, Walsh would receive an investment banking or finder’s fee for his services.
The complaint says that Kozlowski and Walsh submitted a proposal to buy CIT for $9.5 billion to the Tyco board for its approval without disclosing that Walsh was going to be paid the fee.
Kozlowski and Walsh agreed that Walsh would get $10 million directly, and that Tyco would contribute another $10 million in Walsh’s name to the Community Foundation of New Jersey. Tyco paid the money in July 2001, but the board did not learn of the payments until six months later.
The Community Foundation will keep the donation, with Walsh providing restitution to Tyco of the full $20 million, said Walsh’s spokesman, Gregory Miller.
Walsh’s undisclosed payment was just a small part of allegations of millions in undisclosed payments and loans to Tyco executives and insiders. The conglomerate, which had $36 billion in revenues last year, makes products ranging from coat hangers to security systems.
Kozlowski and former chief financial officer Michael Swartz face criminal charges of stealing $600 million from the company. Former general counsel Mark Belnick was charged with falsifying business records to conceal $14 million in improper loans.
The three men have pleaded innocent, and their lawyers have said any money they received was approved.
Kozlowski also has been indicted on charges of evading New York sales taxes on $13 million in art. Kozlowski, who resigned from Tyco in June a day before being indicted, has pleaded innocent in that case.
The company has filed a civil suit against Kozlowski, seeking $730 million in restitution. Among Kozlowski’s alleged excesses: buying luxurious homes on the company dime and using company resources to help pay for half of a $2.1 million birthday for his wife, Karen, according to Securities and Exchange Commission documents.
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