The former lead director at Tyco International Ltd. pleaded guilty to securities fraud Tuesday, and agreed to pay $22.5 million to settle the charges.
Frank E. Walsh, 61, admitted that he did not disclose to his own board that he would receive a $20 million finderâ€™s fee for helping to broker Tycoâ€™s acquisition of CIT Group Inc. in June 2001. He pleaded guilty to a felony for violating the stateâ€™s Martin Act, or business law.
â€œI deeply regret my conduct,â€� a teary-eyed Walsh said in state Supreme Court in Manhattan.
Walsh had received $10 million as a fee and a New Jersey charity he designated also received $10 million from Tyco as part of the deal.
Tuesday, he repaid Tyco the full $20 million, although the charity, the Community Foundation of New Jersey, will keep its donation, according to Manhattan Assistant District Attorney John Moscow.
Walsh also wrote out two checks for $1.125 million, one to New York State, the other to the city, in lieu of a fine, according to Moscow. In addition, he paid the District Attorneyâ€™s office $250,000 for the cost of prosecution.
State Supreme Court Justice Michael Obus gave Walsh a conditional discharge, as sought by prosecutors, the only condition being that the checks cleared.
If convicted of the anti-fraud provisions of the Martin Act at trial, Walsh could have received up to four years in prison or a fine of up to twice the gain.
â€œThis is also another important public step in our Tyco investigation,â€� said Thomas Newkirk, associate director of enforcement at the Securities and Exchange Commission at a press conference in the Manhattan District Attorneyâ€™s office Tuesday announcing Walshâ€™s arrest. â€œIt is also another important milepost in our efforts to punish and deter corporate wrongdoing and to protect our capital markets.â€�
Walsh, of Convent Station, N.J., was an outside director at Tyco, head of the compensation committee, the lead director and a member of the corporate governance committee, according to officials.
â€œHis duty was to protect shareholder interests and to provide an independent check on the executive suite,â€� said Newkirk. â€œInstead he entered into a secret agreement with Tycoâ€™s chief executive officer to take millions of dollars. Walsh lied to investors even signing a public document stating there was no such payment made.â€�
Former Tyco CEO L. Dennis Kozlowski and former chief financial officer Mark Swartz were indicted in Manhattan earlier this year on charges of looting Tyco of $600 million through $170 million in unauthorized pay $430 million through stock fraud.
Walsh held 50,000 shares of CIT stock at the time of the deal. Although it is unknown whether he made money on those shares, Tyco eventually lost $7 billion on CIT, according to prosecutors.
â€œAs far as I know this is the first time…a director has been charged for his malfeasance,â€� Manhattan District Attorney Robert Morgenthau. He called Walshâ€™s actions â€œa serious breakdown in the checks and balances you expect to find in a corporation.â€�
Prosecutors said Tuesday that the secret deal with Walsh was already incorporated into the charges against s already include the deal with Walsh.
Prosecutors said Walsh earned between $100,000 and $150,000 annually for his work for Tyco, where he served as a director for ten years, starting in 1992.
He was chairman of the Westray Capital Corp., a New York investment firm, from 1989 to 1996.
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