Former chief executive L. Dennis Kozlowski and two other former top officers at Tyco International Inc. used the company as their “own personal piggy bank,” making off with more than $600 million in bonuses, homes and profits from stock, authorities said yesterday.
An indictment filed by Manhattan District Attorney Robert Morgenthau and a civil case filed simultaneously by the U.S. Securities and Exchange Commission charge that the executives secretly used Tyco’s loan programs, bonus plans and other methods to amass property, fine art, yachts and pay for a lavish $1 million birthday party in Sardinia, Italy – complete with performances by Jimmy Buffett.
The district attorney’s indictment details 68 instances where Kozlowski, 55, and former Tyco chief financial officer Mark Swartz, 42, headed up a “criminal enterprise.” It charges they engaged in enterprise corruption and grand larceny to obtain more than $170 million in bonuses and perks. They also were accused of fraudulently gaining $430 million from selling Tyco stock. Also charged yesterday was former general counsel Mark Belnick, 55, who allegedly falsified business records to cover up $14 million in improper loans from Tyco.
Tyco, a Bermuda-based diversified manufacturer with more than 270,000 employees, filed its own civil suit against Kozlowski yesterday seeking to recover allegedly misappropriated funds as well as $288 million in compensation and $118 million in benefits the company paid him since 1997.
“Kozlowski was in charge of the enterprise and looted the company,” Morgenthau said in a news conference to announce the grand jury indictment against the men. Kozlowski is already under indictment on charges of evading New York sales taxes on $13 million in art.
Authorities say Kozlowski and Swartz used Tyco funds to buy lavish properties in Boca Raton, Fla., Massachusetts and New Hampshire, luxury goods such as diamonds from Harry Winston and Tiffany’s, and expensive cars including a Ferrari, plus Harley-Davidson motorcycles.
The defendants’ attorneys said their clients – who were led into court in handcuffs yesterday for a brief appearance during which they pleaded not guilty – were innocent of the charges.
“Dennis Kozlowski is a recognized business leader and he believes the charges against him are unfounded and unfair,” said his attorney, Stephen Kaufman. Swartz’ attorney, Charles Stillman, said his client had been “swept up in this investigation without consideration for the merits of his own individual case.”
If convicted, Kozlowski and Swartz face up to 25 years in prison with the class B felonies and 30 years in prison for falsifying records and other charges. If convicted, Belnick faces up to four years in prison.
In connection with the federal government’s civil suit, Stephen M. Cutler, the SEC’s director of enforcement said, “The dollar amounts are staggering.”
Although bribery charges were not brought, Morgenthau said publicly that at least three Tyco directors were paid off to hide the actions. The civil case Tyco filed yesterday alleges that Kozlowski authorized the company to pay $20 million to board member Frank Walsh without proper approval.
The district attorney has obtained a temporary restraining order to freeze $600 million in assets of the executives and a hearing is set for Sept. 24 to try to seize those assets. The men are free but must post bail next week and are scheduled to appear in court again on Sept. 19. New York State Supreme Court Judge Michael Obus set a $200 million bond for Kozlowski, a $100 million for Swartz and a $1 million personal recognizance bond for Belnick.
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