The ongoing criminal investigation of former Tyco CEO Dennis Kozlowski focuses in part on a $20 million fee he approved to a former Tyco director, according to people familiar with the issue.
Investigators for Manhattan District Attorney Robert Morgenthau are examining the July 2001 payment to Frank Walsh, these people said, one of whom called it a ”source of interest.” Kozlowski approved the fee without the knowledge of Tyco’s board.
Walsh spokesman Gregory Miller declined to comment on Friday.
The payment to Walsh, a friend of Kozlowski, purportedly rewarded him for helping arrange Tyco’s acquisition of CIT Group, a financial services company. But board members learned about the fee shared by Walsh and a charity he controlled in the January draft of Tyco’s proxy statement.
”Angry directors confronted Kozlowski and Walsh and demanded that the money be returned immediately,” according to a Tyco lawsuit filed against Kozlowski last week. The dispute led to a Jan. 16 meeting at which the board unanimously demanded the money.
”Walsh responded by gathering up his papers, saying ‘adios’ to the other directors, and walking out of the meeting,” according to the company lawsuit against Kozlowski.
Walsh left the board in March. Two months later, Tyco sued him in Manhattan federal court.
Prosecutors’ focus on the fee is part of a broad investigation of business and personal deals involving Kozlowski, who was indicted last week on corruption, conspiracy and grand larceny charges. Also charged: Mark Swartz, Tyco’s former chief financial officer, and Mark Belnick, former chief counsel.
Along with the payment to Walsh, investigators are reviewing transactions involving at least two present or former Tyco board members. One is Lord Michael Ashcroft, a former treasurer of England’s Conservative Party who got $2.5 million from Tyco for a Florida home. Prosecutors are also examining another Tyco board member’s 1996 sale of a New Hampshire home to a real estate trust controlled by Kozlowski.
Morgenthau declined to comment. But one of the people familiar with the case said the Ashcroft deal is unlikely to produce charges.
Prosecutors face a double legal hurdle in any attempt to indict directors or others involved in Kozlowski-approved deals. First, they must show the former CEO lacked authorization for the transactions. They must also show the beneficiaries knew the deals were improper.
Some recipients of Tyco largesse are unlikely to face charges.
Patricia Prue, Tyco’s senior vice president for human resources, got a $400,000 interest-free company loan in August 1998 to buy a New Hampshire property. The loan was forgiven on Kozlowski’s authorization in September 2000. Tyco Treasurer Michael Robinson got a Florida home in October 2000.
Prue and Robinson have cooperated with prosecutors and are not under investigation for the deals, the people familiar with the case said. Both remain on the job and have done nothing wrong, their lawyers said Friday.