If any one image symbolizes the executive suite excesses exposed by the two-year wave of corporate corruption cases, it is ex-Tyco CEO L. Dennis Kozlowski’s $6,000 shower curtain.
In jury selection set to start today, that extravagance and others funded by $600 million in Tyco bonuses, loans and stock sales will be the focus of the first major trial to arise from the investigations.
Barring an unlikely plea bargain, jurors will decide whether Kozlowski and former Tyco CFO Mark Swartz were honest executives richly compensated for Wall Street successes or corporate racketeers who hijacked the conglomerate for personal moneymaking schemes.
The case has gained broad significance, says B. Espen Eckbo, director of the Center for Corporate Governance at Dartmouth’s Tuck School of Business, because “many people feel that corporate governance systems have completely broken down, and very little has been done about it.”
Kozlowski, 56, and Swartz, 43, are the first top executives set to stand trial in post-Enron cases. They are being prosecuted by Manhattan District Attorney Robert Morgenthau’s office under a statute more typically used against Mafia dons. Both have pleaded not guilty.
Manhattan Supreme Court Justice Michael Obus estimated last week that the trial could last three to four months. The outcome depends on the answer to a deceptively simple question: Did Kozlowski and Swartz have proper authorization for the transactions that placed them among the nation’s most highly compensated executives?
According to the 2002 indictment and other prosecution papers, they did not, because they kept Tyco’s board of directors “in ignorance of what was actually happening,” while simultaneously “corrupting key employees with lucrative payments” to forestall any objections.
Prosecutors, led by Marc Scholl and Gerard Murphy, are expected to present testimony from present and former Tyco officials and the firm’s former chief auditor at PricewaterhouseCoopers in a bid to prove that Kozlowski and Swartz transformed Tyco into what the indictment dubbed the “Top Executives Criminal Enterprise.”
Prosecutors also are expected to show evidence of the lavish lifestyles the defendants funded with Tyco riches including the now-infamous $2 million birthday party staged for Kozlowski’s wife in Sardinia. In an effort to avoid influencing potential jurors before trial, defense lawyers recently sought a court-ordered seal of a videotape of the party, which featured an ice statue of Michelangelo’s David spouting vodka from its appendage.