A former outside director at Tyco International Ltd. pleaded guilty to felony charges related to his receipt of an undisclosed $20 million payment from the company, and agreed to repay the money plus other penalties.
Frank E. Walsh Jr., who resigned from Tyco’s board this year, settled the charges against him brought by Manhattan District Attorney Robert Morgenthau. Mr. Morgenthau said Tuesday that the criminal and civil charges against Mr. Walsh marked “the first time that an [outside] director has been charged for his malfeasance.”
Separately, Mr. Walsh settled civil charges brought by the Securities and Exchange Commission, which barred him from ever serving again as an officer or director of a public company.
Besides repaying to Tyco the $20 million fee, which he received for helping to arrange Tyco’s $9.5 billion acquisition of CIT Group Inc., a financial-services company, in June 2001, Mr. Walsh paid a total of $2.25 million to New York state and New York City in lieu of fines. In addition, he paid $250,000 to the Manhattan district attorney’s office to cover costs of his prosecution. A state court judge released Mr. Walsh without prison time, in accordance with the recommendation of Assistant District Attorney John Moscow, the lead prosecutor in the Tyco probe.
Mr. Walsh is the fourth person to be charged in connection with Mr. Morgenthau’s investigation of Tyco, a Bermuda-registered conglomerate with annual revenue of more than $36 billion. Former Tyco Chief Executive L. Dennis Kozlowski and Mark Swartz, the company’s former chief financial officer, were indicted in September on charges of looting Tyco of nearly $600 million in unauthorized compensation and illicit stock sales. Mark Belnick, the company’s former general counsel, has been charged with failing to disclose $14 million in relocation loans he accepted from the company. All three men have pleaded not guilty.
Mr. Walsh was charged with violating New York state’s Martin Act. That act, which dates back to the 1920s, is an extremely broad business-law statute. The SEC charged Mr. Walsh with signing a false registration statement that failed to disclose the acquisition-related fee.
Mr. Walsh, a Tyco director since 1992, resigned when confronted by fellow directors at a board meeting about the $20 million fee. Mr. Walsh received $10 million of the payment, while another $10 million went to a New Jersey charitable fund of which he was a trustee.
In the end, the purchase of CIT Group proved a debacle for Tyco. In July, the conglomerate spun off CIT in an initial public offering of stock that raised $4.6 billion.
In a statement to the court, Mr. Walsh acknowledged that he “intentionally did not disclose to” board members other than Messrs. Kozlowski and Swartz that he stood to receive a substantial fee if the CIT deal was completed. Mr. Walsh said he arranged the first meeting between Mr. Kozlowski and the chief executive of CIT that resulted in the deal.
Joel Cohen, an attorney for Mr. Walsh, said “we firmly believe that Frank Walsh truly earned the money he received, along with $10 million that Tyco directed to a charity.” He added: “In the economy of the day when the Tyco-CIT transaction occurred, the deal Frank Walsh helped broker seemed a good one for Tyco.” Mr. Cohen said his client’s sin was in failing to make a prompt disclosure of the fee, “even though the CEO and CFO of the company authorized the payment.”
Mr. Moscow, the prosecutor, said Mr. Walsh’s plea deal doesn’t call for him to cooperate against Messrs. Kozlowski and Swartz. But if there is a trial, Mr. Moscow said he expected Mr. Walsh to “testify truthfully.”
Meanwhile, Mr. Moscow said at a news conference that new charges could be brought against Mr. Belnick, the former Tyco general counsel.
According to people with knowledge of the matter, pressure is being put on Mr. Belnick to plead guilty, rather than go to trial. These people said lawyers for Mr. Belnick were recently told he could face grand larceny charges for taking $14 million in relocation loans from Tyco. Much of the money was used to build a home in Park City, Utah, a state where Tyco doesn’t have any operations. No new charges would be brought before mid-January, these people said. Unlike the false bookkeeping charges Mr. Belnick now faces, conviction on a grand larceny charge would guarantee that he would serve jail time.
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