Facing criticism from prosecutors, Tyco International has reversed course and filed for arbitration to recover a $44.8 million severance package the company awarded to indicted former chief financial officer Mark Swartz.
Swartz ”breached his fiduciary duties” and ”misappropriated company funds and other assets,” Tyco alleged in a filing Tuesday with the Securities and Exchange Commission. The company said it has sought an American Arbitration Association action to recover ”all damages suffered by the company as the result of such breach.”
The allegations stem from a September corruption and grand larceny indictment that accused former Tyco CEO Dennis Kozlowski and Swartz of illegally reaping more than $600 million from Tyco.
Charles Stillman, an attorney representing Swartz, says: ”Mark Swartz contributed 100% of his time and energy to the building of Tyco International. Any money he received from Tyco was appropriate.”
The arbitration move represents a corporate turnabout. In the wake of Kozlowski’s forced resignation in June, Tyco sued him for at least $730 million. By contrast, the company approved Swartz’s severance deal Aug. 14 even though Manhattan prosecutors had warned he was under investigation and likely to face charges. The law firm of David Boies, hired by Tyco to oversee a corporate cleanup after Kozlowski’s departure, signed off on the deal.
Just weeks after the approval, Manhattan District Attorney Robert Morgenthau got an indictment that charged Kozlowski and Swartz with corruption and grand larceny. Morgenthau repeated Tuesday his criticism of Swartz’s severance deal as ”a mistake.”
Tyco officials, however, say Swartz’s admittedly hefty package amounted to about one-third of the payout specified in his retention agreement with the company. Although Tyco gave up its right to sue Swartz, officials stressed that Tyco had reserved its right to seek recovery from him through arbitration.