TYCO
Since the fall of Enron in 2001, the Securities and Exchange Commission has been vigorously investigating and
prosecuting fraudulent activities by large companies. In September 2003, federal prosecutors and the SEC charged
executive officers of Tyco International Ltd., former CEO, Dennis Kozlowski; CFO, Mark Swartz; and Chief Corporate
Counsel, Mark Belnick, with various counts of fraud and violations of federal securities laws. In its investigation, the SEC
found that Kozlowski and Swartz had managed to swindle over $170 million in corporate loans without proper disclosures,
approvals, and notifications, and had pocketed approximately $430 million by misstating Tyco's finances and
manipulating the company's stock price. Former Tyco Chief Corporate Counsel, Mark Belnick was indicted for charges
falsifying business records to hide nearly $17 million loans given to him by Tyco.
SEC Charges
As of October 2004, a trial date has not been set in the SEC action against the three former Tyco executives. The charges
read as follows:
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Fraud - against Kozlowski, Swartz and Belnick
False and Misleading Proxy Statements - against Kozlowski, Swartz and Belnick
Fraudulent Stock Sales - against Kozlowski, Swartz and Belnick
Reporting Violations - against Kozlowski, Swartz and Belnick
Record-Keeping Violations - against Kozlowski and Swartz
In short, the SEC is suing for disgorgement of ill-gotten gains received by defendants, civil penalty fees, and permanent
disbarment of each defendant from serving as an officer or director of a publicly held company.
Criminal Charges
In July 2004, following a six-month trial against Kozlowski and Swartz, a mistrial was declared after a juror received
improper contact via letter and telephone. In a separate trial, however, a grand jury acquitted Belnick of all corporate
wrongdoing. In June 2005, Kozlowski and Swartz were found guilty on multiple criminal counts of grand larceny,
conspiracy, securities fraud, and falsifying business records, ending a three-year legal battle.
In September 2005, Kozlowski and Swartz were sentenced to up to 25 years in prison for embezzling millions of dollar
from the company. After serving eight years and four months in prison, both will be eligible for parole. Kozlowski and
Swartz were fined $70 million and $35 million, respectively, and ordered to pay a sum of $134 million in restitution. They
were each found guilty of 22 out of 23 counts of grand larceny, falsifying business records, securities fraud and
conspiracy. Both men testified, stating that they never received anything to which they were not entitled, or stole
anything from the company.
Tyco emerged from the scandal a stronger organization, with new management, new corporate headquarters, and
increasing stock prices. Tyco seeks to retrieve the money wrongfully stolen from it, and will pursue civil actions against
Kozlowski and other former officials responsible.
Sources:
"Ex-Tyco executives get up to 25 years in prison" MSNBC.com, September 19, 2005.
http://www.msnbc.msn.com/id/9399803
"How Did Tyco Defraud Shareholders?" SecuritiesFraudFYI.com. October 7, 2004.
http://www.securitiesfraudfyi.com/tyco.html
Masters, B. and Johnson, C. "Former Tyco Executive Acquitted." Washingtonpost.com, July 16, 2004.
Maull, S. "Top Count is Withdrawn in Tyco Retrial." Lancaster Online, September 29, 2004.
"Securities and Exchange Commission v. L. Dennis Kozlowski, Mark H. Swartz, and Mark A. Belnick." Complaint filed in
the United States District Court, Southern District of New York, September 11, 2002.
http://www.sec.gov/litigation/complaints/complr17722.htm
"SEC Sues Former Tyco CEO Kozlowski, Two Others for Loans." U.S. Securities and Exchange Commission, September
12, 2002. http://www.sec.gov/news/press/2002-135.htm
"Tyco Fraud." Edgar Snyder & Associates, May 2003. http://www.edgarsnyder.com
White, Ben. "Ex-Tyco Executives Convicted." Washingtonpost.com, June 18, 2005.