Edward Federman, former executive vice president and chief financial officer of Tyco Electronics, agreed to pay nearly $2.7 million to settle charges with the Securities and Exchange Commission regarding fraudulent accounting at Tyco International.

Without admitting or denying the SEC allegations, Federman agreed to pay disgorgement of $1.65 million, prejudgment interest of nearly $800,000, and a civil penalty of $200,000. He also agreed to a five-year officer-and-director bar and to a permanent injunction against violating the relevant securities laws.

Federman joined Tyco in 1983 as assistant corporate controller, was controller and vice president of finance from February 1998 to April 1999, and resigned from his post at the Tyco Electronics division in January 2001. Last December, the SEC brought fraud charges against Federman and two other former Tyco executives, Richard D. Power and Richard J. “Skip” Heger.

According to the commission, from 1997 to 2002, the three individuals inflated Tyco’s reported operating income and cash flow through a sham “dealer connection fee” transaction recorded by Tyco’s ADT Security Services subsidiary.

While Federman served as controller, Tyco’s independent accountant allegedly raised concerns about the transaction; in response, added the SEC, Federman successfully defended and repackaged the sham transaction to better conceal its fraudulent nature.

As a result, from Tyco’s fiscal year ended September 30, 1998, through its fiscal quarter ended December 30, 2002, the dealer-connection-fee transaction improperly inflated Tyco’s operating income and cash flow by hundreds of millions of dollars, the SEC asserted.

The commission also alleged that Federman also helped to inflate Tyco’s operating income through improper acquisition accounting and the misuse of accounting reserves. In one such instance, after Tyco’s fiscal 1998 year-end books had been closed, Federman allegedly directed the reversal of reserves to offset a previously unanticipated $40 million compensation expense.

Heger also settled last December, without admitting or denying the SEC allegations; the commission’s case against Power is continuing.

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