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Former CFO and CEO charged with larceny and enterprise corruption. General counsel also indicted.
Lisa Yoon, CFO.com | US
September 12, 2002
It seems embattled conglomerate Tyco International Ltd. hired a new finance chief just in time.
As CFO.com reported, Tyco management yesterday announced the appointment of David FitzPatrick as new CFO. FitzPatrick, who had been serving as finance chief at United Technologies Corp., was brought in by new Tyco CEO Edward Breen to replace Mark Swartz in the finance department.
Today, Manhattan district attorney Robert M. Morgenthau indicted former Tyco chairman and CEO Dennis Kozlowski, Swartz, and former general counsel Mark A. Belnick. The charges against Kozlowski and Swartz: among other things, stealing $170 million from the company. Belnick was charged with hiding $14 million in loans to himself.
Morgenthau has also moved to freeze $600 million of Kozlowski's and Swartz's assets. The indictment alleges that the two pocketed $430 million from fraudulent sales of Tyco stock.
"Kozlowski established a system that allowed him to authorize millions of dollars for personal expenditures," Morgenthau said. "He controlled the flow of information to the board of directors."
In addition to Morgenthau's stunning indictment, the Securities and Exchange Commission is reportedly expected to accuse the former Tyco executives of securities fraud -- and will apparently seek millions of dollars in penalties.
"Kozlowski, Swartz and Belnick treated Tyco as their private bank, taking out hundreds of millions of dollars of loans and compensation without ever telling investors," Stephen Cutler, director of enforcement of the SEC, said in a statement. "Defendants put their own interests above those of Tyco's shareholders. Those shareholders deserved better than to be betrayed by the management of the company they owned."
Current Tyco management also announced that it has filed suit against Kozlowski. It seems the company is seeking to get back pay and benefits totaling around $244 million. Tyco also wants Kozlowski to forfeit all his severance pay.
According to this year's CFO.com/Mercer Compensation Survey, Swartz was the second highest-paid CFO in the U.S. in 2001, raking in more than $32 million in total direct compensation.
The announcement yesterday of FitzPatrick's hiring triggered a run-up in the share price of Tyco stock, which jumped 12 percent as of the close of trading on Wednesday.