Risk Management

Tyco Settles Suit for Nearly $3 Billion

The settlement is believed to be the largest ever paid by a single corporate defendant.
Stephen TaubMay 15, 2007

Tyco International will pay $2.975 billion to settle a class-action lawsuit that resolves all shareholder claims for alleged securities and accounting fraud during the regime of former chief executive officer Dennis Kozlowski.

Shareholders will also receive 50 percent of any recovery from Tyco’s suit against Kozlowski, former chief financial officer Mark Swartz, and former board member Frank Walsh.

In June 2005, Kozlowski and Swartz were found guilty of grand larceny, securities fraud, conspiracy, and falsifying business records. They were accused of stealing $150 million from Tyco by improperly forgiving company loans to themselves and awarding themselves unauthorized bonuses, and of collecting an additional $430 million by secretly selling company shares as they “artificially” inflated the stock’s value.

The $2.975 billion settlement is the largest by a single corporate defendant in a securities class action, according to plaintiffs’ attorneys. The class, which originally covered shareholders who acquired Tyco shares between December 1999 and June 2002, also consolidates some cases involving shares acquired as early as October 1998.

“With this settlement, we are taking an important step to resolve our most significant remaining legacy legal matter,” said Tyco chairman and chief executive officer Ed Breen, in a statement.

The settlement is subject to court approval and to participation by plaintiffs holding a significant percentage of Tyco shares in the class, the company added.

A group of union and public pension funds served as co-lead plaintiffs of the class action, jointly represented by law firms Grant & Eisenhofer; Schiffrin, Barroway, Topaz & Kessler; and Milberg Weiss & Bershad. “This is a fantastic resolution and closes a chapter on one of the largest and most appalling examples of corporate fraud in U.S. history,” said Jay Eisenhofer, managing partner at Grant & Eisenhofer, in a statement.

In connection with the settlement, the company will incur a charge of $2.975 billion in the current quarter.

Shareholder claims are pending against Tyco’s former auditor, PricewaterhouseCoopers; under the settlement, Tyco has assigned its claims against PwC to the class.

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