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Tyco Fraud

In: Business and Management

Submitted By lps004
Words 514
Pages 3
Resolution
It was possible that Kozlowski and Swartz could have settled before going to trial, but they claimed throughout the proceedings that they were entitled to all the bonuses and loan forgiveness from Tyco. They were charged with 12 counts of first degree grand larceny, 8 counts of first degree falsifying business records, one count of first degree conspiracy, and one Martin Act count of securities fraud.
The trial of Dennis Kozlowski and Mark Swartz began October 7, 2003. The jury was shown the extravagance and lifestyle of Kozlowski, including videos of his wife’s $2.1 million birthday party. Pictures were also shown of his $6000 shower curtain and other lavish items purchased with Tyco’s money for himself. However, during the trial, one of the jurors appeared to make an “ok” sign to the defense team. The court was unable to determine exactly what meaning was behind the gesture, but a mistrial was declared. The juror later received death threats, although no connection with the defendants was ever proven.
The next trial for Kozlowski and Swartz did not begin until January 26, 2005. The prosecution changed tactics this time around and focused less on the extravagant lifestyles and concentrated on the theft of Tyco funds. This may have been a more effective strategy as it is not illegal to live extravagantly. They wouldn’t make $6000 shower curtains if no one would buy them. Kozlowski would wind up taking the stand in his own defense and reiterate his claims that he was entitled to all the money he had obtained, despite not getting approval from the board of directors. In the end, they were convicted on all but one count.
The defendants continued to profess their innocence until the end. During sentencing, they asked the judge for leniency based on the amount of money given to charities, despite the fact that they donated stolen money. The judge responded by sentencing each to 8 1/3 to 25 years in prison. They were ordered to pay back $134 million to Tyco, and each received still fines as well – Kozlowski $70 million and Swartz $35 million. Since this was tried in the state courts of New York, they would be serving their time in state prison, considerably more difficult than being locked up in “Club Fed”. Many actually consider the prison sentences too harsh, as they were some of the strictest handed out for this type of white collar crime.

Conclusion

Along with the Enron and Worldcom scandals, Kozlowski led to many of the new Sarbanes-Oxley act provisions. Certainly with such a powerful and charismatic leader like Kozlowski, Tyco’s internal controls were circumvented at his whim. Loans to key employees were frequent and easily manipulated. Both of these areas face heavy scrutiny under SOX. To be fair, Tyco was a legitimate company and is still in business today. Kozlowski’s excesses and manipulations did not have the same devastating effect as at Enron, for example. The stock price and income did take drastic hits, but the company has survived.

Sources
Money.cnn.com
Wsj.com
Nytimes.com

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