Tyco Sues Former Company Officials
Mon Jun 17, 6:48 PM ET
By HARRY R. WEBER, Associated Press Writer
CONCORD, N.H. (AP) - Tyco International Ltd. sued two former top company officials Monday, claiming they received compensation totaling $55 million that should have been disclosed to and approved by the company's board.
Tyco accused former legal counsel Mark Belnick, who was fired last week for undisclosed reasons, of failing to disclose $35 million in compensation and loans. The company said Belnick also concealed from the board the criminal investigation that led to Dennis Kozlowski's June 3 resignation as chief executive.
The federal lawsuit filed in Manhattan also accuses Belnick of deleting computer files and attempting to remove files when he knew that the company had begun internal investigation after Kozlowski resigned.
Belnick's lawyer, Stanley Arkin, called the suit "a shabby tactic by a faction on the Tyco board."
"Mark never misappropriated any money. He conducted himself as an honest and upstanding general counsel," Arkin said in an interview.
But Tyco, in its suit, says Belnick conspired with Kozlowski for his own financial gain.
Among the accusations against Belnick is that he solicited and accepted large cash and restricted stock bonuses from Kozlowski valued at $20 million in 2000 alone without the approval of the board.
The suit says Belnick also took an interest-free $10 million loan from the company without the board's approval and used it to buy a resort home in Park City, Utah, in violation of what the money was supposed to be used for.
The money came from a Tyco relocation loan program to assist employees who were going to move from Tyco's headquarters in New Hampshire to its offices in New York.
Belnick also failed to notify the board on May 3 that he had received a subpoena in connection with the New York criminal investigation of Kozlowski, the suit says.
In a separate lawsuit filed in the same court, Tyco said former director Frank Walsh received $20 million as a finder's fee after the company bought its CIT lending unit last year.
The lawsuit says Walsh's position at the time as Tyco's lead director and a member of its corporate governance and nominating committee "made it overwhelmingly likely that the disclosure of his payments would cause substantial harm to the company's reputation."
On Jan. 29, the day after Walsh's fee was disclosed publicly, Tyco's stock dropped sharply, from $42 to $33.65 a share, the company said. Walsh was a Tyco director from 1997 until February, the month after the payment became public.
In a statement, Walsh called Tyco's lawsuit "a clear overreaction" to recent turmoil at the company.
Tyco has seen its stock plunge 76 percent since Jan. 1 amid Enron-inspired accounting questions, a decision by the company to reverse course on a breakup plan, the sudden resignation of its chief executive and his indictment on sales tax evasion charges.
Walsh said he received $10 million and the additional $10 million was donated at his request by Tyco to the Community Foundation of New Jersey.
He said the $10 million was negotiated directly with Kozlowski and had been disclosed.
Kozlowski resigned June 3, a day before he was indicted on sales tax evasion charges in New York involving the purchase of art that cost $13 million.
The suit filed against Walsh in U.S. District Court in Manhattan seeks undisclosed compensatory and punitive damages.
"We are taking this action because Frank Walsh violated his fiduciary duties and put his personal gain ahead of the interests of the company and its shareholders," Tyco said. "Mr. Walsh engaged in a pattern of self-dealing and unethical conduct."
Tyco, which bought the CIT Group Inc. for $9.2 billion a year ago, now plans to sell or spin it off for an estimated $5.8 billion to help pay down Tyco's $27 billion in debt.
Tyco alleges Walsh arranged the unauthorized $20 million payment from Tyco, hid it from his fellow directors and refused to return it after being confronted by the board early this year.
The suit says Walsh proposed the CIT purchase and introduced Kozlowski to the head of CIT. After the terms of the acquisition were reached, Walsh asked Kozlowski for a finder's fee, the suit says.
Walsh "ultimately induced Kozlowski to agree to pay him a $20 million fee ... without the knowledge or consent of the Tyco board," Tyco said.
Tyco, based in Bermuda but with headquarters in Exeter, N.H., has more than 270,000 employees and makes products ranging from undersea fiberoptic cable to coat hangers.
The company's shares closed up 69 cents, or 5 percent, to $14.09 Monday on the New York Stock Exchange ( news - web sites).
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