"The event's planners called for gladiators and an ice sculpture of Michelangelo's David with vodka streaming from his penis into crystal glasses, according to Tyco's filing."
Tyco report details extravagance, fraud
By Tim McLaughlin
BOSTON, Sept 17 (Reuters) - Tyco International Ltd. on Tuesday said it uncovered nearly $100 million in fraudulent employee bonuses and conceded it picked up the tab for personal expenses including a $6,000 shower curtain and a $2,200 wastebasket for indicted former Chairman L. Dennis Kozlowski's New York City apartment.
Despite the allegations of massive fraud and largesse that extended from Kozlowski's corporate suite and beyond, the company said it would not have to restate its financial results.
Tyco accused Kozlowski of recklessly tapping company funds, including using more than $1 million in company funds for his wife's birthday party in Sardinia last year. The event's planners called for gladiators and an ice sculpture of Michelangelo's David with vodka streaming from his penis into crystal glasses, according to Tyco's filing.
"I'm just dumbfounded that these guys had the audacity to do what they've done and then tell the investor community everything is above board," said John Boland, an analyst at NL Capital Management, which holds about 100,000 Tyco shares.
New Tyco Chairman Edward Breen is working to restore Tyco's tarnished image, which along with accounting worries and strategic flip-flops have erased more than $80 billion in market capitalization this year.
Tyco shares shed 9 cents, or less than 1 percent, to $16.45 in Tuesday afternoon trade on the New York Stock Exchange.
"We get more news about what's going on at Tyco and what Dennis did, but the fact is the stock has stopped going down," Peter Zuger, a portfolio manager at State Street Research & Management, said at a mutual fund forum in New York.
DEVIL IN THE DETAILS
Details from the company's internal investigation, authored by a committee headed by attorney David Boies, were contained in a company filing with the U.S. Securities and Exchange Commission. The filing was massive, exceeding 100 pages.
The findings largely mirror what New York prosecutors and the SEC alleged last week in a massive corruption case against Kozlowski and two of his top lieutenants.
Kozlowski, former chief financial officer Mark Swartz, and former general counsel Mark Belnick are accused of carrying out a theft and fraud scheme that fleeced Tyco and shareholders out of more than $600 million.
"Mark Swartz never received a penny from Tyco that was not fully authorized," said his attorney, Charles Stillman. "Today's report does not change that fact."
In 2000, Kozlowski had Tyco authorize nearly $96 million in unapproved bonuses for 51 employees to offset relocation loans for employees moving to Florida.
Kozlowski and Swartz allegedly received about $50 million as part of the program, which was purportedly paid out for the successful initial public offering of TyCom, the company's undersea fiber-optic cable network, documents show.
Only a few weeks after the Florida loans were improperly forgiven, Kozlowski introduced another unauthorized bonus program that cost Tyco more than $55 million, Tyco alleges. Sixteen executives, including Kozlowski and Swartz, participated, Tyco said.
DIRECTORS ALSO MENTIONED
The Boies investigation also reviewed transactions that benefited Tyco board members, who have been criticized for being too lax under Kozlowski. Most of them will resign by early next year.
Many of the deals involving executives and directors were not apparent to investors until recently. Tyco director Lord Michael Ashcroft, for example, sold his Boca Raton home to Kozlowski for $2.5 million after Tyco bought Ashcroft's company, ADT, for several billion dollars in 1997.
Ashcroft has told the company that he didn't learn until two years later that a Tyco subsidiary, not Kozlowski, bought his home at market prices, Tyco said. He brought the matter to the attention of former Tyco CFO Swartz, but the transaction was never reported to shareholders, Tyco said.
Former Tyco board member Frank Walsh, who also was a close friend of Kozlowski's, leased aircraft to Tyco for several years and was paid for invoices totaling nearly $2.5 million, Tyco said. The company said Walsh won a competitive bid process.
Walsh is a major reason why Tyco received heightened scrutiny from Wall Street and the rest of the company's board. He received a $20 million payment for brokering Tyco's $9.5 billion acquisition of CIT Group Inc., which was sold this year for half that amount.
When the payment was disclosed early this year, Tyco's stock plummeted. Tyco's board in January confronted Kozlowski, who admitted he "screwed up" by arranging to pay Walsh secretly. Walsh refused to give the money back, Tyco said.
Kozlowski convinced some board members the payment was an isolated incident. Despite growing suspicion over their chairman, Tyco's board allowed him to proceed with a sweeping restructuring plan only to abandon it a few months later.
Kozlowski frequently portrayed Tyco as a lean corporate operation, but the Boies investigation accuses him of using the company's funds for a number of unjustified extravagances, including a $1,650 notebook, a $17,100 traveling toilette box, a $445 pin cushion, and $5,960 for sheets.
(Additional reporting by Philip Klein, Martha Graybow, and Mary Kelleher in New York)
09/17/02 15:23 ET |
