Ex-Tyco CFO Indicted for Tax Evasion
Wednesday February 19, 7:09 pm ET
Reuters
By Tim McLaughlin
biz.yahoo.com
BOSTON (Reuters) - Former Tyco International Ltd. (NYSE:TYC - News) chief financial
officer Mark Swartz, who once ranked as the best-paid CFO in America before scandal
rocked the conglomerate, was indicted on Wednesday for evading nearly $5 million in
federal income taxes.
A federal grand jury in Concord,
New Hampshire, returned the
indictment against Swartz, accusing
him of filing a tax return for 1999
that failed to report a $12.5 million
bonus he received from Tyco, U.S.
Attorney Tom Colantuono said in a
statement.
Charles Stillman, a lawyer for the
42-year-old Swartz, said his client
will plead not guilty on Thursday to
the single charge of income tax
evasion.
"He will plead not guilty because he
did not cheat on his tax return. He
will plead not guilty because he does not owe any tax to the government. He will be
vindicated," Stillman said in a statement.
If convicted, Swartz faces up to five years in prison and a fine up to $250,000.
Swartz resigned from Tyco last year. The indictment comes on top of criminal charges
filed last year in New York City that Swartz and former Tyco chief executive Dennis
Kozlowski looted $600 million from Tyco through unauthorized pay and fraudulent stock
sales.
The men have pleaded not guilty to the charges. And the lead prosecutor in the case
conceded in court recently that Tyco's outside auditor, PricewaterhouseCoopers (News
- Websites), knew about the loans and other compensation arrangements.
According to the tax evasion indictment, Swartz owed $12.5 million to Tyco's key
employee loan program, which was created to encourage stock ownership in the
company. Once executives such as Swartz received restricted shares, they used the
company loans to pay the tax consequences associated with the vesting of their shares
while retaining their holdings.
But in 1999, Swartz told a senior employee in Tyco's finance department that the
company's board of directors had forgiven the $12.5 million loan, according to the
indictment.
The debt was forgiven, creating in effect a $12.5 million bonus for Swartz. But the
board never authorized such a move, the indictment said.
Swartz then had his personal assistant put together an income summary for his tax
preparer that failed to include the $12.5 million bonus, according to the indictment.
Even though Swartz knew about the underreported income he received in 1999, he
signed a tax return that claimed total taxes of $3.7 million on only $9.55 million in
taxable income, according to the indictment. Most of that amount reflected the $8.5
million in compensation he received from Tyco.
The indictment said Swartz should have reported the $12.5 million bonus and paid
$4.95 million in taxes on that amount.
Swartz was Tyco's director of mergers and acquisitions from 1993 to 1995 and then
became the company's CFO.
Kozlowski and Swartz spent more than $60 billion building Tyco into a sprawling
conglomerate with about $36 billion in annual revenue.
Swartz became a board member in March 2001 and ranked as the highest paid CFO in
the United States in 2001, according to research firm Equilar Inc. Swartz collected
nearly $47 million in compensation, Equilar said.
The indictment said Swartz regularly abused the key employee loan program. Instead
of paying taxes from the vesting of restricted stock, he used about $72 million in
company loans to finance his personal investments, business ventures, real estate
holdings, family trusts and partnerships, the indictment said.
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