Sale of Home of Tyco Figure Gets 2nd Look
By WILLIAM K. RASHBAUM and ALEX BERENSON
June 8, 2002, NY TIMES
Manhattan prosecutors investigating L. Dennis Kozlowski, the former chief executive of Tyco International, will reopen an inquiry into two transactions in which the $2.5 million home of a Tyco director was sold to the company's general counsel, a senior investigator said yesterday.
Tyco's shares, meanwhile, plunged yesterday after the company's credit rating was downgraded and it said that it might have to delay a sale of CIT, its financing arm.
The 1997 transactions that transferred the home of the Tyco board member, Lord Ashcroft, had come under scrutiny in an investigation three years ago, according to the senior investigator and a lawyer close to the inquiry. Lord Ashcroft, the former chairman of ADT, the security firm, joined Tyco's board after Tyco bought ADT in July 1997.
Prosecutors in the office of the Manhattan district attorney, Robert M. Morgenthau, began the earlier investigation because they viewed the transactions as unusual, the senior investigator said. Property records in Florida show that Lord Ashcroft sold the home in Boca Raton to his wife for $100 and then she immediately sold it to Byron Kalogerou, Tyco's vice president and general counsel, for $2.5 million. The records show that both transactions took place on Oct. 27, 1997; Lord Ashcroft bought the home in 1990 for $2.3 million.
Though such property transfers are not unheard of, the inquiry was undertaken, in part, because of their timing, another investigator said. The property transactions were made around the time of Tyco's acquisition of ADT, the investigator said, raising questions about possible violations of New York's securities laws.
"What piqued our interest was, if this is just a straight-up deal, why it had to go through that transaction," the senior investigator said. "We wanted to know who was getting the benefit and whether it was an unusual benefit."
The inquiry uncovered no evidence to warrant charges and had lain dormant, the senior investigator said. Now, the investigation of Mr. Kozlowski has prompted prosecutors to re-examine the transactions as part of a broader inquiry into his tangled finances. Mr. Kozlowski may have used the Boca Raton house for himself, and prosecutors are examining whether it was actually paid for by Tyco, the senior investigator and the lawyer said. "Obviously, in light of the present investigation, we would certainly be revisiting this transaction," the senior investigator said.
Another investigator has said that prosecutors will review whether Tyco money was used to buy the home or maintain it. The Boca Raton Water Department said the water bills for the house, which averaged about $400 every two months, were paid by ADT, and the senior investigator said Mr. Kozlowski had paid some other utilities for the house.
Tyco is conducting its own internal inquiry into Mr. Kozlowski, who resigned from the company on Monday, a day before being indicted on charges that he conspired to evade more than $1 million in New York state sales tax on six paintings worth $13.1 million.
Calls to Lord Ashcroft at his office in New York were not returned. A spokesman for him in London referred all questions about the house to Tyco. A spokesman for Tyco said the company could not comment on either its or the government's investigation into Mr. Kozlowski. Mr. Kalogerou, reached at Tyco's offices in Boca Raton, referred all inquiries to the company spokesman and would not discuss the transaction.
Lord Ashcroft has been a controversial figure in British business and politics for years. In 1972, at 26, he borrowed £15,000 from Barclays to start his own business, which he sold in 1976 for £1 million. He then bought Hawley Goodall, a British company that he moved to Bermuda and used to acquire a hodgepodge of businesses, including ADT.
Although he has retained his British citizenship, Lord Ashcroft spends much of his time in Belize and Florida and served for a time as the Belize ambassador to the United Nations. In the late 1990's, Lord Ashcroft, who was the treasurer for Britain's Conservative Party from 1998 to 2001, came under criticism from the governing Labor Party. Labor parliamentary members questioned tax breaks negotiated between Lord Ashcroft and the government of Belize and suggested that legislation he helped draft in Belize might have created an environment that aided money laundering in the region. The accusations were never substantiated, and Lord Ashcroft is suing the British Foreign Office over the matter.
The news that prosecutors will examine the Boca Raton real estate transactions comes after a week of disclosures about how Tyco spent company money on behalf of Mr. Kozlowski. A person close to the board said Tyco had paid for the $18.5 million Fifth Avenue apartment Mr. Kozlowski bought in 2000, and investigators said Mr. Kozlowski used a company loan program to buy the artwork. Mr. Kozlowski's lawyer, Stephen E. Kaufman, declined to comment yesterday.
Several investigators stressed that despite the disclosures, the investigation was just beginning, and that it was premature to predict whether it would delve deeply into the company's spending or lead to other Tyco officials, though their actions would probably be examined.
Shares of Tyco fell $4.50 yesterday, or 31 percent, to $10.10, its lowest level in six years. The company has lost $100 billion in market value since December, costing investors more than the collapse of Enron did.
Both Moody's and Standard & Poor's downgraded Tyco's credit rating yesterday to one notch above junk status and said more downgrades were possible if the company could not quickly sell CIT. Tyco has said that it hopes to spin off CIT in an initial public offering by the end of June or early July. But the price that analysts expect Tyco will get for CIT, which Tyco bought last year for $9.2 billion, has fallen steadily to less than $5 billion.
Cynthia Werneth, the analyst at Standard & Poor's who covers Tyco, said she had downgraded Tyco because of "waning investor confidence, management and board turmoil and continued delays in getting the CIT I.P.O. off the ground." The company must regain investors' confidence by February, when it has $6.2 billion in bank loans and convertible debt coming due, Ms. Werneth said.
The downgrades will force Tyco to repay over the next three months $535 million in loans backed by its accounts receivable, Tyco said.
Mark H. Swartz, Tyco's chief financial officer, assured investors on a conference call yesterday that Tyco, which has $4 billion in cash on its balance sheet, can easily repay the loans. He also said that although the CIT offering might be delayed for a few days, he did not expect the Securities and Exchange Commission to hold it up because of Mr. Kozlowski's resignation.
A person at the S.E.C. said a senior official was monitoring Tyco and Mr. Kozlowski's resignation. But a person close to Tyco said the company had not been in contact with the S.E.C. about the resignation. |
