Lawyer: Ex-Tyco Execs Earned Every Penny
AP Online; 1/27/2005; SAMUEL MAULL, Associated Press Writer

Dateline: NEW YORK
Two former top Tyco International executives who are accused of embezzling hundreds of millions of dollars earned every penny they got from the company and never acted with criminal intent, defense lawyers told jurors Thursday.

The lawyers represent L. Dennis Kozlowski, 58, Tyco's former chief executive officer, and Mark Swartz, 44, the company's former finance chief, accused of stealing $150 million outright and profiting illegally on $575 million in Tyco stock sales.

Kozlowski's lawyer, Stephen Kaufman, began by rejecting the allegation, made by Assistant District Attorney Owen Heimer in his opening statement Wednesday, that the former CEO's method of theft was to instruct, deceive and conceal.

"Dennis Kozlowski instructed employees to be honest," Kaufman said. "No witness will appear before you and say Dennis instructed them to do anything wrong. The facts are that every penny my client earned was on the books and records of the company."

Kaufman said that Kozlowski "never committed any act of concealment" and that Tyco employees, if called as witnesses, "will tell you Dennis never concealed anything."

Kaufman repeated several times during his opening statement the mantra, "Criminals act in criminal ways" as he denied that Kozlowski had done anything wrong at Tyco

Swartz's lead attorney, Charles Stillman, also repeated a line he wanted jurors to remember _ "No criminal intent means no crime." He said business decisions are not criminal if the executive reasonably believes that what he is doing is legal.

Kozlowski and Swartz are on trial for the second time on charges of grand larceny, securities fraud, filing false business records and related crimes. If convicted on the grand larceny charge alone, they each could face 25 years in prison.

Heimer, the prosecutor, told jurors Wednesday that over a three-year period beginning in 1999, Kozlowski earned some $260 million and Swartz earned $127 million.

Kaufman and Stillman said their clients earned all the money they received while they were Tyco's top officers and all their executive actions had the company board's approval.

During the first trial, however, former board members testified they had not known of some actions that were later called illegal.

"They were not potted plants," Kaufman said, referring to the board members. He said the board members were lawyers, accountants and savvy businessmen who had attended Princeton, Harvard and other top schools and knew what they were doing in giving Kozlowski wide discretion to act.

"You will see and hear evidence of the directors' active involvement at Tyco, with employees other than Dennis and Mark. They were very involved with the company's activities," Stillman told jurors.

Kaufman said that when Kozlowski left Tyco in 2002 he had the board's standing approval to do any deal worth up to $200 million on Tyco's behalf.

Kaufman and Stillman said they expect former Tyco board members to come to court and lie because of pressures, including shareholder lawsuits, that they face due to the company's poor performance near the end of Kozlowski's tenure.

The trial resumes Monday in Manhattan's state Supreme Court.

Tyco International Ltd., which has more than 250,000 employees and $36 billion in annual revenue, makes a wide range of products including electronics, medical supplies and security devices. It is nominally based in Bermuda but has its operations headquarters in West Windsor, N.J.

Copyright 2005, AP News All Rights Reserved

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The great Tyco robbery
By BARBARA ROSS, ROBERT GEARTY and CORKY SIEMASZKO
DAILY NEWS STAFF WRITERS, September 12th, 2002

Toppled Tyco titan Dennis Kozlowski and two of his alleged partners in corporate crime were charged yesterday with looting their own company out of $600 million.
The staggering figure was revealed in criminal indictments and separate lawsuits filed by Tyco and the Securities and Exchange Commission that accuse Kozlowski of using the plundered money to fund a lavish - and cheesy - lifestyle.

Among other things, he allegedly spent $1 million in Tyco money on a birthday bash for his second wife, Karen Mayo, that featured an ice sculpture of Michelangelo's David - which sprayed vodka from its penis.

Kozlowski and his cohorts also allegedly plundered corporate accounts and skimmed company profits to buy themselves swanky apartments and vacation homes and fill them with fine art and expensive baubles.

Coming amid investigations of alleged wrongdoing at companies such as Enron and WorldCom, the charges against the Tyco executives were expected to further erode public confidence in corporate America.

Kozlowski, former Tyco chief executive Mark Swartz and the company's former chief counsel, Mark Belnick, were marched into a Manhattan courtroom in handcuffs, where they pleaded not guilty.

The charges are "unfounded and unfair," said Kozlowski's lawyer, Stephen Kaufman.

Kozlowski was told to surrender his passport and ordered held on $100 million bond. But he was barred from using any of the allegedly ill-gotten gains that District Attorney Robert Morgenthau ordered frozen.

So the portly plutocrat has a week to come up with 10% of the bond - $10 million - or he's heading to Rikers.

Initially, Kozlowski got caught allegedly conspiring to evade $1 million in sales tax on $13 million of art he bought with Tyco money for his Fifth Ave. pad.

But that turned out to be just the tip of the ice sculpture.

"Kozlowski, Swartz and Belnick treated Tyco as their private bank, taking out hundreds of millions of dollars of loans and compensation without ever telling investors," said Stephen Cutler, the SEC's director of enforcement.

The criminal indictment charges Kozlowski and Swartz concocted a plot in 1995 to loot Tyco and defraud investors. The scheme, which Morgenthau called the "Top Executives Criminal Enterprise," ran until September.

"Kozlowski was in charge of the enterprise and looted the company by granting himself and others excess compensation," Morgenthau said.

Swartz and Kozlowski recruited others to help them and hid their wrongdoing by "corrupting key employees," Morgenthau said.

The SEC suit charges improper loans to Kozlowski totaled more than $315 million. "Kozlowski amassed millions of dollars in fine art, yachts and estate jewelry, as well as an apartment on Park Ave. and a palatial estate in Nantucket," the SEC charged.

Other funds allegedly went for lavish events such as the party he threw for his wife on the island of Sardinia.

"Two gladiators meet guests at the door," according to an E-mail from party planner Beth Pacitti obtained by investigators. "We have a lion or horse with a chariot for the shock value."

Kozlowski also allegedly pillaged a fund Tyco uses to help executives relocate to buy his first wife, Angie, a $7 million Park Ave. apartment. Swartz dipped into the fund to buy a $6.5 million upper East Side apartment, according to authorities. So did Belnick, investigators said, who used $14 million to buy a Central Park West pad and a ski chalet in Utah.

Kozlowski allegedly billed Tyco $72,042 for jewelry, $155,067 for clothing, $96,943 for flowers, $60,427 for club memberships, $52,334 for wine and $110,000 for corporate use of his personal yacht.

Tyco gave Kozlowski the boot June 3 before the alleged scheme to avoid New York sales tax on the fine art was revealed.

Tyco Ex-Chief Is Humbled, But Unbowed
By ANDREW ROSS SORKIN, NYTIMES, January 16, 2005

L. Dennis Kozlowski wants to be clear: the $6,000 shower curtain wasn't his idea.
The shower curtain, bought by his decorator on Tyco International's tab for an extravagantly furnished Manhattan apartment, became perhaps the most notable symbol of an era of corporate excess and conspicuous consumption.

''I understand why a $6,000 shower curtain seems indefensible,'' Mr. Kozlowski, Tyco's former chief executive, said on the eve of his retrial on charges of looting the company. ''But I didn't know about it. I just wasn't even aware of it. If somebody had come to me and said, 'Do you want to spend $6,000 on a shower curtain in that apartment?' I would have said, 'Absolutely not. Absolutely not.'''

Mr. Kozlowski was sitting in a dreary conference room at his lawyers' office in Midtown Manhattan at eight in the morning recently, nursing his third cup of coffee. Dressed in a black shirt, a pair of jeans and hiking boots, he did not look much like a swashbuckling, custom-suit-wearing chief executive.

He did not sound like one either. Soft-spoken and uncharacteristically reticent at times, Mr. Kozlowski, in his first extensive interview since he was charged more than two years ago with stealing hundreds of millions of dollars from Tyco, said that he was innocent and that the public perception of him was misguided.

''People think that I'm a greedy guy; that I was overcompensated,'' he said, leaning forward in his chair. ''Greed, I think, is the key word. But while I did earn enormous sums of money, which for a poor kid from Newark was spectacular, I worked my butt off and it was all based on my performance in Tyco's long established pay-for-performance culture.''

That image of greed, of course, stems from accusations that he not only awarded himself unauthorized bonuses, but that he had the company also pick up the costs of items like a $15,000 umbrella stand and half the cost of a multimillion-dollar birthday party for his wife on the Italian island of Sardinia, with a now notorious ice sculpture of Michelangelo's ''David'' that flowed vodka.

But Mr. Kozlowski, who faces a second trial on Tuesday in New York State Supreme Court in Manhattan, portrayed himself as a self-made entrepreneur who has become the victim of an overzealous prosecutor interested in sensational headlines and a board trying to protect itself from shareholder lawsuits. While clearly anxious about the retrial and humbled by the enormity of the situation, he remained unapologetic about his conduct at Tyco.

''I firmly believe that I never did or intended to do anything wrong,'' he said. ''I never thought in my wildest imagination I or any of us did anything wrong my entire time there. I still cannot believe that they say words like larceny.''

At the first trial of Mr. Kozlowski and Mark H. Swartz, Tyco's former chief financial officer, prosecutors drew a very different portrait, describing two calculating, arrogant executives who treated the company like their own personal piggy bank. ''They are here not because they blurred the line between themselves and Tyco,'' said Ann Donnelly, an assistant district attorney in her closing statement. ''They are here because they obliterated it, because they erased it.''

The first trial ended last April in a mistrial after six months. During the deliberations, a juror who was prepared to acquit on all charges appeared to make an ''O.K.'' sign with her hand to defense lawyers, igniting a media firestorm that resulted in the juror's name being disclosed and led to a mistrial after the juror received a threatening letter.

Mr. Kozlowski and Mr. Swartz face 31 criminal counts accusing them of stealing $170 million from Tyco by hiding details of their pay packages from the board and pilfering another $430 million by selling Tyco shares after artificially pumping up their price. Both men face up to 25 years in prison. Mr. Swartz's lawyer, Charles Stillman, declined to comment or to make Mr. Swartz available for an interview. If acquitted, Mr. Kozlowski, who is represented by Stephen Kaufman, still may face charges accusing him of evading more than $1 million in New York sales taxes on six paintings.

Since the first trial, the possibility of plea deals for Mr. Kozlowksi and Mr. Swartz have been broached by prosecutors and the defense, but nothing came of it.

Mr. Kozlowski, once the very model of a defiant, confident leader, said the possibility of prison and the emotional toll of another trial is overwhelming. ''It just eats at the pit of your stomach. It's all-consuming. It's the only thing on your mind. It's on your mind when you wake up in the morning. It's on your mind when you go to bed at night. And you dream about it. And you're scared. It's a frightening experience.''

Mr. Kozlowski's first steps into the limelight came after he became chief executive of Tyco, a New Hampshire-based manufacturer, in 1992. He quickly transformed Tyco, which he had originally joined in 1975, into a Bermuda-incorporated conglomerate that now owns dozens of companies making products ranging from surgical instruments to security systems under the brand ADT. Its stock price rose 15-fold from 1992 to 1999, before tumbling in 2001 after a series of strategic missteps. The stock fell further after Mr. Kozlowski was forced to resign in June 2001.

But unlike Enron, WorldCom or Adelphia, which all suffered from huge accounting frauds and sought bankruptcy protection, Tyco never entered bankruptcy proceedings or even laid off employees en masse. Indeed, today, Tyco's stock price has rebounded and is even higher than when Mr. Kozlowski left the company, though it still remains lower than its peak.

''The frustration I had over a long period of time of hearing Enron, WorldCom and Tyco spoken in the same breath -- well, Enron and WorldCom are toast,'' Mr. Kozlowski said. ''Did you watch U.S.C. play Oklahoma for the football championship? All throughout that game, it was mentioned at least 20 times that they're playing for the ADT trophy. That felt really good. Tyco's out there boasting what they're doing day in and day out.''

That has made it even more difficult for Mr. Kozlowski to accept his current fate. His assets have been frozen, his passport confiscated, his travel limited to going between court appearances in New York and his homes in Florida and Nantucket, Mass.

It is a long way down from flying on private jets and being driven everywhere by a chauffeur. ''I'm given an allowance to pay for food and, you know, basic essentials that I need,'' he said.

In September, when the two hurricanes were bearing down on Florida, he had to seek permission from the court to pay to have his house shuttered. ''When you're looking for people who are running around South Florida with their trucks offering to board up houses, you know, they don't necessarily understand, 'Well, I'll have to call the court before I can handle this.'''

The case against him, he argued, should have been heard in a civil court, not criminal. ''I do believe this is a civil case between Tyco and I. After 27 years, there was an unamicable breakup, a faulty divorce. And I do believe this should be ironed out in a civil manner and certainly not in a criminal manner.''

He contends that all of the bonuses he received were properly authorized by the Tyco board or that the board had given him the discretion to make such payments. He argues that the board members who have testified that they did not authorize the payments are trying to pin the blame on him because they face a raft of lawsuits from Tyco shareholders.

If Mr. Kozlowski has any regrets, he said that it was that he delegated too much responsibility to others, like his decorator or to his accountants, and focused too much on building the business while not always paying attention to the finer details.

''If I moved at a slower pace and paid more attention to the details like I did when I was coming up in the operating division of the company, I may have been better off in some ways,'' he said. Still, he insisted that he never stole money from the company nor had any criminal intent to do so.

Indeed, if the first trial is any indictor, the retrial may turn on the issue of criminal intent. While some jurors said after the mistrial that they were prepared to convict on some of the most serious charges, nearly all said that they had wrestled with whether he and Mr. Swartz had the requisite criminal intent. Ruth B. Jordan, the one juror who was holding out for an acquittal on all charges, said at the time in an interview: ''Intent -- intent was the center of the whole case, at least for me. I don't think they thought they were committing a crime.''

Several recent legal developments appear to be favorable to Mr. Kozlowski. In July, Mark A. Belnick, Tyco's general counsel, was acquitted of conspiring with Mr. Kozlowski and Mr. Swartz to take a $17 million bonus that prosecutors said was not approved and a $14.5 million interest-free loan that he did not disclose. Several jurors said after that trial that they did not believe directors from Tyco's board who testified that they had not approved the bonuses.

And in November, the judge in Mr. Kozlowski's case, Michael J. Obus, dismissed the enterprise corruption count against him and Mr. Swartz. That is one of the most serious charges frequently used in Mafia prosecutions.

There is much pressure on the Manhattan district attorney's office, which has yet to win a guilty verdict in any of the Tyco cases, while federal prosecutors have succeeded in a number of white-collar cases. The Manhattan prosecutors were criticized by all the jurors in the first case for a presentation that was seen as confused and often pandering.

Robert M. Morgenthau, the Manhattan district attorney, declined to comment for this article.

As much as Mr. Kozlowski wanted to argue his innocence, he also took great pains to correct what he said were misrepresentations of himself.

''The general public perception of me -- a lot of its been brought on by a lot of inaccurate reporting in the media,'' he said. He recounted how a tabloid newspaper ran a front-page article ''saying I had this massive party on Nantucket when I wasn't even there. And then that just snowballed into a lot of other stories'' like a television newsmagazine program ''taking pictures of a big mansion in Boca Raton, Fla., and putting it on television.''

''Well, they had the wrong house,'' he said. ''So it's just one thing after another. I had no rebuttals to this whatsoever.''

Chart: ''A Look Back at Tyco's Former Chief Executive''
In the 10 years L. Dennis Kozlowski was chief executive of Tyco -- 1992 through 2002 -- he aggressively expanded the company, hoping to turn it into a conglomerate on the scale of General Electric. Tyco grew from a New Hampshire manufacturer with 23,000 employees into an international one with nearly 250,000, in businesses from health care and fire protection to financial services.

MAKING A CONGLOMERATE
As chief executive of Tyco, Mr. Kozlowski made thousands of acquisitions. Some of the largest:

Kendal Intl. (Medical products): $1.4 BIL. JULY '94
ADT (Home security): $5.4 BIL. MARCH '97
U.S. Surgical (Medical devices): $3.3 BIL. MAY '98
AMP (Electronic components): $11.3 BIL. NOV. '98
CIT (Group Financial services): $9.2 BIL. MARCH '01

BREAKING UP IS HARD TO DO

JAN. 2002
1.) Mr. Kozlowski announces he will split Tyco into four companies and sell off CIT, sending the companys shares tumbling.

2.) Three months later, he reverses course.

RESIGNATION AND INDICTMENT

SALES TAX INVESTIGATION
JUNE 3, 2002 Tyco's board learns of a criminal investigation into whether Mr. Kozlowski evaded sales tax on millions of dollars of art he purchased, including a Monet, above.

3.) Mr. Kozlowski is forced to resign. That investigation leads prosecutors to inquire about possible misappropriation of Tyco funds.

LARCENY INDICTMENT
SEPT. 12 -- A grand jury charges Mr. Kozlowski and Mark H. Swartz, Tyco's former chief financial officer, with illegally reaping $600 million from Tyco. The charges include one of enterprise corruption.

FIRST TRIAL

TRIAL AND MISTRIAL
OCT. 7, 2003 -- Opening arguments.

AMONG THE EVIDENCE
OCT. 28 -- Video of a $2 million weeklong Roman-themed birthday party on the island of Sardinia for Mr. Kozlowski's wife; Tyco paid half the bill.

MISTRIAL
APRIL 2, 2004 -- During jury deliberations, a juror's name is disclosed by the press and leads to a mistrial being declared.

NOV. 1, 2004 -- Judge dismissed the charge of enterprise corruption, one of the top counts.

Graph tracks the share price of Tyco from 1992 - 2004.

(Sources by Hoover's; Tyco International; Bloomberg Financial Markets)(pg. 25)