In the wave of prosecutions against business executives that followed the boom of the late 1990s, L. Dennis Kozlowski came to be portrayed as the poster child for corporate excess.
The former Tyco CEO’s first trial last year was a parade of eye-popping largesse: an $18 million Manhattan apartment, a $6,000 shower curtain and an infamous $2 million party on the island of Sardinia in the Mediterranean.
Prosecutors said Kozlowski financed the lavish lifestyle with money he pillaged from Tyco — and on Friday, a jury convicted him and another executive of looting the company of $600 million.
Kozlowski and former Tyco finance chief Mark H. Swartz are the latest former executives to be convicted or to plead guilty in the government’s crackdown on white-collar crime, following Martha Stewart, WorldCom’s Bernard Ebbers and a host of others.
The convictions came after 11 days of jury deliberations — and more than a year after the pair’s first trial reached its bizarre conclusion.
That trial ended in a mistrial after a juror whose name was reported by some media outlets — some news organizations said she made an “OK” signal to the defense team — said she received threats.
For the second trial, state prosecutors pared back their emphasis on Kozlowski’s spending.
The men now face up to 30 years in prison — the maximum sentence under the law, prosecutors said.
“This verdict is an endorsement of the principle of equal justice under the law,” said Manhattan District Attorney Robert Morgenthau. “Crimes committed in corporate offices will be treated according to the same standards as other crimes.”
Both will appeal
The pair had testified they were unaware of any wrongdoing when they accepted enormous corporate bonuses and hefty loans that were later forgiven by Tyco. Both indicated they would appeal.
“We are disappointed, and we will deal with this on appeal,” said Swartz’s attorney, Charles Stillman. Kozlowksi’s attorney, Stephen Kaufman, told reporters outside the courthouse, “We’re very disappointed by this verdict.”
Kozlowski and Swartz both left the courthouse through a back door, climbed into waiting cars and fled without speaking to reporters.
Although prosecutors called for the pair to be jailed pending sentencing, both remained free on $10 million bail apiece. Their dejected wives sat in the courtroom, their heads hanging, as the jury foreman intoned guilty verdict after guilty verdict against the pair — 22 for each.
Kozlowski and Swartz, who were each acquitted of just a single charge, were due back in court Aug. 2 for a presentencing hearing.
Extravagant lifestyles
The defendants were accused of enriching themselves by nearly $600 million by taking unauthorized pay and bonuses, abusing loan programs and selling their company stock at inflated prices after lying about Tyco’s finances.
Often, prosecutors said, the defendants hid their alleged thefts by failing to disclose the bonuses and forgiven loans in company declarations and federal filings, and bought the silence of underlings with outsized compensation.
Both used Tyco’s money to fund extravagant lifestyles of fancy art, jewelry and real estate, prosecutors said — particularly the gaudy $2 million party Kozlowski threw for his wife Karen’s 40th birthday on Sardinia. Tyco paid about half the party’s cost.
Just 'not thinking'
Lawyers for Kozlowski, with Tyco from 1975 until 2002, and Swartz, who joined Tyco in 1991 and left in 2002, said the executives believed they were acting lawfully when they accepted compensation and loan forgiveness or spent Tyco’s money. There was no criminal intent by either man, they said, and therefore there were no crimes.
A major difference in the second trial was four days of testimony by Kozlowski, who did not testify in the first. He told the jury he never abused Tyco loan programs or received a bonus to which he was not entitled, and that he never stole anything.
Kozlowski, asked by defense attorney Kaufman why a $25 million bonus he received from the company never appeared on his 1999 tax return, said he could not explain why.
“I just was not thinking when I signed my tax return that I had a $25 million loan forgiveness,” Kozlowski said. “Year in and year out at Tyco, my tax returns for the most part had been correct. I didn’t pick up on it.”
Swartz’ lead lawyer, Stillman, offered his closing argument’s theme as a slogan for jurors to deliberate by: “No criminal intent means no crime.”
Prosecutors called Kozlowski’s explanation for this omission and for other actions by him and Swartz “ludicrous,” and “despicable.”