Former Tyco International CEO Dennis Kozlowski and a subordinate were convicted Friday of looting more than $600 million from their company to pay for lavish parties, fancy art and an opulent Manhattan apartment that featured a $6,000 shower curtain.
Kozlowski and former Tyco finance chief Mark H. Swartz joined a string of executives convicted in recent years in high-profile corporate wrongdoing cases, among them former WorldCom CEO Bernard Ebbers and Adelphia Communications Corp. founder John Rigas and his son, Timothy.
Richard Scrushy, founder and former chief executive at HealthSouth Corp., is on trial on fraud charges and awaiting a jury verdict in federal court in Birmingham, Ala. And former Enron Corp. executives Kenneth Lay and Jeffrey Skilling are scheduled to go on trial early next year.
A state court jury deliberated over 11 days before returning the verdict in the second prosecution of Kozlowski, 58, and Swartz, 44. Both were convicted of grand larceny, falsifying business records, securities fraud and other charges.
The verdict came after a four-month trial, the second for both men, in Manhattan state Supreme Court. They now face up to 30 years in prison — the maximum sentence under the law, prosecutors said.
Kozlowski and Swartz were allowed to remain free on $10 million bail apiece pending an Aug. 2 pre-sentencing hearing.
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 the verdict.
Their disappointed wives sat in the courtroom, their heads hanging, as the jury foreman intoned guilty verdict after guilty verdict — 22 for each. Kozlowski and Swartz were each acquitted of just a single charge.
Both men had testified they were unaware of any wrongdoing when they accepted the money and loans.
“We are disappointed, and we will deal with this on appeal,” promised Swartz’s attorney, Charles Stillman. Kozlowski’s attorney, Stephen Kaufman, told reporters outside the courthouse, “We’re very disappointed by this verdict.”
The defendants both left the courthouse through a back door, climbed into waiting cars and left without speaking to reporters.
The first trial of Kozlowski and Swartz ended with a judge declaring a mistrial in April 2004 because a juror, identified by a newspaper as a holdout for acquittal, received a menacing telephone call and letter.
Unauthorized pay, bonuses
Kozlowski and Swartz 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 loan forgivenesses in company prospectuses and federal filings, and bought the silence of underlings with outsized compensation.
Both used Tyco’s money to buy extravagant lifestyles that featured art, jewelry and real estate, prosecutors said. An example of that spending was the gaudy $2 million toga party Kozlowski threw for wife Karen’s 40th birthday on the Mediterranean island of Sardinia, they said. Tyco paid about half of the party’s cost.
Kozlowski became the object of ridicule after it was revealed that the furnishings at his Manhattan apartment included a $6,000 shower curtain and other extravagances that brought the price of the place to more than $30 million.
The prosecution’s emphasis in the first trial on such lavish spending was pared in the second.
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 forgivenesses 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 that he never abused Tyco loan programs or received a bonus to which he was not entitled, and that he never stole anything.
Asked by one of his lawyers, Stephen Kaufman, why a $25 million bonus that he received as a loan forgiveness from the company did not appear on his 1999 tax return, Kozlowski 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.”
Prosecutors called Kozlowski’s explanation for this omission and for other actions by him and Swartz “ludicrous,” and “despicable.”
Tyco has been reorganizing under new management since Kozlowski left in 2002 amid the charges against him. The company, based in Bermuda but with operational headquarters in West Windsor, N.J., reported earnings last month that slightly beat analysts’ expectations.
While it has many divisions, Tyco is best known for its ADT Security business.