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| Tyco Fraud InfoCenter is an Internet resource that offers you an opportunity to research the Tyco scandal and your legal rights associated with Tyco fraud. Tyco Fraud InfoCenter does not offer legal advice or referrals. |
| Tyco Fraud Information |
Tyco Fraud InfoCenterTyco International, Ltd., a corporation that makes a diversity of products, from healthcare supplies to alarm systems, has recently accused three former high-level executives of fraud. The three accused managers, former CEO L. Dennis Kozlowski, former Chief Financial Officer Mark Schwartz, and former general counsel Mark Belnick, have been indicted for fraud and theft by the Securities and Exchange Commission (SEC) as well as their former employer. They have all pleaded innocent. When was the alleged fraud discovered? Tyco’s financial accounting first came under review in January 2002 after a tip suggested that a less-than-legal transaction might be taking place. In June of the same year, Kozlowski resigned just before he was accused of tax evasion on some expensive art purchases, allegedly made with company funds. On September 12, 2002, the SEC formally charged Kozlowski, Schwartz, and Belnick of civil fraud. What types of fraud are the men accused of committing? The SEC and Tyco International have indicted the former executives on charges of civil fraud and theft. They are accused of giving themselves interest-free or low interest loans for personal purchases of property, jewelry, and other frivolities. According to the SEC, these loans were never approved or repaid. Kozlowski and Schwartz are also accused of issuing bonuses to themselves and other employees without approval of Tyco’s board of directors. It is alleged that these bonuses acted as de facto loan forgiveness for employees who had borrowed company money or were used to buy the silence of those who suspected the former CEO and CFO of fraud. According to Tyco, the individuals who received loan forgiveness were not aware that they were participating in anything illegal; they were told the program had the board’s approval. Tyco and the SEC say it did not. Kozlowski, Schwartz, and Belnick are also being indicted on charges of selling their company stock without telling investors, despite their obligation to do so under SEC rules. In sum, the three are accused of stealing $600 million dollars from Tyco International. What is the current status of the case? Kozlowski, Schwartz, and Belnick have been indicted, and all three have pleaded innocent. All three former Tyco executives have been released on bail bonds for the time being. Although a judge froze the assets of Kozlowski and Schwartz in September, Kozlowski has since been given a monthly living expense of over $14,000. He was also allowed to pay over 3 million dollars in state taxes. The trial for the three is tentatively set for June 1, 2003. As for Tyco, an internal investigation has concluded that, although accounting errors have occurred, there is no systemic fraud problem. As a show of good faith and in effort to restore confidence in the company, Tyco has spent the past several months replacing its top board members. |