TYCO AND KOZLOWSKI

Legal Issue: Tyco and Kozlowski

Legal Issue: Tyco and Kozlowski

Introduction

Tyco International Ltd is an international manufacturing company incorporated in Switzerland, with operational headquarters in New Jersey USA. Tyco International Ltd. (not to be confused with Tyco Toys, which is owned by Mattel Inc.) was a high-flying conglomerate that acquired over 1,000 companies in the span of a few years. Originally headquartered in Exeter, New Hampshire, Tyco moved its operating headquarters from New Hampshire to New York in 1995, and its charter was transferred to Bermuda in 1977. The latter move reduced Tyco's tax bracket from 34 percent to 25 percent. Former chief financial officer Mark H. Swartz and former chief executive and chairman Dennis Kozlowski were charged of the stealing of more than $150 million from the corporation. During their trial in March 2004, they challenged the board of directors allowed it as reward.

Discussion

Tyco continued to be controlled in the United States by its chief executive officer Dennis Kozlowski, a Seton Hall graduate with a degree in finance. Kozlowski began his career as a financial analyst, but decided operations were more to his liking and eventually moved to Tyco. After sixteen years at Tyco, he became the company's president and chief operating officer. Kozlowski was soon promoted to the role of chairman and chief executive officer. Kozlowski had estates in Nantucket, New Hampshire, and Boca Raton and an expensive apartment in New York that were paid for by Tyco. He began collecting art and antique furniture. Living the life of a corporate titan would be his undoing.

Legal and Ethical Issues

One of the most egregious ethical egoists in recent history was Dennis Kozlowski, former CEO of Tyco. New York prosecutors charged Kozlowski with stealing more than $170 million from the company. Kozlowski also was accused of borrowing $270 million from a company loan program intended to help him pay taxes, but he improperly used 90 percent of this money for personal expenses, such as yachts, jewelry, fine art, and real estate. Kozlowski was sentenced to up to 25 years in a New York state prison in 2005. In the highly publicized Tyco fraud case, which broke in 2002, the SEC charged former top executives of the company, including its former CEO, L. Dennis Kozlowski, with failing to disclose to shareholders hundreds of millions of dollars of low-interest and interest-free loans they took from the company. Moreover, Kozlowski forgave $50 million in loans to himself and another $56 million for 51 favored Tyco employees. Tyco's board approved none of the charges.

Kozlowski also engaged in undisclosed non-arm's-length real estate transactions with Tyco or its subsidiaries and received undisclosed compensation and perks including rent-free use of large New York City apartments and personal use of corporate aircraft at little or no cost. The SEC complaint alleged that three former executives, including Kozlowski, also sold restricted shares of Tyco stock valued at $430 million dollars while their self-dealing remained undisclosed.

In addition, Kozlowski participated in numerous improper transactions to fund an extravagant ...