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Transcript of TYCO SCANDAL
BY: Ravi & Urvish
About the Company
Outcome of the Investigation
The investigation began in January 2002, by SEC(Securities and Exchange Commission).
The CEO- Dennis Kozlowski and the CFO- Mark Swartz stole $170 million and made $430 million
Impact of the Stakeholders
Effects of the Scandal
GAAP Violated- The Business Entity Concept and The Full Disclosure Principle.
Timeline of Events
- Dennis Kozlowski was hired as CEO.
CEO- George Oliver
Founded in 1960 and incorporated in 1962(Switzerland)
Develops practical integrated fire protection and security video surveillance.
Main Headquarters located in Princton, New Jersey.
Tyco has 900 locations in 50 different countries
The scandal took place between 1996 to 2002
Siphoned money through unapproved loans and fraudulent stock sales. Stole money from the company disguised as bonuses and benefits for the executives
The executives were taking unapproved loans with no interest. They overstated their assets and misrepresented the information to shareholders.
In the scandal Tyco lost $600 million
Before the scandal the stock was $60 a share and after it was $7 a share.
In the financial statements the stolen money was disguised as interest free loans and bonuses for the employees. The financial statements overstated the assets of the company to show a beneficial position.
Jan. 29 2002
- Tyco shares dropped rapidly after a report was sent to Securities and Exchange Commission.
Jan. 30, 2002
- Reports came out that Kozlowski and CEO Mark Swartz sold more than $100 million of their Tyco stock.
June 3, 2002
- Kozlowski unexpectedly resigns due to reports that he is being investigated on suspicion of failure to pay sales tax.
September 17, 2002
- Kozlowski and Mark Swartz are charged with stealing more than $170 million from Tyco and obtaining $430 million by fraud in the sale of company shares. Mark Belnick is charged separately for falsifying records.
Majority of the the customers left Tyco since the company could not be trusted.
Earnings of the shareholders decreased since the stock price per share went down.
The management style of the company changes since old board directors are replaced by new ones.
Savings of the employees were gradually decreased. Since 260,000 employees were shareholders
The investors lost millions of dollars
The role of the auditor was to investigate the financial statements to find errors.
The auditor involvement cleared all the loose ends since they found out how the fraud was committed and how did it go unnoticed for a long time.
Lessons To be Learned
Frauds are always caught. Update the security systems to gain more control over the company’s affair so the fraud does not go unnoticed.
How TO Avoid A Similar Situation
Place specific guidelines regarding the use of the budget and increase accountability and controls.