Tyco Scandal

Bibliography

http://www.bloomberg.com/news/articles/2013-10-03/tyco-s-former-finance-chief-mark-swartz-granted-parole

http://www.biography.com/people/dennis-kozlowski-234610

http://www.tyco.com/uploads/files/TycoCorp_Background.pdf

http://www.nytimes.com/2002/12/31/business/corporate-conduct-overview-tyco-admits-using-accounting-tricks-inflate-earnings.html?pagewanted=all

http://www.tycofraudinfocenter.com/information.php

Tyco Scandal

The Aftermath

-Kozlowski and Swartz both found guilty and charged with 8 1/3 to 25 years in prison. Both convicted in 2005.

-Kozlowski and Swartz owe Tyco $134 million.

-Kozlowski fined $70 million.

-Swartz fined $35 million.

-Both were granted parole in late 2013 and released January 17th, 2014

The Stakeholders

Also Affected...

The Thieves

Background Information about Tyco

Dennis Kozlowski, CEO

Tyco's Shareholders

Tyco's Customers

Tyco's Creditors

Tyco's Employees

Tyco before the scandal

Mark Swartz, CFO

Later in 2002 Kozlowksi was indicted for tax fraud when trying to evade $1 million in New York sales tax when purchasing fine art. However this was just the first indictment.

-Had 240 000 employees

-Shares cost $59.76

-$38 Billion in revenue

Arthur J. Rosenburg founded Tyco Inc 1960 as a research lab. At first it was used just to conduct experimental work for the U.S government.

Tyco under Kozlowski's leadership

Acquisitions

Mark Belnick,

General Counsel

Through out the '70s, '80s and '90's Tyco diversified the company with their aggressive acquisition strategy. In the 1990s and early 2000s alone the company spent around $62 billion on acquiring more than 1000 companies.

Through out the next two years Tyco shifted from doing research for the government to more commercial jobs.

Frank Walsh,

Chairman of Compensation

Kozlowski was the CEO of Tyco from 1992-2002. He is credited for many successful mergers and acquisitions and Tyco's huge expansion during the '90s.

In 1974 Tyco's stock was listed on the New York Stock Exchange

In 2002 Kozlowski left Tyco. Supposedly due to controversy regarding his compensation package.

Under Kozlowski's leadership Tyco's revenues rose almost 50% a year from 1997 until 2001 (48.7%).

This jump in revenues led to a huge increase in Kozlowski's compensation. It went from $8.8 million in 1997, to $67 million in 1998, and then to $170 million in 1999.

How the fraud happened

In 1992 Dennis Kozlowski became CEO of Tyco International Ltd.

Dennis Kozlowski (former CEO), Mark Swartz (former CFO) and Mark Belnick (former General Counsel) were accused of giving themselves loans with very little or no interest. These loans were sometimes disguised as bonuses and were never approved by the Tyco board. These loans were never repaid.

These three were also accused of selling Tyco stock without informing investors. This is breaking SEC (Securities and Exchange Commission) rules.

They hid these illegal activities by keeping them out of the accounting books and keeping it hidden from shareholders and other board members.

How much they stole

Dennis was known to live a ridiculously extravagant lifestyle. Some examples of this excessive lifestyle would be his $15000 umbrella stand. Also he threw his wife a $2 million birthday party but disguised it as a shareholder meeting so Tyco paid $1 million.

Kozlowski, Swartz and Belnick broke the Business Entity Concept which states that company accounting should be kept separate from the owners personal affairs

Between the three of them they stole $600 million from Tyco through these unapproved loans, bonuses and excessive company spending.

Kozlowski would give money to people he feared would rat him out.

Kozlowski purchased his $19 million dollar house with a no interest loan from Tyco.

Image by Tom Mooring