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Transcript of TYCO INTERNATIONAL
Inside and outside the company
"If Kozlowski was doing what he is accused of, the odds are pretty good" that there's something wrong with Tyco's numbers, says Charles L. "Chuck" Hill, director of research at Thomson Financial/First Call.
Why did no one see through the scam?
Effects Of The Scandal
one victim in this case, the company,
Tyco. This victim consisted of the employees, the shareholders and everyone who had a stake in the company. When this theft occurred, the whole company suffered immensely, the stock prices fell sharply, and the people involved are the ones that experience problems.
There were people,
, which had trusted the words of the CEO and CFO, believing that they had not sold their shares as they had indicated. When the truth had emerged, they had both sold 100 million dollars of their stock, because they knew that the decisions that they were making were going to cause the stock price to fall and they didn't want to be invested in it. When the stock price did fall, these investors had made bad decisions, based on the information that they were given by the defendants, which was false to begin with.
Founded in 1962 in Switzerland and is apart of the Security & Protection Services.
In 2007 the company had split into three segments:
Covidien Ltd. (Tyco Healthcare),
Tyco Electronics (now TE Connectivity Ltd.)
Tyco International Ltd. (Tyco Fire & ecurity and Tyco Engineered Products & Services)
The company was once again split in 2010 with the following companies created:
– focused on residential, commercial, educational and industrial businesses providing security services
– focused on water and fluid solutions
– focused on fire protection and suppression systems for government uses, homeowners and airports
Electrical and Metal Products
- designs and manufactures tubing and pipes, electrical cables and metal framing for construction use.
– designs and manufactures security related products such as access control systems (door controllers, keypads and cards) and video surveillance (programmable cameras and monitors, video management systems)
June 17, 2005
Vol XCIII, No. 311
Who Was Responsible?
Accounting Frauds That Occurred
TYCO INTERNATIONAL SCANDAL
The Securities and Exchange Commission was looking into the company’s stock prices because of Kozlowski’s unconventional business practices. In January 2002 there were some questionable practices that were discovered. All the money that was taken out of the company was guised as
bonuses and benefits
1. Tyco gave Kozlowski a 170 million dollar no interest loan
2. Paid the CEO’s income taxes on the loan
3. Companies stock prices were overrated
4. Stated that they are holding 100 million dollar worth of shares when they sold it for 450 million ( This is why they had high stock price)
The Chairman and chief executive Dennis Kozlowski and chief financial officer Mark H. Schwartz were accused of stealing more than $150 million from the company. Things seemed unusual when the CEO Kozlowski was living an extremely lavish lifestyle. He owned an 18 million dollar Manhattan apartment, with a 6,000 dollar shower curtain and also spent about 2 million dollars on his wife’s 40th birthday party, which was all at Tyco's expense, including a life sized statue of "David", and a performance by Jimmy Buffett on a Mediterranean island. Kozlowki went on trial for his doings and had the defense of giving a partial amount to charities. Dennis and Mark both were both sentenced to no less than 8 years and no more than 25 years in prison. Out of the 250 managers 220 of them were replaced because of the involvement remainder resigned shortly after.
It is becoming increasingly clear that Tyco was not run or structured like any other company. Even as it ballooned to a
$36 billion giant with over 200,000 employees
, Kozlowski allowed only a relative handful of trusted lieutenants to work with him at Tyco's headquarters operations, TME Management Inc.
Within his inner sanctum,
Kozlowski reigned supreme:
He never appointed a president and handpicked his top managers, insuring that they were cut from his own mold: "smart, poor, and wants-to-be-rich," as he once said.
The most egregious failure of oversight occurred on
. True, Kozlowski apparently went to enormous lengths to
keep outside directors in the dark:
took control of all information
-including internal audits - that usually go to a board. But that, in and of itself, should have been a red flag.
One director, for instance, Joshua M. Berman, was receiving $360,000 annually for
according to SEC filings.
How To Avoid Frauds Like These?
Government regulated checkups
– this is what caught the scandal; random investigations into companies
someone reliable working with employees who've just been hired instead of just hiring completely new employees
in an attempt to prevent scandals