Tyco to settle investor lawsuit
Tyco International Ltd. agreed Tuesday to pay almost $3 billion to settle a lawsuit filed by investors over a massive accounting fraud that took place under former Chief Executive L. Dennis Kozlowski.
The deal is the fourth-biggest securities class-action settlement of all time and represents one of the largest amounts ever paid by a single company, said Laura Simmons, a principal at Cornerstone Research, a legal research firm.
The suit accused Tyco of inflating its profit by $5.8 billion from 1999 to 2002.
“This is a settlement of historic proportions for the investors who suffered significant financial losses,” Richard Schiffrin, a lawyer for the plaintiffs, said in a statement.
The settlement, which requires court approval, helps clear the way for Tyco’s planned breakup into three publicly traded firms: a medical-device manufacturer, a maker of electronic components and a company that sells engineered products and fire and security systems. The split has been postponed twice and is now slated for the end of June.
“With this settlement we are taking an important step to resolve our most significant remaining legacy legal matter,” CEO Ed Breen said.
Tyco’s share price rose 19 cents Tuesday to $32.38.
Under the deal, Tyco is to pursue claims against Kozlowski and former finance chief Mark Swartz, with investors getting half of any sums recovered.
The two largest securities settlements were for $7.2 billion in the Enron affair and $6.2 billion in the WorldCom case. Each of those amounts was paid by multiple defendants, including Wall Street investment banks. Cendant Corp. and its auditors paid $3.2 billion to settle litigation over an accounting fraud at a predecessor company.
Kozlowski and Swartz each were sentenced in 2005 to as long as 25 years in prison after being convicted of looting as much as $150 million from the industrial conglomerate. Their trial became a showcase of corporate misbehavior, revealing details of Kozlowski’s opulent spending, including $6,000 for a shower curtain and $15,000 for an umbrella stand.
Tyco investors also are pursuing a claim against PricewaterhouseCoopers, arguing that the auditing firm should have uncovered the accounting abuses.
