Tyco Sues 2 Ex-Officers to Recover Stock Gain

Tyco International Ltd. sued two former top officers, Dennis Kozlowski and Mark Swartz, to recover $40 million in profit from their trading of the company’s stock.

Tyco says former Chief Executive Kozlowski and Swartz, who was chief financial officer, violated a federal rule governing so-called short-swing trades that requires insiders who buy and sell company stock within a six-month period to relinquish their profit. The lawsuit, which cites 67 alleged violations, was filed Friday in federal court in Manhattan.

Kozlowski and Swartz are battling state criminal charges in New York that they engaged in a $600-million theft and fraud scheme. The two men, who pleaded innocent, each face 30 years in prison on enterprise corruption, grand larceny and conspiracy charges.

Tyco already has sued Kozlowski, former general counsel Mark Belnick and former director Frank Walsh.

Such suits are “not terribly common, because most officers and directors are well-enough advised that they don’t usually violate” short-swing trading rules, said attorney David M. Becker, former general counsel to the Securities and Exchange Commission.

Tyco says Kozlowski violated the commission’s short-swing rule 31 times from Aug. 1, 2000, when he exercised an option to buy 392,000 shares, to Jan. 30, when he bought 225,000 shares.

Swartz allegedly violated the rule 36 times from Aug. 1, 2000, when he exercised an option to buy 196,000 shares, to April 26, when he bought 209,000 shares.

Stephen E. Kaufman, Kozlowski’s attorney, and Charles Stillman, Swartz’s attorney, could not be reached for comment.

Tyco spokesman Gary Holmes said the lawsuit “speaks for itself” and declined to comment further.

This year, Tyco’s stock began to fall amid questions about accounting and the company’s liquidity. Shares fell 46 cents Monday to $16.24 on the New York Stock Exchange. They have declined 72% this year.

Tyco is based in Bermuda and run from Exeter, N.H.