Tyco Ex-Director Settles Fraud Charges
Former Tyco International Ltd. lead director Frank Walsh whipped out a checkbook in court Tuesday and paid more than $22 million to settle charges that he defrauded Tyco when it bought CIT Group Inc. last year.
Walsh, who resigned from Tyco’s board this year, pleaded guilty to charges that he failed to disclose to other board members that he would be paid a $20-million finder’s fee for Tyco’s $9.5-billion CIT acquisition.
Walsh will not serve jail time in a case brought against him by prosecutors in New York.
Walsh also settled a securities fraud claim filed against him by the Securities and Exchange Commission. Without admitting or denying the charges, Walsh agreed to restitution and will be permanently barred from acting as an officer or director of a publicly held company.
“His duty was to protect shareholders,” said Thomas Newkirk, associate enforcement director at the SEC. “Instead, Mr. Walsh himself took secret compensation and kept those same shareholders in the dark.”
For Tyco, the CIT deal turned into a debacle. Tyco sold CIT this year for less than half of what it paid and took a charge of more than $6 billion against earnings.
The guilty plea by Walsh marks one of the first times in recent memory that prosecutors have secured a criminal conviction against a corporate board member.
After Tyco disclosed the payment to Walsh in January, investors stampeded to sell the company’s stock, erasing more than $16 billion in shareholder value in one day of trading. Walsh was the head of Tyco’s corporate governance committee at the time, and walked out of a board meeting when other directors demanded that he return the money, according to Tyco filings.
The internal dispute at Tyco did not become public until after former Tyco Chairman Dennis Kozlowski abruptly resigned in June. Walsh allegedly worked out the fee deal with Kozlowski, according to the criminal complaint filed by the Manhattan district attorney’s office.
Kozlowski and former Tyco finance chief Mark Swartz have pleaded not guilty to charges that they stole more than $170 million from Tyco and obtained an additional $430 million through fraudulent stock sales.
At an arraignment in Manhattan Supreme Court, Walsh said he received $10 million directly and $10 million was donated to the Community Foundation of New Jersey, a charity he recommended. The charity will keep the $10 million because Walsh is repaying the $20-million fee out of his own pocket, according to a statement by Walsh.
State Supreme Court Judge Michael Odus sentenced Walsh to a conditional discharge, provided that he repay the $20 million to Tyco, pay $2.5 million in fines to New York City and state and an additional $250,000 in fines to prosecutors.
Walsh wrote the checks on the spot.
