Tyco Fires Top Lawyer as Executive Probe Was to Begin

Tyco International Ltd., reeling from the indictment of the company’s former chief executive, on Monday fired its top lawyer as prosecutors probe whether Tyco used corporate funds to enrich executives.

Tyco abruptly fired general counsel Mark Belnick, which his lawyer called unfair and irrational, and said would destabilize the troubled conglomerate, whose shares surged 13% as investors overlooked credit worries.

Tyco said it lost confidence in Belnick’s willingness and ability to conduct a fair investigation of company executives, including the fired lawyer. Tyco said it was determined to have a complete investigation of any allegations of improper conduct by any of its personnel.

The dismissal of Belnick, who was due to collect a $10.6-million bonus in 16 months, came as Manhattan prosecutors probe whether Tyco used corporate funds to help executives buy pricey real estate in New York and Florida. Tyco also hired an outside law firm last week to conduct an independent probe.

Worries about Tyco’s debt deepened after Fitch Ratings on Monday cut the company’s debt ratings to junk status because of damaged credibility and zig-zags in corporate strategy.

Rob Plaza, an analyst at Morningstar Inc., said Tyco’s management and board are closely linked and changes need to be made on both fronts to restore credibility. He said firing Belnick was not a long-term solution to fix Tyco’s problems.

“They really need to clean house,” Plaza said.

Tyco shares on Monday closed up $1.30 at $11.40 on the New York Stock Exchange, after falling 54% last week.

Belnick joined Tyco in 1998 and encountered resistance to improve the company’s corporate governance from Tyco Chairman L. Dennis Kozlowski, who resigned last week before being indicted on charges he conspired to avoid $1 million in sales taxes from artwork purchases, said Stanley Arkin, Belnick’s lawyer.

“He had no personal relationship with Kozlowski, but he was trying constantly to make him do what he should do,” Arkin told Reuters in a telephone interview from Palermo, Sicily. “I think [Kozlowski] was a difficult fellow for Belnick to handle.

“He was unhappily blindsided by his chairman,” Arkin said.

Arkin outlined an alleged turf battle that developed between Belnick and Joshua Berman, a Tyco director since 1967, over who would assign Tyco’s lucrative outside legal work.

Berman led the decision last week to hire the law firm of Boies, Schiller & Flexner to conduct an independent investigation, he said. David Boies, the lawyer for former Vice President Al Gore in the presidential election recount, and Berman worked to elbow Belnick aside over the weekend, he said.

Tyco called Arkin’s allegations of a turf war “ludicrous” and “an attempt to distract attention from his client’s serious problems.” Belnick will be replaced by Irving Gutin, a Tyco veteran and its former general counsel known for his sharp negotiating skills, Tyco said in a statement.

Belnick joined Tyco in 1998 after several years at the powerhouse law firm of Paul, Weiss, Rifkind, Wharton & Garrison, where his assignments included defending junk bond king Michael Milken.

Tyco makes everything from ADT burglar alarms to plastic hangers, which generate about $36 billion in annual revenue for a sprawling conglomerate that is based in Bermuda, but is run from Exeter, N.H.

Still, investors are worried about how Tyco will repay $4 billion in debt due in February.

Tyco is betting it can sell finance arm CIT Group Inc., but some analysts say such a sale, which could happen as late as the first week of July, may not be enough.

The collapse of Tyco’s share price this year erased about $95 billion in market capitalization.