Tyco Jury Hears of Unpaid Loans

The former vice president of personnel at Tyco International Ltd. testified Wednesday that she was surprised when the company’s chief executive and chief financial officer informed her they were not repaying millions of dollars in Tyco loans.

Patricia Prue said L. Dennis Kozlowski, Tyco’s former CEO, and Mark Swartz, the former finance chief, told her the company was forgiving relocation loans of employees who worked on a stock offering for a Tyco unit.

Prosecutors say this loan program, allegedly concealed from Tyco’s board, was one way Kozlowski illegally received $32 million and Swartz $16 million.

“I was surprised,” Prue testified. “That was a really big benefit, huge.”

Prue said Kozlowski and Swartz told her the loan forgiveness program had been approved by Philip Hampton, chairman of the Tyco board’s compensation committee, and by the outside auditor. Hampton died in April 2001.

About 40 Tyco employees benefited from the program, Prue said, including Kozlowski and Swartz. She said that after expressing concern about the morale of employees not benefiting from the program, Kozlowski and Swartz said Prue’s own relocation loan would be forgiven.

Kozlowski, 56, and Swartz, 43, are charged with grand larceny and enterprise corruption. They are accused of illegally obtaining about $600 million. Each faces up to 30 years in prison if convicted.

Defense lawyers say Kozlowski and Swartz earned all the benefits they got and that all the appropriate overseers knew about those benefits.