Ex-Tyco Finance Chief Says Money Was Part of Bonus

Tyco International Ltd.’s former chief financial officer testified Wednesday that $12.5 million he is accused of stealing from the company was actually part of a bonus he had earned.

Mark Swartz said he initially got the money as a loan, but after a member of the Tyco board expressed concern about the size of executive bonuses for 1999, Swartz said, he was asked to take “forgiveness” for that loan as part of his bonus.

Swartz said the loan forgiveness suggestion came from Tyco’s chief executive, L. Dennis Kozlowski. He said Kozlowski later told him that director Philip Hampton had approved the $12.5-million loan forgiveness. Hampton died May 1, 2001.

Prosecutors say the board’s entire compensation committee -- not one individual -- had to approve the loan forgiveness for it to be legal. And they note that Swartz paid back the $12.5 million -- with interest -- in 2002 when he was challenged about it.

Swartz and Kozlowski, accused of enriching themselves to the tune of $600 million through Tyco, are on trial in Manhattan on charges of grand larceny, enterprise corruption, state business law violations and falsifying business records.

The first defense witness, Swartz took the stand Tuesday after lawyers for Kozlowski rested without calling witnesses. The prosecution rested last week after 47 witnesses and about 700 exhibits, including a videotape of a $2.1-million birthday party for Kozlowski’s wife on the island of Sardinia.

Swartz, 43, said Tyco paid about $1 million of the party’s cost and Kozlowski paid the rest. He said he thought the split was “appropriate” given that Tyco business was conducted there.

Prosecutors say the defendants stole $170 million by hiding unauthorized pay and secretly forgiving loans. The two allegedly made an additional $430 million on Tyco shares by lying about the firm’s financial condition from 1995 into 2002.

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