Ex-Tyco Director Tells of $20-Million Secret Fee

Former Tyco International Ltd. director Frank Walsh told jurors he got $20 million for brokering the purchase of CIT Group Inc. and was asked by L. Dennis Kozlowski, then Tyco’s chief executive, to keep it secret.

Walsh, testifying in Kozlowski’s criminal trial in New York, said the fee was negotiated while the $9.2-billion CIT acquisition was being completed in 2001. He said the payment was Kozlowski’s idea. Kozlowski and former Chief Financial Officer Mark Swartz have been on trial since September on charges of looting Tyco in a scheme that allegedly netted them $600 million.

Walsh said he and Kozlowski settled the fee at a lunch meeting in July 2001, when Kozlowski told him he “would prefer to keep the arrangement between Mark, himself and me.”

Walsh, a retired investment banker who served on Tyco’s board from 1992 to 2002, pleaded guilty in December 2002 to securities fraud for accepting the $20 million. He was the fifth former board member to appear as a witness against Kozlowski and Swartz. All have testified about how they learned of the payment and their demand at a January 2002 board meeting that Walsh return it, which he refused to do. Walsh then quit the board.

When Tyco subsequently disclosed the payment on Jan. 29, 2002, its stock fell 20% that day.

Half the fee was paid directly to Walsh, and the other half went to a New Jersey charitable foundation. Walsh said the two men agreed to the split after Kozlowski was advised that a payment of more than $15 million required public disclosure.

In January 2002, Kozlowski informed Walsh that the fee would have to be reported to investors, after Walsh acknowledged receiving the payment on an annual questionnaire for Tyco directors and officers.

Walsh testified that he told Kozlowski, “ ‘I thought you had checked this out and it didn’t have to be disclosed.’ His response was, ‘I got bad advice.’ ”