Witness: Tyco Board Didn’t OK Bonus

Tyco International Ltd.’s board never approved a $17-million bonus for former General Counsel Mark Belnick, a former director testified Thursday at Belnick’s criminal fraud trial.

Prosecutors say Belnick got the bonus, plus $15 million in no-interest company loans, so that he wouldn’t tell Tyco directors and U.S. regulators about frauds that his boss, former Chief Executive L. Dennis Kozlowski, allegedly committed. Belnick, 57, says the bonus was a reward for helping Tyco through a Securities and Exchange Commission accounting probe.

Joshua Berman, a Tyco director for 25 years, said the board wouldn’t have approved Belnick’s 2000 bonus. Kozlowski, who is accused of abusing company loan programs, wanted to fire Belnick within months of hiring him in 1998, Berman testified. The bonus approval “didn’t happen,” he said. Under the circumstances, board approval would have been “extraordinary,” he testified.

Lawyers for Belnick have argued that Berman disliked Belnick and engineered his firing to keep the board and the SEC from discovering a monthly $30,000 consulting fee that Kozlowski paid Berman. Belnick is charged in state court in New York with grand larceny, stock fraud and falsifying business records. If convicted, he faces as many as 25 years in prison.

Berman, testifying as a prosecution witness, said Belnick should have told the board when William McLucas, a former SEC enforcement chief, questioned Tyco’s accounting while representing the company as a private lawyer in 2000.

Belnick failed to tell directors about payments that Kozlowski made to his wife and girlfriend from a Tyco loan program, Berman said. Belnick also didn’t inform the board when he learned in 2002 that New York prosecutors were investigating the company, Berman testified.

Berman said Kozlowski told him in 1999 that he planned to replace Belnick. Berman later raised the topic with Kozlowski several times, he testified.

Kozlowski gave several different explanations for postponing Belnick’s firing, Berman testified, including the fear that “he would incur the displeasure of Warren Rudman,” the former U.S. senator who had introduced Belnick to Kozlowski.

Former director John Fort testified last month that he fired Belnick in June 2002 for failing to cooperate with an internal Tyco investigation after Kozlowski had been forced out.

Outside the jury’s presence, Judge Michael Obus said he would not let prosecutors introduce as evidence a memorandum that Berman wrote about Belnick’s compensation on May 31, 2002, the same day he learned Kozlowski was about to be indicted on allegations of evading state sales tax on art purchases.

“A number of us have asked Dennis why he gave Belnick all this money,” Berman wrote in the memorandum, which is in court papers. “None of us has gotten a satisfactory answer.”