Former Tyco Director Calls Fee Legitimate
Former Tyco International Ltd. Chief Executive L. Dennis Kozlowski didn’t violate company policy when he paid a $20-million finder’s fee to a board member, a former company director testified Tuesday.
Prosecutors say the fee, paid to director Frank Walsh for helping arrange Tyco’s 2001 purchase of CIT Group Inc., wasn’t authorized by the board and amounted to theft, one of 13 larceny counts against Kozlowski and co-defendant Mark Swartz, Tyco’s former financial chief. The two men are standing trial for a second time in a New York court after a mistrial in April.
“There is nothing that says specifically that Mr. Kozlowski can’t pay an investment banking fee to a director,” government witness John Fort, a former Tyco chief executive, said during cross-examination.
Kozlowski agreed to pay Walsh the fee without telling the directors, Fort, the first witness in the retrial of Kozlowski and Swartz, had testified Monday. Kozlowski later called the agreement a mistake, Fort said.
“I told him I thought it was wrong,” Fort told Kozlowski’s lawyer Austin Campriello on Tuesday. “I don’t recall using the word that he ‘violated’ the bylaws.”
Walsh kept $10 million of the fee for himself, with another $10 million going to a charity he controlled. Walsh, who pleaded guilty in 2002 to stock fraud, is expected to testify later this week.
Fort said he learned of the payment days before a board meeting. At that meeting, the board asked Walsh to return the payment. He refused, gathered his papers, said “adios” and left the meeting, Fort said. Campriello introduced minutes from a meeting four days later that omitted any mention of the Walsh payment.
The company announced the payment in January 2002 in its annual message to shareholders, triggering negative press coverage that drove down Tyco’s share price, Fort testified. The board later passed a resolution stating a company policy forbidding the payment of such fees to independent directors.
Kozlowski, 58, and Swartz, 44, also are accused of stealing $150 million of bonuses and defrauding shareholders by selling stock they inflated by misrepresenting Tyco’s financial condition.
Kozlowski had authorization to make acquisitions of as much as $200 million without consulting the board, and probably spent as much as $15 billion on raw materials over time without needing board approval, Fort testified.
Prosecutors told jurors in opening statements that the men sold as much as $575 million of Tyco stock and options while committing fraud. Both deny wrongdoing.
