Tyco Ex-Director Testifies His Fees Were Authorized

Tyco International Ltd.’s onetime lead director testified Monday that former Chief Executive L. Dennis Kozlowski had the authority to pay him $20 million in investment banking and legal fees.

Frank E. Walsh Jr., a Tyco director from 1992 to 2002, said the conglomerate’s board of directors never voted to approve investment banking or legal fees in his time on the board. That authority was instead delegated to Kozlowski, Walsh said.

Prosecutors allege that Kozlowski, without proper authorization from Tyco’s board, paid $20 million to Walsh and a charity of Walsh’s choosing, in connection with the acquisition of CIT Group Inc., a financial services company, in 2001.

“You believed Kozlowski as CEO of Tyco had the authority to make that payment?” asked James R. DeVita, one of Kozlowski’s lawyers.

“Absolutely,” Walsh said.

Kozlowski and Mark H. Swartz, Tyco’s former chief financial officer, are on trial in New York Supreme Court, accused of rewarding themselves with giant bonuses and other unauthorized compensation while serving as Tyco’s top executives. They have denied wrongdoing.

Their first trial ended in a mistrial in April after a juror reported receiving a phone call and letter about the case during deliberations. The juror’s name had been disclosed by several news organizations after she appeared to give an “OK” signal to the defense.

It was Walsh’s $20-million fee that led to the end of Kozlowski’s reign in 2002.

Walsh insisted on mentioning the $20 million in the company’s proxy statement, a document distributed to shareholders and federal agencies. When other board members learned about it, they were disapproving and demanded the money back. Walsh refused.

Walsh was indicted but escaped prison by pleading guilty and giving the money back.

On Monday, Walsh testified that he hadn’t reached an agreement with Kozlowski on a fee associated with the CIT acquisition when details of the merger were publicly filed in March 2001 and amended in April 2001.

“You had not even discussed a possible amount at that date?” asked DeVita.

“Correct,” Walsh said.

Kozlowski’s lawyers on Monday also focused on the business relationships between Tyco and several of its directors at the time of the Walsh payment.

Walsh testified that Joshua A. Berman was doing legal work for the company and had received fees from Tyco about the same time Kozlowski began discussing a possible payment to Walsh.

Another director, Stephen Foss, at that time had an arrangement with Tyco in which he was paid for the use of a plane by the company.

The board never discussed or approved the company’s arrangements with Berman or Foss, Walsh said.