Witness: Tyco Fee Left Out of Filing

Tyco International Ltd.’s former lead director said the Bermuda conglomerate’s ex-chief financial officer, now on trial, told him “not to worry about” a regulatory document that failed to spell out that the director could receive a fee from the company for brokering a deal.

In his third day of testimony Tuesday, Frank E. Walsh Jr., a Tyco director from 1992 to 2002, said he believed he had an obligation to disclose to shareholders and his fellow directors that he might receive an investment-banking fee in connection with the acquisition of CIT Group Inc. before the transaction’s approval.

CFO Mark H. Swartz told Walsh that he needn’t worry because the financial statements included a reserve for investment banking fees, even though he wasn’t mentioned by name in the filing, Walsh said.

Prosecutors allege Tyco’s former chief executive, L. Dennis Kozlowski, without proper authorization from Tyco’s board, paid $20 million to Walsh and a charity of Walsh’s choosing.

“I should have disclosed the possibility of a fee at that time,” Walsh said as he concluded his testimony Tuesday.

Kozlowski, 58, and Swartz, 44, are on trial in New York State Supreme Court, accused of rewarding themselves with giant bonuses and other unauthorized compensation while serving as Tyco’s top executives. They have denied wrongdoing.

Walsh, a key prosecution witness, previously testified that he believed at the time that Kozlowski had the authority to make such a payment and that he earned the fee. Walsh pleaded guilty to securities fraud in connection with the payment and repaid the $20 million.

However, jurors haven’t been allowed to hear about Walsh’s guilty plea. On Tuesday, New York State Supreme Court Justice Michael J. Obus again denied a request by prosecutors to question Walsh about his plea because it might be prejudicial to Kozlowski and Swartz.