Many Knew of Tyco Bonuses, Witness Says

Tyco International Ltd.’s auditors knew about millions of dollars of bonuses that former Chief Executive L. Dennis Kozlowski was later accused of stealing, a witness at his fraud trial testified Monday.

Patricia Prue, Tyco’s former head of human resources, told jurors in a New York state court that the company’s payroll and legal departments also knew about the payments, which were rewards to employees for their work on the public offering of shares in Tyco unit TyCom Inc.

The testimony supports the contention of lawyers defending Kozlowski and former finance chief Mark Swartz that their clients didn’t keep the bonuses secret and the company’s board knew of or could have learned about the payments.

“Our auditors did, at least that’s what was told to me,” Prue said when Kozlowski’s attorney, Austin Campriello, asked her who in the company would have known about the bonuses. He displayed memos listing the recipients of the payments, Kozlowski and Swartz among them. Prue said all the memos were in company files.

Prosecutors charged Kozlowski, 58, and Swartz, 44, with 31 counts of larceny and fraud. They say the two stole their share of the TyCom bonuses, more than $48 million, along with more than $100 million in other allegedly unauthorized payments. The two men are facing the charges for a second time after a mistrial in April.

Dozens of Tyco employees got TyCom bonuses, which were given out in the form of loan forgiveness and cash payments to cover tax liabilities. They were asked to sign letters pledging not to mention the payments to co-workers.

Prue said she told Kozlowski she was worried that “water cooler talk” about the bonuses would hurt the morale of those who didn’t get them. Prosecutors say the nondisclosure agreements were a way to hide the payments from directors.

Prue, who received a condominium under the TyCom bonus program, testified that Kozlowski never told her to hide the loan forgiveness payments from the directors, only to forestall a morale problem.

“I told him that generally, that this could be a major problem,” Prue said, testifying for the third day. “He said just make sure this benefit doesn’t get spoiled,” she recalled.

Prue, a government witness, repeated her testimony that Swartz told her that Kozlowski said the bonuses were approved by Phil Hampton, a director on the board’s compensation committee. Hampton died in 2001.