Unaware of Forgiven Loans,Tyco Lawyer Says

A lawyer for Tyco International Ltd. testified Monday at the fraud trial of the company’s former chief executive and finance chief that she was never told about millions of dollars in forgiven loans for the two executives.

The statement by attorney Marian Tse contradicted testimony by government witness Patricia Prue, Tyco’s former head of human resources. Prue said she asked Tse in November 2000 whether such loan forgiveness had to be reported to shareholders and was told that it didn’t. Prue passed Tse’s response on to the finance chief, Mark Swartz, and the loans were omitted from that year’s proxy statement, Prue testified.

Swartz, 44, and the ex-chief executive, L. Dennis Kozlowski, 58, are accused of giving themselves and others $150 million in unapproved payments and of defrauding shareholders by inflating the value of Tyco stock. They are being retried in state court in New York because their first case ended in a mistrial last April.

Tse, who advised Tyco on executive compensation, said she didn’t discuss loan forgiveness with Tyco executives during the period when Kozlowski and Swartz are accused of illegally forgiving millions in company loans they owed. “Did anyone ever tell you that Mr. Kozlowski had received loan forgiveness of any kind?” Assistant Dist. Atty. Owen Heimer asked Tse, who is also a government witness. “No, they did not,” she said.

Defense lawyers objected to the introduction of Tse’s testimony about her conversations with Prue, whose testimony both helped and hurt the prosecution. State Supreme Court Justice Michael Obus permitted the testimony at the first trial and the retrial of the two men.

In September 2000, Kozlowski and Swartz awarded themselves $48 million worth of bonuses in the form of relocation loan forgiveness and payments to cover consequent tax liabilities, prosecutors said.

Prosecutors claim the two failed to obtain the necessary permission from the board to make such payments and conspired to hide the bonuses from shareholders and directors. The defendants claim the payments were authorized and that they made no attempt to hide their actions. Prue said her November conversation with Tse concerned these payments.