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Tyco Ex-Executives Get Up to 25 Years in Prison

Times Staff Writer

Former Tyco International Ltd. executives L. Dennis Kozlowski and Mark Swartz were led away in handcuffs Monday after being sentenced to as many as 25 years in prison for looting $150 million from the company.

Rejecting leniency pleas, New York State Supreme Court Judge Michael Obus also ordered the two men to pay nearly $240 million in fines and restitution. The judge set a range for their sentences: from eight years and four months to 25 years. Presuming good behavior, they are likely to serve seven to eight years behind bars, legal experts said.

Given no time to even embrace their families, Kozlowski and Swartz were taken into state custody immediately: a departure from other recent high-profile white-collar crime cases, most of which have been tried in federal court.

Once tenants of swank New York apartments, the men were expected to spend the night at the temporary holding facility known as the Tombs before being transferred to New York’s Rikers Island jail and ultimately to a state penitentiary. The state’s corrections department will determine where the men will serve their time.

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“They’re going from one end of society all the way to the other,” said David Gourevitch, a New York criminal defense lawyer.

Defense attorneys said they would seek to have their clients released on bail pending appeal, but Gourevitch and other experts said New York courts often reject such requests.

Kozlowski, 58, and Swartz, 45, once were among the highest-paid and most admired businessmen in the country, turning Tyco into an industrial conglomerate by cobbling together a string of companies making diverse products such as electronic components and security systems.

Their downfall began with a 2002 probe into unpaid New York state sales taxes on artwork purchased by Kozlowski, Tyco’s former chief executive. That led to a broader investigation and criminal charges against Kozlowski and Swartz, Tyco’s former chief financial officer, for awarding themselves bonuses that were not approved by corporate directors and decreeing that they didn’t have to repay company loans. Both men resigned in 2002.

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The trial became a showcase for corporate misbehavior. Jurors heard details of Kozlowski’s lavish spending and watched a video of a $2-million birthday party Kozlowski threw for his wife on the Mediterranean isle of Sardinia. Tyco paid half the tab.

A 2004 trial ended in mistrial amid controversy over a juror’s actions during deliberations. But on June 17, a second Manhattan jury convicted each man on 22 of 23 counts of grand larceny, conspiracy, securities fraud and falsifying business records.

Both men appealed for leniency at their sentencing hearing Monday.

In brief remarks, Kozlowski asked Obus to consider “all the positive things” he had done in his life. His attorney, Stephen Kaufman, said his client was a benefactor to charities, often seeking little fanfare.

“He’s a good man, he’s a decent person, and his reputation has been tarnished, but his life should not be destroyed,” Kaufman said.

Swartz said he never thought his actions were wrong, and said he had not lied on the stand when he proclaimed his innocence.

“Every word I said was the complete and honest truth,” Swartz said.

Swartz’s lawyer, Charles Stillman, argued that his client’s actions did not involve accounting fraud and that Tyco -- with about $40 billion in annual sales -- was never endangered financially.

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“Tyco is not Enron,” Stillman said, referring to the Houston energy trader that collapsed in 2001. “The fundamentals at the company were what they should be.”

Assistant Dist. Atty. Owen Heimer countered by saying that the staff of the Securities and Exchange Commission had recommended bringing an accounting-fraud case against the company over its actions while Kozlowski and Swartz were at the helm.

Heimer also said Kozlowski had engaged in a fraud of an “unprecedented, staggering scale” to bankroll a “shocking spree of self-indulgence.”

In addition to the prison terms, Obus ordered Kozlowski to pay a $70-million fine and to make restitution to Tyco of more than $97 million. He ordered Swartz to pay back $37 million and to pay a fine of $35 million.

Kozlowski’s wife and two daughters wept quietly as he was led away in handcuffs from the courtroom. He did not look back.

Swartz stopped briefly and flashed a smile at his wife as he was taken from the courtroom.

The wide range of the prison terms ordered is fairly typical for New York state courts, said Ronald Blum, a partner at Manatt Phelps & Phillips who teaches about white-collar crime at Fordham University’s law school. The range gives prisoners an incentive to behave and gives parole boards the opportunity to give those inmates who show signs of reform a chance at early release.

New York state prisons have few white-collar felons and are considered a far grimmer place to do time than their federal counterparts. Martha Stewart, for example, gathered wild onions and participated in a Christmas decorating contest during her recent stay at a federal prison camp.

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“This is not a Martha Stewart type of sentence,” Blum said.

Associated Press was used in compiling this report.

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(BEGIN TEXT OF INFOBOX)

White-collar crime and punishment

The sentences meted out Monday to two former Tyco executives are the latest among a series of high-profile cases.

* August 2005: E. Kirk Shelton, former Cendant Corp. vice chairman, is sentenced to 10 years in prison for his role in a $500-million accounting fraud in the late 1990s. He remains free during appeal.

* July 2005: Bernard J. Ebbers, former head of WorldCom Inc., is sentenced to 25 years for spearheading the largest accounting fraud in U.S. history. He is free during appeal.

* June 2005: Adelphia Communications Corp. founder John Rigas and his son Timothy are sentenced to 15 years and 20 years, respectively, for looting the cable company and lying about its finances. They are free while their case is on appeal.

* September 2004: Frank Quattrone, former Credit Suisse First Boston investment banker, is sentenced to 18 months for obstruction of justice. He is free while the sentence is appealed.

* July 2004: Martha Stewart, the founder of Martha Stewart Living Omnimedia Inc., is sentenced to five months in prison and five months of house arrest after she was convicted of obstruction of justice. She completed her sentence Aug. 31.

* March 2004: Jamie Olis, former Dynegy Inc. vice president of finance, is sentenced to 24 years for his role in falsifying financial statements. He is now in federal prison in Oakdale, La.

* January 2004: Andrew S. Fastow, Enron Corp.'s former chief financial officer, accepts a plea deal in which he is sentenced to 10 years for his role in the company’s 2001 collapse. He is expected to begin serving next year after testifying in other trials. His wife, Lea, served one year in prison and was released July 8.

* June 2003: Samuel D. Waksal, founder of drug maker ImClone Systems Inc., is sentenced to more than seven years and fined $4.3 million for insider trading. He is in federal prison in Otisville, N.Y.Compiled by Times research librarian Scott Wilson

Los Angeles Times


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