TYCO INTERNATIONA L

SCANDAL

Company Profile

Founded in 1960 by Arthur J. Rosenburg In 1964 it became a publicly owned company In 1974 its stock was listed on the NYSE Between 1982 and 2000 it undertook several subdivisions Operates in 100 countries with operating revenues of 38 Billion Dollars

Company Profile

It participates in several different industries:

Electronics Fire & Security Healthcare Plastics & Adhesives Engineered Products & Services

It employs over 267,000 people Its services and products are provided worldwide

Parties Involve

Dennis Kozlowski

Graduate of Seton Hall University Began work at Tyco in 1976 Worked his way up through the company, becoming CEO in 1992 Was key in an $850 million dollar purchase of an under seas fiber-optic cable business from AT&T On June 3, 2002 he resigned for personal reasons On September 12, 2002 he was formally indicted on several charges On October 7, 2003 he went to trial

Mark Swartz

Previously worked for Deloitte & Touche Started working at Tyco in 1991 In 1995 he became the CFO He was nominated for a CFO Excellence Award in 2000 September 12, 2002 he was formally charged and pleaded innocent October 7, 2003 he went to trial February 10, 2004 he testified on his behalf

Problem

Tyco's former CEO Dennis Koslowski, former CFO Mark Swartz, were accused of giving themselves interest-free or interest loans (sometimes disguised as bonuses) that were never approved by the Tyco board or repaid. Some of these "loans" were part of a "Key Employee Loan" program the company offered. They were also accused of selling their company stock without telling investors, which is a requirement under SEC rules. Koslowski and Swartz stole $600 million dollars from Tyco International through their unapproved bonuses, loans, and extravagant "company" spending.

The Fraud Includes:

Undisclosed compensation Secret loans Undisclosed related-party transactions Fraudulent stock trading

Where the Money Went

Over 600 million was stolen from Tyco 9 million dollar home in Boca Raton, Fl and Park Avenue apartment in Manhattan for Kozlowski Bonuses of 56 million and 28 million to Kozlowski and Swartz respectively 15,000 dollar umbrella stand, 6,300 sewing basket, coat hangers for 2,900, and a 1,650 dollar appointment book A variety of expensive paintings

Discovery of Fraud

In 1999 the SEC began an investigation after an analyst reported questionable accounting practices. This investigation took place from 1999 to 2000

The Charges

They were charged with civil fraud and theft Other charges against Kozlowski and Swartz included corruption, conspiracy, grand larceny, and falsifying records The maximum sentence for the two would be 30 years each.

Implications

The company re-structured their management, firing a total of 9 executives on their board Most notably, Edward Breen was hired as the new CEO and David FitzPatrick was hired as the new CFO On May 6, 2003 a new ethical guide was distributed to all employees

Possible Precautions

Companies could more closely monitor their employees for unethical conduct The government could monitor accounting practices of companies more closely Any executives of companies who exhibit suspicious behavior should be closely watched

Thank you !