Prosecutor Recounts Payments Made to Former Tyco Executives

Former Tyco International Ltd. Chief Executive L. Dennis Kozlowski and finance chief Mark Swartz treated the company as “a thing that existed to serve them,” a prosecutor told jurors Wednesday.

The two executives took bonuses worth more than $120 million and abused company loan programs, Assistant Manhattan Dist. Atty. Owen Heimer told the jury in closing arguments at the fraud trial of Kozlowski and Swartz in New York state court.

Tyco was “a thing from which they took interest-free loans to buy multimillion-dollar homes for themselves,” Heimer told the jury of six men and six women. “Tyco was the thing that produced huge unauthorized payments for them.”

The arguments were designed to counter the defendants’ testimony that they made no secret of their bonuses or loans and thus did nothing wrong. Heimer said the two relied on underlings to make sure the board’s compensation committee never learned about the transactions.

Kozlowski, 58, and Swartz, 44, are accused of taking bonuses without the approval of Tyco’s directors. The two are also charged with abusing company loan programs and misrepresenting Tyco’s financial condition to investors while selling more than $575 million in its shares and options.

Swartz and Kozlowski face 31 charges of stock fraud, falsifying business records, grand larceny and conspiracy. The most serious charge carries a 25-year prison term.

Heimer recounted for the jury evidence that Patricia Prue, Tyco’s former head of human resources, asked an assistant to delete references to one of the disputed bonuses from documents to be presented to the compensation committee.

The assistant, Donna Sharpless, testified that Prue said “Mark Swartz had asked to take them out.” Heimer told the jury Wednesday that Prue ordered their removal “because she is protecting the defendants, because the defendants are making her rich.”

Prue earned more than $6 million in one year at Tyco and received free homes in New York and Florida from Kozlowski and Swartz.

The trial, which began Jan. 18, included a 13-week prosecution case with 24 witnesses and thousands of documents presented as evidence. The defendants are being tried for the second time. The first case ended in a mistrial in April 2004.

The prosecutors sought to establish that Swartz and Kozlowski used company loans to live extravagantly and didn’t disclose their debt, or debt forgiveness, in company filings. The two allegedly paid themselves and others $150 million, much of it in the form of company loan forgiveness, without getting authorization from the Tyco board’s compensation committee.

The defense began its case April 27, and Kozlowski spent four days testifying on his own behalf. Swartz testified for eight days in May. There were no other defense witnesses.

The defendants didn’t deny using company relocation and tax loans for real estate and personal spending. They said the disputed bonuses and other payments were known to some directors and were authorized under Tyco compensation formulas.

Kozlowski and Swartz testified that they made no attempt to hide their actions from auditors or the board and made all necessary representations to investors.

Tyco’s auditors at PricewaterhouseCoopers and the board’s audit committee had access to all records of the disputed bonuses, the defendants claimed.

Heimer attacked this contention, telling the jury that auditors couldn’t review all of the “tens of millions” of transactions on Tyco’s books in any given year.