September 30^th 2002 – News Flash

Dennis Kozlowski, the former chairman and chief executive of Tyco International, “spent Saturday at a lavish wedding party for his daughter on Nantucket, where he owns a beachfront estate. Today, Mr. Kozlowski, will spend the day sitting in courtroom No. 1324 at State Supreme Court in Manhattan, accused of looting the company and investors of $600 million… While running the company, Mr. Kozlowski liked to depict himself as a hard-nose businessman. But another side emerged after he was fired, including his champagne taste - among other things, he decorated his New York apartment with a $6,000 shower curtain and a $17,000 umbrella stand, apparently all paid for by Tyco - and his largess, at least toward his own family. And of course, there was a now-infamous multimillion-dollar birthday party that Mr. Kozlowski gave for his second wife - again on Tyco's bill - on the island of Sardinia, featuring waiters in togas and an ice sculpture of Michelangelo's "David," from which Stolichnaya vodka flowed into crystal glasses. The prosecutors have indicated that they intend to make much of those extravagances, painting Mr. Kozlowski as the Ivan F. Boesky of his day. They are sure to play the videotape of his wife's birthday party and to show slides of his many expensive homes to a jury that can hardly be expected to consist of his financial peers. A mention of the party for Mr. Kozlowski's daughter this weekend might just slip through prosecutors' lips, as well. Mr. Kozlowski is the first big-name executive from the financial scandals in recent years that have devastated companies like Enron and Adelphia to face his accusers in open court. The trial, which could last more than three months, is being watched as an indicator of how state and federal prosecutors might pursue scores of other executives accused of corporate malfeasance. "This is the big test; this is the first corporate greed case," said John J. Fahy, a former federal and New Jersey prosecutor. "They can't afford to lose. If they don't win here, they will be much more reluctant to go after more." By coincidence, two blocks away in Federal District Court, another trial of a market-bubble figure is scheduled to begin: Frank P. Quattrone, a star Silicon Valley investment banker charged with obstructing justice during an investigation into how his firm allocated highflying stock offerings. The case against Mr. Quattrone, who helped take companies public during the boom, hinges on whether an e-mail message he endorsed, directing department members at Credit Suisse First Boston to clean up their files, constituted an effort to obstruct a government investigation. But other prominent executives enmeshed in scandals, like Kenneth L. Lay of Enron and Richard M. Scrushy of HealthSouth, may never have to appear in court because of the complexity of the suspected frauds and the difficulty in prosecuting white-collar crimes.

The accusations against Mr. Kozlowski, on the other hand, are relatively straightforward: he and a co-defendant, Mark H. Swartz, Tyco's former chief financial officer, are accused of reaching into the corporate cookie jar to pay for everything from Mr. Kozlowski's apartment on Park Avenue and homes in Boca Raton, Fla., to jewelry from Harry Winston and Tiffany. In particular, they are charged with stealing $170 million from the company itself and reaping $430 million more by covertly selling shares of Tyco while "artificially inflating" the value of the stock, according to the indictment. They are also accused of "enterprise corruption," a charge often used in organized-crime prosecutions. If convicted, Mr. Kozlowski and Mr. Swartz could each face up to 25 years in prison. Mr. Kozlowski joined Tyco in 1975 when it was a New Hampshire-based manufacturer and took the reins in 1992. In the decade he ran it, Tyco, through thousands of acquisitions, was transformed into a Bermuda-based conglomerate that owned dozens of companies making products ranging from surgical instruments to security systems. Its stock price rose 15-fold from 1992 to 1999. But it crashed when the charges against Mr. Kozlowski surfaced, exposing both a "pattern of using aggressive accounting" that inflated its earnings for years, according to the an internal Tyco investigation, and his own high living on the company's wealth. "This is not Les Misérables," Stanley S. Arkin, a prominent defense lawyer not involved in the case, said of the magnitude of the charges against Mr. Kozlowski and Mr. Swartz. "The question is whether a jury can get beyond the honey pot."