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Tyco International Limited

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  1. Tyco International Limited Matt Spanovich Angela Stern Andy Thusius

  2. Background • Founded in 1960 by Arthur J. Rosenburg • Started doing experimental work for the Government • 1962 focus turned to high-tech materials, science, and energy conversion products for the commercial sector. • 1964 company goes public

  3. More Background • Over the next 40 years grew through acquisitions and diversified their products • Products: • Medical equipment • Electronics • Fire products, including Simplex fire alarms used at WLC • Industrial products

  4. Before the Scandal • Very safe company to invest in • 2001: 240,000 employees worldwide • 2001: $38 billion in revenues • Stock, January 2001: $246.40 (all-time high) • CEO Dennis Kozlowski • CFO Mark Swartz

  5. Discovery of a Scandal • January 2002 • Questionable accounting practices come to light • Kozlowski had improperly borrowed $61,760,628 in non-qualifying relocation loans to purchases homes in Florida & NYC from 1997-2000 • Swartz borrowed $33,097,925

  6. Scandal • January 2002 Tyco shares drop sharply • Tyco’s share price plummeted nearly 80% in a six week period [$235.60 to $51.20] • June 3, 2002 Kozlowski resigns unexpectedly with rumors of tax evasion for state sales tax laws • June 4 Kozlowski indicted • September 12, 2002 Tyco filed civil complaint against Dennis Kozlowski & Mark Swartz for breach of fiduciary duty

  7. Compensation Chart

  8. Misappropriation • Kozlowski authorized a special bonus 9/00 • Total gross up wages to executives & managers = $95,962,653 • Kozlowski=$32,976,067 • Swartz=$16,610,687 • The ADT Automotive Bonus 11/13/00 • 16 Executive total=$50,792,679 • Kozlowski=$25,556,610 • Swartz=$12,844,632

  9. Tyco’s Response • “Amounts and benefits received were obtained without authorization from our board or compensation committee.” • Tyco sought disgorgement for all amounts paid to or received by Kozlowski and Swartz from 1997-2002 • Tyco sought compensatory, consequential, special, and punitive damages

  10. The First Trial • October 7, 2003: Opening statements of the first trial • Prosecutors showed evidence of lavish parties thrown by Kozlowski that were paid for by Tyco • Defense argued that the funds were authorized by the board of directors as compensation

  11. The Mistrial • April 2, 2004: Judge Michael Obus declares a mistrial after possible juror fraud by Ruth Jordan

  12. The Second Trial • January 26, 2005: Second trial opens, while the prosecutors focus on the money Kozlowski and Swartz allegedly stole • April 27, 2005: Kozlowski takes the stand, unapologetically testifying that the money was compensation

  13. The Verdict • June 17, 2005: Kozlowski and Swartz were found guilty of 22 counts of grand larceny, falsifying business records, securities fraud, and conspiracy • Kozlowski and Swartz were sentenced between 8-25 years in prison and were ordered to pay $134 million in restitution, along with fines of $70 million and $35 million, respectively

  14. Class Action • May 2007: NH Federal District Court judge approved a class action suit • Tyco agreed to pay $2.92 billion • PricewaterhouseCoopers, Tyco’s auditor, agreed to pay $225 million

  15. Aftermath and Tyco Today

  16. Aftermath & Tyco Today • In 2007, Tyco split into 3 separate, publicly traded companies • The new Tyco is composed of 5 business segments • Tyco has worked to expand through acquisitions since the scandal • Today, Tyco is trading around $54.60

  17. Sources • Tyco.com • American-Business.org • Yahoo! Finance • USA Today • SEC EDGAR