Federal class action suit against Tyco dismissed

Judge said claims fell `well short' of securities fraud

February 26, 2002|By BLOOMBERG NEWS

EXETER, N.H. - A U.S. judge dismissed Friday a class action lawsuit against Tyco International Ltd. that originated in 1999 amid accounting fraud allegations and a Securities and Exchange Commission inquiry into how the company reported acquisition costs.

Paul Barbadoro, chief judge of the U.S. District Court in Concord, N.H., said the allegations were "untimely," unreasonable, lacked specifics and fell "well short of stating a viable securities fraud claim."

A new round of lawsuits has been filed since Chief Executive Officer L. Dennis Kozlowski said last month that the company would split into four and sell its plastics unit, cutting Tyco's stock price by more than half.

Tyco has repeatedly denied accusations first made by Dallas money manager David W. Tice in 1999 that Tyco set up reserves when it made acquisitions and used them to boost earnings later.

"This is a positive signal," said John P. Waterman, who helps oversee $18 billion at Rittenhouse Financial Services Inc., which held 826,000 shares in December. "If those lawsuits don't have merit, it's likely the current lawsuits have even less merit."

Shares of Tyco rose $2 yesterday, or more than 7 percent, to close at $29.50. They have dropped 45 percent in the past year.

In December 1999, Tyco said the SEC was conducting an inquiry into its accounting practices for acquisitions, and shareholders began filing suit. The SEC ended its informal investigation in July 2000, recommending no action.

The dismissed lawsuit consolidated 38 class action cases and covered alleged actions that occurred from Oct. 1, 1998, through Dec. 8, 1999, including the acquisitions of AMP Inc. and U.S. Surgical Corp., according to the decision.

"The dismissal of these lawsuits should help allay concerns that have been raised about Tyco's accounting practices," Kozlowski said in a statement. "We remain focused on the key task of unlocking shareholder value."

Tyco, which has made more than $64 billion in acquisitions since 1993, recently began holding weekly conference calls and is disclosing more information about purchases in regulatory filings. The company's next conference call is scheduled for tomorrow at noon.

Tice, who manages the Prudent Bear Fund, shorted Tyco after he published allegations of accounting manipulation in a newsletter he runs. Short sellers borrow stock and sell it, hoping to buy the shares back at a lower price, return them to the lender and keep the difference.

Tyco is based in Hamilton, Bermuda, and operated from Exeter, N.H.

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