Ex-chiefs at Tyco get 8-25 years

Kozlowski, Swartz ordered to pay millions in fines, restitution

September 20, 2005|By Leon Lazaroff

NEW YORK — Former Tyco International chief executive L. Dennis Kozlowski stared ahead and sat motionless yesterday when a New York judge sentenced him to eight to 25 years in prison for siphoning hundreds of millions from the company.

The same was true for his co-defendant Mark Swartz, the company's one-time financial chief.

It was a departure from the emotional display at the recent sentencing of Bernard L. Ebbers, the former WorldCom CEO convicted for his part in an $11 billion accounting fraud who buried his head in his hands to hide his tears. Kozlowski, who was convicted in June for his role in the theft of $170 million from Tyco and improperly manipulating shares to cash out $430 million in options, appeared to have expected a sentence in line with the recent spate of corporate executive convictions.

Two months ago, a federal court sentenced Ebbers to 25 years in prison. Earlier in the year, John J. Rigas, the 80-year-old former chairman of Adelphia Communications, was sentenced to 15 years and his son, Timothy, was given 20 years.

Handing down the sentence in a packed courtroom yesterday, Judge Michael J. Obus of the State Supreme Court in New York said: "The crimes at issue here were violations of the defendants' positions of trust and their fiduciary duty on a grand scale. They caused damage to Tyco and to others, including the shareholders who are Tyco's owners and who, like the investing public, generally should be able to rely on the integrity of the management of publicly traded companies."

Minutes after yesterday's sentences were read, court officers handcuffed Kozlowski, 58, and Swartz, 45, and escorted them through a side door. The two gray-suited men appeared resigned to their fates as they looked back wearily in the direction of their wives and families.

Swartz wistfully winked at his wife and parents. Kozlowski's wife, wearing sunglasses, wiped away tears that had run down her face as his two daughters, also crying, consoled each other.

In addition to his jail sentence, Kozlowski was ordered to pay $97 million in restitution and $70 million in fines. Swartz was ordered to pay $37 million in restitution and $35 million in fines.

Lawyers for Kozlowski and Swartz said they planned to seek bail pending appeal from an appellate court today or tomorrow. The two men were to spend last night in the Manhattan Detention Complex near the courthouse. If their lawyers are unsuccessful, the two men will be transferred to Rikers Island by the end of the week to be processed and will likely serve their time in a maximum-security state prison such as Attica.

The state Bureau of Prisons will determine where they serve their time. Other former executives recently convicted in federal courts - including Ebbers - remain free pending their appeals.

"For white-collar criminals, it's a whole new world," said Arthur Jakoby, a former SEC prosecutor now a partner with Herrick, Feinstein in New York. "The sentences are getting tougher and tougher. The old clubby atmosphere in which judges looked the other way when sentencing corporate executives is long gone."

Kozlowski and Swartz were convicted of grand larceny, securities fraud, conspiracy and falsifying documents. Together, they stole $170 million by arranging unauthorized bonuses and company loans. They were also convicted of lying about Tyco's financial health to investors in order to pump up its share price and cash in on $430 million in stock options.

For Kozlowski, the working-class kid from Newark, N.J., who built Tyco into a $36 billion industrial giant, the sentencing marked an end to two lengthy, high-profile trials. The first ended in April 2004 in a mistrial.

Kozlowski's looting of Tyco's treasury was best symbolized by the extravagant party he held to celebrate his wife's 40th birthday party on the Italian island of Sardinia. The $2 million party, some of which was recorded on a well-publicized video, showed waiters in togas filling glasses with vodka that poured off an ice sculpture in the form of Michelangelo's David.

But the focus of the government's case centered on how Kozlowski used his position to bilk Tyco so that he could build multimillion-dollar homes for himself in New York City, Boca Raton, Fla., and Nantucket, Mass. Some $10 million was used to purchase Monet and Renoir paintings while millions more was funneled to his alma mater and schools attended by his daughters.

Kozlowski and Swartz asserted that board directors approved their multimillion-dollar bonuses and loans, most of which were later forgiven.

Earlier yesterday, Assistant District Attorney Owen Heimer asked Obus to hand Kozlowski the maximum sentence for his crimes - 15 to 30 years in prison.

"If the maximum consecutive sentence is not appropriate in this case, then there is no case in which it is appropriate," Heimer said. "The scale and amount of theft is the largest in the state's history."

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