Fraud-Free Finding Lifts Tyco

All the same, the report failed to clear Tyco entirely. Indeed, it listed troubling examples of aggressive -- and potentially abusive -- accounting tricks that could have misled investors in the past. The report specifically cited four episodes:

• In a 1999 presentation entitled "Acquisition Balance Sheet Opportunities," a controller from Tyco's Fire & Safety division urged employees to, among other things: "be aggressive in determining exposures; determine reserves with worst-case scenario; have a strong story to tell regarding each reserve; book the reserves on the acquired company's financial system ... [and] keep the reserve descriptions within the accounting rules, but stretch the expenditures that go in."

• A similar presentation about Tyco's 1998 merger with U.S. Surgical said Tyco should recognize $72 million from "financial engineering" in 1999 and $52 million in each of the following two years.

• Another memo issued later that year outlined how U.S. Surgical could hit first-year earnings goals through, among other things, $64.6 million in financing engineering and over-accruing expenses before closing the deal.

• A 1996 document related to an acquisition by Tyco's plastics unit spells out a similar strategy. It states: "We'll book additional 'financial engineering' reserves in July with the objective of having a break-even month. This way we won't raise any flags with the lender reporting."

Still, the report stopped well short of declaring such accounting tricks fraudulent. It instead maintained that only former Tyco executives -- already exposed in an earlier report -- are guilty of such wrongdoing.

"In none of the instances of questionable accounting examined, except for the matters discussed in the September 2002 report [alleging looting by Kozlowski and others], was there credible evidence of intentional fraud," the report concluded.

Pinning the Tail

The report did, however, expand on the former abuses allegedly carried out by Kozlowski and other Tyco employees. For example, it criticizes Kozlowski for spending $110,000 for a 13-day stay in a London hotel (that comes out to $8,461 a night -- or nearly enough to buy 19 $445 pincushions, like the one revealed in the earlier Boies report). It also shows that other Tyco employees, besides top executives, abused the company's lax internal loan policies. In addition, it questions the generosity of some of Tyco's bonuses and other perks.

"There were ... undocumented bonuses totaling about $6.7 million, and one instance where a unit vice president approved a bonus for the unit's president," the report states. And "three employees who had company cars also received car allowances."

Boies' report, while extensive, does not conclude the investigation of Tyco's finances. The SEC is also probing the company. In doing so, the agency is scrutinizing -- for the first time -- some requested documents it never received during a previous examination of the company.

"A large quantity of documents collected by Tyco and its counsel in connection with the SEC's document request had not been produced to the SEC at the time the SEC closed its inquiry in July 2000," the Boies report states. "These documents were produced to the SEC staff on Dec. 20, 2002."