Updated from 3:07 p.m.
A New York state jury convicted ex-
chief Dennis Kozlowski and former finance chief Mark Swartz of looting the conglomerate of hundreds of millions of dollars.
Both were convicted on multiple counts, including grand larceny, which carries a sentence of up to 25 years in jail. The guilty verdict came in the former executives' second trial, after last year's mistrial.
Kozlowski and Swartz were tried in state Supreme Court in Lower Manhattan on charges also including securities fraud, conspiracy and falsifying records. Both were convicted on 22 of 23 counts. Their lawyers promised to appeal.
The convictions are a victory for Manhattan District Attorney Robert Morgenthau, the longtime New York prosecutor, who is facing a tough primary challenge for the first time in many years. The earlier trial of Kozlowski and Swartz ended in a mistrial, largely because one juror refused to convict the defendants.
The convictions also come as anger about corporate corruption is beginning to wane, at least in some quarters.
In recent weeks, the Supreme Court overturned the obstruction of justice conviction of onetime accounting giant Arthur Andersen, in a case stemming from the collapse of Enron. Last week a New York jury, sitting in a courtroom right across the hall from the Tyco jury, acquitted former Bank of America broker Theodore Sihpol for alleged violations in the mutual fund trading scandal.
On the other hand, Kozlowski's conviction comes just three months after the government won another high-profile corporate corruption conviction, sending ex-
chief Bernie Ebbers away on fraud charges. The jury in the fraud trial of ex-
chief Richard Scrushy is in its 16th day of deliberations.
Ron Geffner, an attorney with Sadis & Goldberg and a former
Securities and Exchange Commission
lawyer, says he's surprised the Kozlowski jury took 11 days to render a verdict, given that the prosecution's case took nearly three months to present.
"I would have anticipated the evidence would have been so damning and clearly laid out that the jurors would have been compelled to a rush to judgment," Geffner says. "But getting 12 people to agree ... is more difficult than you would expect."
The Kozlowski case grabbed headlines in 2002 when the CEO stepped down from Tyco amid allegations he dodged taxes on artworks by shipping the paintings to an out-of-state address.
The government later alleged that Kozlowski and Swartz enjoyed low-interest and no-interest loans from Tyco that were never authorized by the company or disclosed to shareholders. Kozlowski alone reportedly received some $135 million in interest-free or flat-out forgiven loans and other payments over five years, including a $19 million gift to help him buy a Florida estate.
After Kozlowski's 2002 departure from Tyco, the company
published an audit listing a $445 pincushion, a $6,000 shower curtain and a $15,000 dog umbrella stand among the "appointments and furnishings lacking any legitimate business justification" that Kozlowski used to decorate his company-financed New York apartment.
Tyco said in September 2002 that Kozlowski
misused an interest-free corporate relocation loan account to the tune of $62 million, while Swartz took $31 million from that account. Tyco said at the time that Kozlowski also caused Tyco to pay a special, unapproved bonus to 51 employees who had relocation loans with the company.
"This pattern of improper and illegal activity occurred for at least five years prior to June 3, 2002," when Kozlowski resigned after he was indicted on tax-evasion charges, Tyco said later that year. "The amount of money improperly diverted by Tyco's former senior executives from the Company to themselves is very small in comparison with Tyco's total revenues and profits, but it is very large by any other relevant comparison."
Just last month, Tyco
set a $50 million reserve for settling the Securities and Exchange Commission's ongoing probe of the company's business and accounting practices dating back to previous management. Tyco said at the time it was in active talks with the SEC's enforcement division about settling that inquiry, which reportedly stemmed at least in part from concern on how the company was accounting for its many acquisitions under the Kozlowski regime.