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Tyco International Limited

Tyco International Limited. Matt Spanovich Angela Stern Andy Thusius. 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.

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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

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