NEW YORK – A former member of Tyco International's (TYC) board of directors testified Thursday that the board never authorized then-chief executive L. Dennis Kozlowski (search ) to set his own pay or forgive his company loans.
Frank E. Walsh Jr., 63, added that no single board member — including chairman and CEO Kozlowski — had the power to decide alone the compensation of Kozlowski or of Chief Financial Officer Mark H. Swartz (search ).
• Click here to read the indictment against Kozlowski and Swartz
Walsh was testifying in Manhattan's State Supreme Court in the mega-larceny retrial of Kozlowski, 58, and Swartz, 44. The first trial, which lasted a half-year, ended with a mistrial in April when one juror received a menacing letter and telephone call during deliberations.
Recruited to Tyco's board by Kozlowski in 1992, Walsh was a member of the Tyco board's compensation committee, the group that fixes executive pay.
Under direct questioning by Assistant District Attorney Marc Scholl, Walsh said Thursday that neither the CEO, the CFO nor any single director could loan Tyco's money to anyone, nor could any of them alone relieve anyone of debts owed to Tyco.
Walsh's testimony relates to Kozlowski's claim that a member of the board's compensation committee, Philip Hampton, told him in July 2002 that a $25 million loan owed to Tyco by the CEO and $12.5 million owed by Swartz had been forgiven as bonuses.
Hampton, who left no record of that exchange, died of cancer later that year.
Prosecutors say that even if Hampton did tell the top two they were getting bonuses in the form of loan forgiveness, he did not have the authority to single-handedly wipe out the debts. And, they say, board chairman Kozlowski knew that.
Asked by Scholl if he had been aware of the loan forgivenesses, Walsh said he had not. He added that neither his committee nor the full board of directors had authorized the elimination of those debts.
Scholl mentioned more than $100 million in compensation to Kozlowski and Swartz that Walsh said he was unaware of.
It was Walsh's demand for and receipt of an unauthorized $20 million investment banking "fee" for helping with the merger of Tyco and CIT Group Inc. that led to the end of Kozlowski's reign in 2002 at the conglomerate.
Walsh insisted on mentioning the $20 million in the company's proxy statement — a document distributed to shareholders and federal agencies. When other board members learned about it, they were disapproving and demanded the money back. Walsh refused.
Walsh was indicted but escaped jail by pleading guilty to a felony and giving the money back.
Kozlowski and Swartz are on trial on charges of grand larceny, securities fraud, falsifying business records and related counts. The Walsh payment is one of the counts against them.
If convicted of grand larceny alone, each could face up to 25 years in prison.
Prosecutors say Kozlowski and Swartz stole $150 million outright by improperly forgiving company loans to themselves, awarding themselves unauthorized bonuses and having Tyco pay for their personal expenses.
Prosecutors say the defendants also made undetermined illegal profits by selling $575 million worth of Tyco stock whose value they had artificially inflated.
The trial resumes Monday.
Tyco International Ltd., which has more than 250,000 employees and $36 billion in annual revenue, makes a wide range of products including electronics, medical supplies and security devices. It is nominally based in Bermuda but has its operations headquarters in West Windsor, N.J.
Get all the stories you need-to-know from the most powerful name in news delivered first thing every morning to your inbox