Kozlowski: I Didn't Abuse Tyco Loans

Former Tyco International Ltd. (TYC) chief L. Dennis Kozlowski (search) took the witness stand Wednesday and denied he ever abused company loan programs or received a bonus to which he was not entitled.

Click here to read the indictment against Kozlowski and Swartz

Still, asked by his lead lawyer why a $25 million bonus from the company did not appear on his 1999 tax return, Kozlowski said he could not explain why.

"I just was not thinking when I signed my tax return that I had a $25 million loan forgiveness," Kozlowski said. "Year in and year out at Tyco, my tax returns for the most part had been correct. I didn't pick up on it."

The $25 million forgiveness of loans from the company had come as part of $62 million in bonuses Kozlowski received at the time. Prosecutors say it should have been reported as income.

Kozlowski, 58, was the first defense witness in the trial of him and former Chief Financial Officer Mark H. Swartz (search), 44. The two are accused of looting the conglomerate of $600 million.

They are accused of stealing $170 million from Tyco by hiding unauthorized pay and bonuses and by abusing company loan programs and making $430 million by inflating the value of Tyco stock by lying about the company's finances.

The defendants are being retried in Manhattan's state Supreme Court on charges of grand larceny, falsifying business records and violating state business laws. Their first trial ended in a mistrial in April 2004 after a juror received menacing messages during deliberations as a result of her name being published.

The press customarily does not name jurors during a trial.

Kozlowski, whose appearance as a witness was something of a surprise, began by answering a series of questions posed by his lawyer, Stephen Kaufman. Had he ever taken a bonus to which he was not entitled? Did he abuse Tyco's loan and relocation programs?

Kozlowski replied "no" to each question.

Kozlowski later testified that he thought a $20 million fee he paid Tyco board member Frank Walsh for arranging the acquisition of commercial lender CIT Inc. had been proper.

When another board member suggested Walsh should give the fee back because of enhanced corporate scrutiny following the fall of Enron Corp. (search) , Kozlowski said he defended the deal.

"I said if they thought I did something wrong I was willing to step down as CEO of Tyco," Kozlowski said.

He said none of the directors objected. Walsh later quit the Tyco board rather than give the fee back.

Kaufman asked Kozlowski: "Did you believe the payment of the fee to Frank Walsh required the authorization of the board of directors?"

"No, I did not," Kozlowski replied.

"Did you intend to steal the money?" the lawyer asked.

"Absolutely not," Kozlowski said.

Swartz was the only defense witness in the first trial. On the witness stand for nine days, he explained in detail Tyco's compensation plans, his and Kozlowski's relations with the board of directors and actions that prosecutors said were illegal.

On Tuesday, after the prosecution rested, defense lawyers suggested that Kozlowski could testify, but they insisted no decision had been made.

Tyco, which has about 250,000 employees and $36 billion in annual revenue, makes electronics and medical supplies and owns the ADT home security (search) business. Nominally based in Bermuda, its operations headquarters are in West Windsor, N.J.