NEW YORK – Prosecutors Wednesday peppered Mark H. Swartz (search), Tyco International Ltd.'s (TYC) former chief financial officer, with questions about his use of internal loan programs as they began cross-examining him.
In their initial questioning, prosecutors focused on Swartz's understanding of the proper usage of the conglomerate's so-called Key Employee Loan Program (search) and its relocation programs.
The government has claimed that Swartz and L. Dennis Kozlowski (search), Tyco's former chief executive, misused the relocation program to buy second homes and improperly used the KELP as a personal line of credit, rather than for its original purpose of loaning money to executives to cover taxes on the vesting of shares.
"(An executive) could borrow that money for any purpose he wished?" Assistant District Attorney Owen Heimer asked, regarding KELP.
"That's correct," Swartz said.
After Swartz said the money could be used for car or jewelry purchases or to pay school tuition, Heimer asked: "There was no restriction?"
"That's correct," Swartz said.
Swartz, 44 years old, and Kozlowski, 58, are on trial in New York State Supreme Court, facing charges of grand larceny, securities fraud and other crimes in connection with giant bonuses and other compensation they received while working as Tyco's top executives.
They each face up to 25 years in prison on the most serious charge of grand larceny. They have denied wrongdoing. Their first trial ended in a mistrial last year.
On Wednesday, Swartz, who testified for nine days in the prior trial, said the relocation program adopted by Tyco in 1995 allowed for the purchase of more than one residence by executives. The company at one point was considering moving its corporate offices to New York City from New Hampshire, but fewer than 10 employees moved.
He conceded that slides that went with a presentation made to directors prior to the adoption of the program didn't have any reference to the ability of executives to purchase two homes, but said Kozlowski discussed at that meeting that he intended to use loans up to a cap established for the program to purchase more than one residence.
In his fifth day on the stand Wednesday, Swartz also said he used loans under that program to buy property in New York City and in New Hampshire, but never truly relocated to New York. Swartz said he worked out of both the New York and New Hampshire offices, staying at the residences he purchased when he was there.
Lawyers for Swartz and Kozlowski asked for a mistrial after Wednesday's morning session, saying prosecutors may have prejudiced the jury by asking Swartz questions about Enron Corp. (search)
Heimer, the prosecutor, asked Swartz about whether Enron had auditors and whether Enron, as a public company, was required to file audited financial statements with the U.S. Securities and Exchange Commission.
New York State Supreme Court Justice Michael J. Obus, who is presiding, said he would consider the request for a mistrial.
Tyco has its formal headquarters in Bermuda, but operates out of West Windsor, N.J.