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Tyco Scandal of 2002

The Tyco scandal of 2002 involved the theft of $600 million from Tyco International by its former CEO Dennis Kozlowski, CFO Mark Swartz, and General Counsel Mark Belnick. They gave themselves unauthorized loans and bonuses and failed to disclose stock sales. They spent company funds lavishly including on a $2 million birthday party. Tyco later discovered $1.3 billion in accounting irregularities and took charges totaling this amount. Kozlowski, Swartz, and Belnick were criminally charged for their actions.

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Cheezalyn Cuevas Styles
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2K views2 pages

Tyco Scandal of 2002

The Tyco scandal of 2002 involved the theft of $600 million from Tyco International by its former CEO Dennis Kozlowski, CFO Mark Swartz, and General Counsel Mark Belnick. They gave themselves unauthorized loans and bonuses and failed to disclose stock sales. They spent company funds lavishly including on a $2 million birthday party. Tyco later discovered $1.3 billion in accounting irregularities and took charges totaling this amount. Kozlowski, Swartz, and Belnick were criminally charged for their actions.

Uploaded by

Cheezalyn Cuevas Styles
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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TYCO SCANDAL OF 2002

A. Company Profile, Total Assets and Revenues, Organization and Operation

Company Profile

 Founded by Arthur Rosenberg in 1960 and incorporated in 1962


 Products: Security Solutions and Fire Protections
 Head quarter so Incorporation: Cork, Ireland o Operational/Corporate: Princeton, New Jersey,
United States
 Key People: George R. Oliver (CEO), Edward Breen (Chairman)
 A subsidiary of Johnsons Control (as of 2016)

Net Revenues per year

Year Revenue (in US Billion)


1997 $6.6
1998 $19.1
1999 $22.5
2000 $28.9
2001 $34
2002 $35.6
2003 $36.8
2004 $38
2005 $39.3
2006 $41
2007 $18.5
2008 $20.2
2009 $17.2
2010 $17
2011 $17.3
2016* $30

The company has a Total Assets 11,614 Million dollars as of 2016.

Organization

Tyco International PLC was a security Systems Company incorporated in the Republic of Ireland, with
operational headquarters in Princeton, New Jersey, United States (Tyco International (US) Inc.). Tyco
International is composed of two major business segments: Security Solutions and Fire Protection.

Operation

Tyco provides more than three million customers around the globe with the latest fire protection and
security products and services. Tyco has over 57,000employees in more than 900 locations across 50
countries serving various end markets, including commercial, institutional, governmental, retail,
industrial, energy, residential and small business.
B. How the scandal happened

According to the Tyco Fraud Information Center, an internal investigation concluded that there
were accounting errors, but that there was no systematic fraud problem at Tyco. So, what did happen?
Tyco's former CEO Dennis Koslowski, former CFO Mark Swartz, and former General Counsel Mark
Belnick were accused of giving themselves interest-free or very low interest loans (sometimes disguised
as bonuses) that were never approved by the Tyco board or repaid. Some of these "loans" were part of a
"Key Employee Loan" program the company offered. They were also accused of selling their company
stock without telling investors, which is a requirement under SEC rules. Koslowski, Swartz, and Belnick
stole $600 million dollars from Tyco International through their unapproved bonuses, loans, and
extravagant "company" spending. Rumors of a $6,000 shower curtain, $2,000 trash can, and a $2 million
dollar birthday party for Koslowski's wife in Italy are just a few examples of the misuse of company
funds. As many as 40 Tyco executives took loans that were later "forgiven" as part of Tyco's loan-
forgiveness program, although it was said that many did not know they were doing anything wrong.
Hush money was also paid to those the company feared would "rat out" Kozlowski. Essentially, they
concealed their illegal actions by keeping them out of the accounting books and away from the eyes of
shareholders and board members.

C. Amount of money involved

Tyco International Ltd. said today that it has discovered about $1.3 billion in new accounting
problems, resulting in a quarterly loss of $467.9 million.

The beleaguered conglomerate said its internal audits uncovered $997.4 million in accounting
irregularities in its fiscal second quarter, which ended March 31. That figure includes $265 million to
$325 million in charges that were announced in March.

Tyco also took a charge of $364.5 million to reflect tougher accounting standards that it has adopted
since last year's financial scandal and the criminal fraud charges filed against former chief executive L.
Dennis Kozlowski.

In addition, the company announced changes that will largely affect previous quarters. It said more
conservative accounting standards will result in a charge of $206.7 million as of Oct. 1, 2002, and force a
$7 million pretax charge in its second quarter.

D. People who were involved and what happened to them

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