Tyco Scandal: Unethical Practices Unveiled

Case study 4: Tyco: I'm sure it's a Really Nice Shower Curtain 1. Explain Dennis Kozlowski's initial legal issues, regarding the purchase of paintings. Dennis Kozlowski, who had worked at Tyco since 1975, announced to the board of directors for Tyco International that he was the subject of a criminal investigation in New York for evasion of sales taxes on a painting he had purchased in Manhattan. On June 4, 2002, a grand jury indicted Kozlowski for tax evasion. He was indicted for avoiding to pay between $650,000 to $1 million in taxes on six paintings that he had purchased in the fall of 2001. He was also charged with tampering with evidence and willfully falsifying financial records. He was ordered to surrender his passport and was released on a $3 million bond. 2. On September 12, 2002 Tyco CEO Dennis Kozlowski and CFO Mark Swartz were indicted for illegally obtaining millions of dollars from Tyco for their own personal use. Explain the ways that they were able to do this. The indictment alleged that the two former Tyco executives were involved in racketeering by being involved in stock fraud, the disbursement of bonuses that were not authorized to employees, and the falsification of expense accounts. The indictment alleged that Kozlowski and Swartz "paid off" a Tyco board member and other employees to keep their fraudulent activities quiet.They were accused of running a "criminal enterprise", a term that is commonly used when indictments are applied to members of organized crime. The Manhattan district attorney's office claimed that the two former Tyco executives started the covert fraudulent operation in 1995. It was alleged that the two men had spent millions of Tyco's dollars for their personal use and controlled the focus of Tyco's internal audits and filed disclosure reports with the Security and Exchange Commission (SEC) without any input from legal department to avoid the chance that their activities would be discovered. Kozlowski used a Tyco program designed to help pay taxes on stock options to improperly borrow an estimated $242 million for his own use. He used the money to purchase paintings, real estate, yachts, and jewelry for himself and his wife. Swartz used the same program ti borrow $72 million for his personal investments. They used $78 million in loans from Tyco's real estate relocation program, which was designed to help pay the costs of employees who were being transferred to the Boca Raton office from the New Hampshire office. They used the money to purchase real estate and other personal expenses. 3. List some of the miscellaneous items (of lesser value) that Kozlowski purchased.