Tyco International Ltd. Incorporated in the republic of Ireland with operational headquarters in Princeton, new jersey and united states began as an investment and holding company. Then was diversified into a global company with breaking records worldwide. (Giroux, 2008). Tyco company provides two main operating groups which are Fire protection and Security solutions. (Anon, 2018).
On September 12, 2002, national television showcased Tyco International’s former chief executive officer (CEO) L. Dennis Kozlowski and former chief financial officer (CFO) Mark H. Swartz in handcuffs after being arrested and charged with misappropriating more than $170 million from the company. They were also accused of stealing more than $430 million through fraudulent sales of Tyco stock and concealing the information from shareholders. The two executives were charged with more than thirty counts of misconduct, including grand larceny, enterprise corruption, and falsifying business records. Another executive, former general counsel Mark A. Belnick, was charged with concealing $14 million in personal loans. Months after the initial arrests, charges and lawsuits were still being filed—making the Tyco scandal one of the most notorious of the early 2000s. (Danielsethics.mgt.unm.edu, 2018)
the problem started when Tyco’s former CEO Dennis Koslowski, former CFO Mark Swartz
and former General Counsel Mark Belnick started taking interest free or very low interest loans without informing the board, and the money was never repaid. Even some of the programs were manipulated like the “Key Employee Loan” by stealing the money from the program. They also sold stock of the company without informing the people that invested in them.
Koslowski, Swartz, and Belnick stole about 600 million dollars illegally. They were spending money lavishly that rumors started to spread about what they were purchasing. For example, a $6,000 shower curtain, $2,000 trash can, and a $2-million-dollar birthday party for Koslowski’s wife in Italy. They also paid money for employees and executives that they were afraid were going to tell on them.
Although the hush money kept them quite, at the end the scandal unraveled. in 1999 the SEC (securities and exchange commission) was informed that Tyco was not following the (generally accepted accounting principle) GAAP. The auditing company that worked for Tyco was (PricewaterhouseCoopers) PWC.
After the 1999 SEC investigations into the company’s accounting practices PWC issued a statement saying that the company practices confirmed to the GAAP. Three years later PWC were under security on how they failed to disclose a 33 million bonus paid to Koslowski. As a result of inconsistences in PWC books, in 2003 Tyco brought in forensic accountants to examine the books as it was clear that Tyco’s outside auditors were aware of many of the transactions committed by Koslowski and Swartz. (Clarke, 2017)
investigations of Tyco company lasted from 1999 to 2000. Investigators then discovered that Tyco company was not reporting full earning so that the company produces more profit.
PWC failed to identify the massive fraud in the company. They failed to notice that Tyco overstated its income by 5.8 billion dollars which then ending up costing the investors 10 billion dollars. PWC then agreed to pay shareholders 225 million dollars because of the massive fraud that they made.
The SEC did not take any action until the year 2002 when they noticed that 20 million dollars was wrote to Tyco director frank Walsh and in addition Kozlowski bought an art piece and failed to pay the taxes of it. Kozlowski, Swartz and belnick were charged with “failure to disclose information on their multimillion dollar loan to shareholders”. Kozlowski, Swartz were charged to serve from 8 – 25 years in prison and belnick was charged to pay 100,000. Tyco company had to pay back the investors with 2.9 billion dollars. Since replacing its Board Members and several executives, Tyco International has remained strong.
1)Giroux, G. (2008). What went wrong? Accounting fraud and lessons from the recent scandals. Social Research, 75 (4), 1205-1238.
2)Tyco.com. (2018). online Available at: http://www.tyco.com/uploads/files/TycoCorp_Background.pdf Accessed 23 Sep. 2018.
3) Danielsethics.mgt.unm.edu. (2018). online Available at: https://danielsethics.mgt.unm.edu/pdf/Tyco%20Case.pdf Accessed 23 Sep. 2018.
4) Clarke, T. (2017). International corporate governance. New York: Routledge, p.359.