NEW YORK - L. Dennis Kozlowski, the former chairman and chief executive officer of Tyco International, and his top lieutenant were convicted yesterday on fraud, conspiracy and grand larceny charges, bringing an end to a three-year case that came to symbolize an era of corporate greed and scandal.
Kozlowski and Mark H. Swartz, Tyco's former chief financial officer, were convicted by a New York State Supreme Court jury in lower Manhattan on all but one of 31 counts of grand larceny, conspiracy, falsifying business records and securities fraud. The most serious charge, grand larceny, carries a possible maximum sentence of 25 years in prison.
The verdict, which came after 11 days of deliberations by the jury of six men and six women, is the latest conviction in a string of rulings against high-profile corporate executives in recent years. The verdict is also a vindication for the Manhattan district attorney's office, and its chief, Robert M. Morgenthau, who is up for re-election this fall.
This trial, which lasted four months, was the second in which Kozlowski and Swartz were tried on charges of stealing $150 million from Tyco - a conglomerate whose products range from security systems to health care products - and reaping $430 million more by covertly selling company shares while "artificially inflating" the value of Tyco's stock.
The first case against them was declared a mistrial in April 2004 when a juror holding out for an acquittal made what appeared to be an "OK" signal to the defense and subsequently received a threatening letter from a stranger, upending the trial.
The retrial of Kozlowski, 58, and Swartz, 44, was markedly different from the first one. Prosecutors, who had been criticized by jurors from the first trial for presenting an often meandering and disorganized case, refocused their arguments and trimmed their witness list. The prosecution also limited much of the most salacious testimony about Kozlowski's conspicuous consumption that had made the first trial fodder for the tabloids and entertainment television news programs, but had backfired badly with the jury.
Instead of days of testimony about Kozlowski's $6,000 shower curtain or a $2 million birthday party for his second wife, which was partially paid for by the company, prosecutors spent most of the trial drilling into the complex accounting issues involving the $150 million that Kozlowski and Swartz were accused of stealing.
The case turned on whether the jury believed several giant payments both men received had been authorized by Tyco's board as part of a preset bonus formula or had been secretly siphoned by the men and dishonestly classified as bonuses. Several members of Tyco's board and the company's lawyer, David Boies, testified that the payments were never authorized.
The backgrounds of the jurors were also different from those in the first trial. While many of the jurors in the first trial had backgrounds in accounting or the law and were college-educated, many on this jury never received a high school diploma.
But the biggest difference between the first trial and the retrial was the defense's decision to put Kozlowski on the witness stand. His testimony, which at times became heated during cross-examination, offered the most drama and levity in the often-tedious case.
In what may have been the most damning piece of evidence against him, his lawyer and the prosecutor quizzed him about why he signed his tax return when his W-2 form was missing $25 million that he was said to have taken. "I cannot explain why," he told the court. "I was not thinking when I signed my tax return."
Kozlowski portrayed himself as a self-made entrepreneur who has become the victim of an overzealous prosecutor interested in headlines and a board trying to protect itself from shareholder lawsuits. He described himself on the stand as an overworked executive who often delegated details to others.
He also called some of the expensive decorations used to remodel a $18 million apartment on Fifth Avenue that he had the company buy "god-awful," and told jurors that "I stuffed some of it in the closet." He acknowledged, "I did not oversee this in the manner in which I should have overseen that apartment."
Throughout his testimony, he proclaimed his innocence and said that he never tried to steal anything from the company. "I'm here so I can explain to them [the jurors] why I'm innocent of all the charges against me," he said.
Swartz also took the stand, as he did in the first trial. Much of his defense was based on his contention that he took orders from Kozlowski and believed the payments were authorized.
The trial opened a window into how sloppily Tyco - and perhaps other large corporations - operated during the 1990s boom and earlier. Evidence showed that the management used loan programs designated for tax purposes as personal accounts for years, long before Kozlowski was the chief executive. And other evidence was presented that the board rarely took accurate minutes of meetings. Several executives testified that the minutes were typically drafted before the meetings took place.
Feel of a reunion
Over the course of the trial, the courtroom often had the feel of a reunion. Lawyers, witnesses, jurors and family members from the first trial dropped in at times to sit in the gallery.
Ruth B. Jordan, a juror from the first trial, was a frequent spectator. She sat in the back of the courtroom and often received as much attention from cameramen as she left the courthouse as Kozlowski and Swartz. She said she came to court as an "interested citizen" and might write a book.
Tyco still faces a sea of shareholder lawsuits stemming from bookkeeping irregularities during the reign of Kozlowski and the former board. Some analysts predict that it may cost Tyco about $1.25 billion to settle the remaining litigation. Tyco's current management, led by Edward D. Breen, a former Motorola president, said it would pursue separate civil actions against the former executives.