THE CON: During his trial, Kozlowski called it a “pay dispute,” but the facts were clear: as CEO of Tyco, he stole $600 million through corporate loan programs, unauthorized bonuses and inflated stock prices.
THE DAMAGE: $600 million
THE OUTCOME: Tyco stock plummeted to about $7 a share in the wake of the indictments. Both Kozlowski and Tyco’s CFO were convicted and sentenced to up to 25 years. Tyco hired new directors and, in 2007, agreed to pay $3 bullion to settle investor lawsuits.
Dennis Kozlowski walked along a well-worn path when his fraud trial began. In 2003, he came right on the heels of other indicted CEOs, including those at WorldCom and Enron. Still, the blind greed behind Kozlowski’s multimillion dollar fraud stunned the nation. In total, he stole $600 million from Tyco International Corporation by helping himself to loans and hefty bonuses that supported his plush lifestyle. One such extravagance – a $6,000 shower curtain reported to hang in his Fifth Avenue apartment – became a sort of symbol of corporate greed.
During his trial, Kozlowski insisted the Tyco board approved of his every move. Lacking proof, he was sentenced to 8 to 25 years. In an interview that aired on “60 Minutes” in 2007, Kozlowski drew a sharp distinction between himself and other imprisoned CEOs. Enron and WorldCom were built on scams, he said. The issue at Tyco, on the other hand, was a “major pay dispute.”
Before he earned $170 million a year in salary and bonuses, Kozlowski was an accountant at Tyco. Once he became CEO, he transformed Tyco from a manufacturing company into an enormous conglomerate with a variety of interests, from underseas telecommunications systems to electronic security. At its peak, Tyco was worth $90 billion.
Under Kozlowski, the company underwent a startling growth spurt. In 2000, Tyco took over 40 companies thanks to the wheeling and dealing of Kozlowski, who was known as “Deal-a-Day Dennis.” By 2001, Tyco was valued at 50 times what it was worth in 1992. In a profile for BusinessWeek's “Top 25 Managers” of 2001, Kozlowski said he hired people who are “smart, poor, and want to be rich.”
Kozlowksi was certainly rich; however, the extent of his wealth wasn't well understood until he was charged with tax evasion by the New York City district attorney's office. He resigned from Tyco in June 2002 to face charges of failing to pay more than $1 million in sales tax on several pricey paintings, including ones by Renoir and Monet.
Meanwhile, Tyco launched its own investigation. Soon, details of his lavish spending leaked to the press – from an infamous $6,000 shower curtain to yachts and a helicopter. Then there was the weeklong party Kozlowski threw for his wife on an island off Italy. Describing the shindig as a work retreat, he had Tyco pick up half the $2.2 million tab for expenses that included an ice sculpture of Michaelangelo's “David.”
In 2005, Kozlowski and Tyco's former chief financial officer, Mark H. Swartz, were convicted of criminal counts of grand larceny, conspiracy, securities fraud and eight of nine counts of falsifying business records.
While Tyco's stock price plummeted after his resignation, it recovered within 18 months. Indeed, the company – which hired new directors and moved its headquarters – remains strong. In 2007, Tyco agreed to pay $3 billion to settle investor lawsuits. The company also split the $98 million in restitution that it received from Kozlowski with investors. Though he remained adamant about his innocence – and insists he doesn't know anything about a $6,000 shower curtain – Kozlowski admitted to evading sales tax. He paid $21.2 million to settle the charges related to paintings.
Con Timeline: 1997-2002
