UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
SECURITIES AND EXCHANGE COMMISSION,
450 Fifth Street, N.W.
Washington, D.C. 20549,
FRANK E. WALSH, JR.,
Civil Action No.
Plaintiff Securities and Exchange Commission (the "Commission") alleges:
- This action involves violations of the federal securities laws by Frank E. Walsh, Jr. ("Walsh"), a former director of Tyco International Ltd. ("Tyco"), in connection with Tyco's June 2001 $9.2 billion acquisition of The CIT Group, Inc. ("CIT"). Walsh signed a registration statement filed by Tyco in connection with the CIT acquisition, which Walsh knew contained materially misleading statements concerning fees or commissions payable in connection with the transaction.
JURISDICTION AND VENUE
- This Court has jurisdiction over this action pursuant to Section 20 of the Securities Act of 1933 ("Securities Act") [15 U.S.C. § 77t] and Sections 21(d), 21(e), and 27 of the Securities Exchange Act of 1934 ("Exchange Act") [15 U.S.C. §§ 78u(d), 78u(e), and 78aa].
- Defendant Walsh, directly or indirectly, has made use of the means or instrumentalities of interstate commerce, or of the mails, or the facilities of a national securities exchange in connection with the transactions, acts, practices, and courses of business alleged herein.
- Certain of the acts, practices, and courses of conduct constituting the violations of law alleged herein occurred within this judicial district.
- Defendant Walsh will, unless restrained and enjoined, continue to engage in the acts, practices, and courses of business alleged herein, or in transactions, acts, practices, and courses of business of similar purport and object.
- Defendant Frank E. Walsh, Jr., age 61, was a director of Tyco from 1992, until he was not renominated for election to the Tyco Board of Directors (the "Board") in February of 2002. He resides in Morristown, New Jersey.
OTHER RELEVANT ENTITES
- Tyco is a Bermuda corporation with its headquarters in Bermuda. The company is a manufacturing and service conglomerate involved in the business of fire and security services, electronics, healthcare and specialty products, and undersea telecommunications networks. Tyco's common stock is registered with the Commission pursuant to Section 12(b) of the Exchange Act and is traded on the New York Stock Exchange.
- Walsh was a director of Tyco from 1992 through February of 2002. In that capacity, Walsh served as the Chairman of the Board's Compensation Committee from 1998 through 2000 and as a member of the Board's Corporate Governance Committee and Lead Director in 2001.
- In late 2000, Walsh recommended that Tyco consider acquiring CIT. Thereafter, L. Dennis Kozlowski ("Kozlowski"), Tyco's then and now former Chief Executive Officer, indicated that Tyco was interested in pursuing this transaction. Accordingly, in early 2001, Walsh arranged a meeting between Kozlowski and Albert R. Gamper, Jr. ("Gamper"), CIT's Chief Executive Officer.
- After the first meeting between Kozlowski and Gamper, Kozlowski proposed to pay Walsh an investment banking or finder's commission for his services if the transaction was successfully completed.
- When the transaction was submitted to the Board, Walsh participated in and voted in favor of the transaction but Walsh intentionally did not disclose to the Board that he would receive a substantial fee in connection with the transaction.
- The terms and conditions of the Tyco/CIT merger were set forth in the Agreement and Plan of Merger dated March 12, 2001 (the "Agreement and Plan of Merger"). In the section of the Agreement and Plan of Merger that contains the representations and warranties of Tyco, Tyco represented that, other than Lehman Brothers and Goldman, Sachs & Co. (the investment bankers that represented Tyco in the Tyco/CIT merger), "there is no investment banker, broker, finder or other intermediary that has been retained by or is authorized to act on behalf of [Tyco] who might be entitled to any fee or commission from [Tyco] . . . in connection with the transactions contemplated by this Agreement."
- On April 13, 2001, Tyco filed with the Commission a registration statement on Form S-4 (the "Registration Statement") for the securities related to the contemplated merger between Tyco and CIT. The Agreement and Plan of Merger was incorporated by reference in, and attached to, the Registration Statement.
- In his capacity as a director of Tyco, Walsh signed the Registration Statement. At the time that he signed, Walsh knew that the Registration Statement contained a material misrepresentation regarding the payment of a "finder's fee" because he knew that he stood to obtain a substantial fee if the transaction was consummated.
- After the transaction was consummated, pursuant to his prior agreement with Kozlowski to receive a fee, Kozlowski caused Tyco to pay Walsh a $20 million "finder's fee" in the form of $10 million in cash and a $10 million charitable contribution to a foundation chosen by Walsh.
- The $20 million "finder's fee" was paid by Tyco and, accordingly, operated as a deceit on CIT's and Tyco's shareholders.
CLAIM FOR RELIEF
Violations of Section 17(a) of the Securities Act [15 U.S.C. § 77q(a)], Section 10(b) of the Exchange Act [15 U.S.C. § 78j(b)], and Exchange Act Rule 10b-5 [17 C.F.R. §240.10b-5]
Against Defendant Walsh
- Paragraphs 1 through 16 are realleged and incorporated herein by reference.
- By reason of the foregoing, Defendant Walsh, directly or indirectly, violated Section 17(a) of the Securities Act [15 U.S.C. § 77q(a)], Section 10(b) of the Exchange Act [15 U.S.C. § 78j(b)], and Exchange Act Rule 10b-5 [17 C.F.R. § 240.10b-5].
PRAYER FOR RELIEF
WHEREFORE, the Commission respectfully requests that this Court:
Permanently restrain and enjoin Walsh, and his officers, agents, servants, employees, and attorneys, and those persons in active concert or participation with him, from violating Section 17(a) of the Securities Act [15 U.S.C. § 77q(a)], Section 10(b) of the Exchange Act [15 U.S.C. § 78j(b)], and Exchange Act Rule 10b-5 [17 C.F.R. § 240.10b-5].
Order Walsh to pay restitution in the amount of $20 million.
Permanently bar Walsh from serving as an officer or director of a publicly held company, pursuant to Section 20(e) of the Securities Act [15 U.S.C. § 77t(e)] and Section 21(d)(2) of the Exchange Act [15 U.S.C. § 78u(d)(2)].
Grant such other relief as this Court may deem just and appropriate.
December 17, 2002
Thomas C. Newkirk (TN7271)
James T. Coffman
Robert B. Kaplan (RK2310) (Trial Attorney)
Jessica M. Weiner
Counsel for Plaintiff
Securities and Exchange Commission
Mail Stop 9-11
450 Fifth Street, N.W.
Washington, D.C. 20549
(202) 942-2803 (Kaplan)
(202) 942-9569 (fax)
Robert B. Blackburn (RB1545)
Securities and Exchange Commission
The Woolworth Building
New York, NY 10279
(646) 428-1980 (fax)