U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 21129 / July 14, 2009
Accounting and Auditing Enforcement Release No. 3010 / July 14, 2009
Securities and Exchange Commission v. L. Dennis Kozlowski, Mark H. Swartz, and Mark A. Belnick, 02-CV-7312 (RWS) (S.D.N.Y. filed Sept. 12, 2002)
FORMER TYCO EXECUTIVES L. DENNIS KOZLOWSKI AND MARK H. SWARTZ SETTLE SEC FRAUD ACTION
On July 14, 2009, the Securities and Exchange Commission (the Commission) filed settled Final Judgments against L. Dennis Kozlowski, the former Chairman and Chief Executive Officer of Tyco International Ltd. (Tyco), and Mark H. Swartz, the former Chief Financial Officer of Tyco, in the Commission's action arising from their violations of the federal securities laws while officers of that company. The Final Judgments permanently enjoin Kozlowski and Swartz from violating, or aiding and abetting violations of, the antifraud, proxy statement, periodic reporting, books and records, and lying to auditors provisions of the federal securities laws and permanently bar each of them from serving as an officer or director of a public company.
The Commission's complaint alleges that, from 1996 until June 2002, Kozlowski and Swartz failed to disclose hundreds of millions of dollars in executive indebtedness, executive compensation, and related party transactions that they received while at Tyco. As alleged in the complaint, Kozlowski and Swartz granted themselves undisclosed low interest and interest-free loans from the company that they regularly used for personal expenses and other unauthorized purposes. They repeatedly arranged to have many of these loans forgiven by Tyco. They also engaged in undisclosed related party transactions. In violation of the federal securities laws, Kozlowski and Swartz failed to disclose their indebtedness, loan forgiveness, and related party transactions and caused Tyco to fail to disclose those items in its proxy statements and annual reports.
Without admitting or denying the allegations in the Commission's complaint, Kozlowski and Swartz consented to the entry of Final Judgments that will permanently enjoin each of them from violating Section 17(a) of the Securities Act of 1933 (Securities Act), Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 (Exchange Act), and Exchange Act Rules 10b-5, 13b2-1, and 13b2-2, and from aiding and abetting violations of Sections 13(a), 13(b)(2)(A), and 14(a) of the Exchange Act and Exchange Act Rules 12b-20, 13a-1, and 14a-9. The proposed Final Judgments also bar Kozlowski and Swartz, pursuant to Section 20(e) of the Securities Act and Section 21(d)(2) of the Exchange Act, from serving as officers or directors of a public company. The proposed Final Judgments are subject to the approval of the United States District Court for the Southern District of New York.
In 2005, a New York State court sentenced Kozlowski and Swartz to prison terms of 8 1/3 to 25 years for their roles in the Tyco fraud. Pursuant to their criminal convictions, Kozlowski and Swartz also paid approximately $134 million in restitution to Tyco and criminal fines of $70 million and $35 million, respectively. On October 16, 2008, the New York Court of Appeals affirmed Kozlowski's and Swartz's convictions. On June 8, 2009, the United States Supreme Court denied a petition by Kozlowski and Swartz for a writ of certiorari.
For further information about the Commission's action in Securities and Exchange Commission v. L. Dennis Kozlowski, Mark H. Swartz, and Mark A. Belnick, see Litigation Release No. 17722 (Sept. 12, 2002) and Litigation Release No. 19678 (May 1, 2006); see also Litigation Release No. 19657 (Apr. 17, 2006).