UNITED STATES SECURITIES AND EXCHANGE COMMISSION
LITIGATION RELEASE NO. 17896 / December 17, 2002
TYCO FORMER LEAD DIRECTOR AND CHAIRMAN OF COMPENSATION COMMITTEE FRANK E. WALSH, JR. CHARGED WITH MATERIALLY MISLEADING CIT'S AND TYCO'S SHAREHOLDERS BY COLLECTING SECRET $20 MILLION "FINDER'S FEE" IN CONNECTION WITH TYCO'S 2001 ACQUISITION OF THE CIT GROUP, INC.
Securities and Exchange Commission v. Frank E. Walsh, Jr., Civil Action No. 02-CV-9921
The Securities and Exchange Commission (the "Commission") today filed a settled civil action in the U.S. District Court for the Southern District of New York alleging that Frank E. Walsh, Jr. ("Walsh") violated the federal securities laws by signing a Tyco International Ltd. ("Tyco") registration statement which Walsh knew contained materially misleading statements concerning fees or commissions payable in connection with Tyco's June 2001 $9.2 billion acquisition of The CIT Group, Inc. ("CIT").
The Complaint filed in the Commission's civil action alleges the following:
In late 2000, Walsh, a director of Tyco from 1992 through February of 2002 who served as Chairman of the Tyco Board of Directors (the "Board") Compensation Committee, a member of the Board's Corporate Governance Committee, and most recently, Tyco's Lead Director, recommended that Tyco consider acquiring CIT. L. Dennis Kozlowski ("Kozlowski"), Tyco's then and now former Chief Executive Officer, asked Walsh to set up a meeting between Kozlowski and CIT's Chief Executive Officer. After that meeting, Kozlowski proposed to pay Walsh a "finder's fee" for his services if the transaction was consummated. When the transaction was submitted to the Board, Walsh voted in favor of the transaction but 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"). The Agreement and Plan of Merger contained a representation by Tyco that, other than Tyco's investment bankers for the transaction, no other investment banking or finder's fees were to be paid in connection with the transaction. The Agreement and Plan of Merger was incorporated by reference in, and attached to, a registration statement (the "Registration Statement") filed by Tyco with the Commission for the securities related to the contemplated merger between Tyco and CIT. 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 Walsh's prior agreement with Kozlowski to receive a fee, Kozlowski caused Tyco to pay him 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.
Walsh, without admitting or denying the allegations in the Complaint, consented to the entry of a final judgment permanently enjoining him from violations of the federal securities laws (Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 (the "Exchange Act") and Exchange Act Rule 10b-5), permanently barring him from acting as an officer or director of a publicly-held company, and ordering him to pay restitution of $20,000,000.00; provided, however, that restitution shall be offset, in part or in whole, by any restitution paid by Walsh in the case of People of the State of New York v. Frank E. Walsh, Jr., which arises out of the same conduct set forth in the Complaint.
The Commission's investigation is continuing as to the conduct of others. The Commission acknowledges the assistance and cooperation of the Office of the District Attorney of New York County and the New York City Police Department.
See also Litigation Release No. 17722 (September 12, 2002)