SEC Sues Former Tyco Director and Chairman of Compensation Committee Frank E. Walsh Jr. for Hiding $20 Million Payment From Shareholders; Walsh Had Secret Agreement With L. Dennis Kozlowski To Receive Payment for "Finder's Fee" in Tyco's Acquisition of The CIT Group Inc.


Walsh Had Secret Agreement With L. Dennis Kozlowski To Receive Payment for "Finder's Fee" in Tyco's Acquisition of The CIT Group Inc.

Washington, D.C., December 17, 2002 -- The Securities and Exchange 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., a former Tyco International Ltd. director, violated the federal securities laws by signing a Tyco registration statement that he knew contained material misrepresentations.

According to the SEC complaint filed in the civil action, the registration statement was filed with the Commission in connection with Tyco's June 2001 $9.2 billion acquisition of The CIT Group Inc. It incorporated and attached an Agreement and Plan of Merger stating that no one other that Lehman Brothers and Goldman, Sachs & Co. was entitled to an investment banking or finder's fee for representing Tyco in the transaction. At the time that he signed the registration statement, Walsh knew that L. Dennis Kozlowski, then Tyco's CEO, had proposed that, if the transaction was successfully completed, Walsh would be paid a finder's fee for having arranged a meeting of the companies' CEO's to discuss a possible merger. In fact, after the transaction was consummated, 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.

"Mr. Walsh served as chairman of Tyco's compensation committee and a member of Tyco's corporate governance committee," said Thomas C. Newkirk, SEC Associate Director of Enforcement. "Shareholders entrusted him with the responsibility of watching out for their interests in Tyco's boardroom and executive suite. Instead, Mr. Walsh himself took secret compensation and kept those same shareholders in the dark.

"Once again, the Tyco investigation has uncovered clandestine payments and hidden deals," Newkirk said. "Once again, the evidence demonstrates that Tyco's top management viewed Tyco's assets as their own."

"This enforcement action is the latest chapter in the Commission's ongoing investigation, together with the Manhattan District Attorney, of corruption and self-dealing at the highest levels of Tyco management," said Stephen M. Cutler, the SEC's Director of Enforcement. "The Commission today, together with the criminal authorities, serves notice that misconduct by outside directors, as well as by company management, will not be countenanced."

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, permanently barring him from acting as an officer or director of a publicly-held company, and ordering him to pay restitution of $20 million (with an offset for 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.

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SEC Contacts

Thomas C. Newkirk: tel. (646) 428-1845, (202) 942-4550
James T. Coffman: tel. (202) 942-4574

See Also:  Litigation Release 17722 (September 12, 2002)
Last modified: 12/17/2002