Tyco International Ltd. agreed Wednesday to pay $73 million to New Jersey to settle a federal suit alleging that insider trading and other securities fraud caused $100 million in losses to state police, firefighters and school employee pension funds.
The suit, State v. Tyco International, 02-CV-05701, alleged the Princeton company made materially false and misleading statements about its financial condition, breached fiduciary duties and failed to disclose millions in personal loan benefits.
The case, originally before U.S. District Judge Katharine Hayden in Newark, was consolidated with other shareholder suits and removed to the U.S. District Court of New Hampshire. The company had been based in Exeter, N.H., until 2003.
The settlement disposes of claims against Tyco Chief Legal Officer Mark Belnick and directors Richard Bodman, John Fort III, James Pasman Jr. and Wendy Lane.
It does not, however, settle claims against former Tyco CEO L. Dennis Kozlowski and former Chief Financial Officer Mark Swartz, both convicted in 2005 in New York State court and sentenced to eight years for stealing company money for bonuses and loan programs, as well as inflating prices and misleading investors. Kozlowski was ordered to pay $70 million in fines, Swartz $35 million.
The SEC filed civil fraud charges in 2002 against Kozlowski, Swartz and Belnick, alleging they failed to disclose to investors multimillion dollar low-interest or no-interest loans they took out from the company.
More recently, Kozlowski was sued for allegedly misappropriating more than $400 million in company funds and, together with other chief executives, inflating Tyco's stock price with deceptive financial reports. The plaintiffs, four funds owned by Nuveen Investments of Chicago and 28 funds owned by New York investment firm BlackRock, allege violations of the Securities Acts of 1933 and 1934 and New Jersey's Racketeer Influenced and Corrupt Organizations Act.
The settlement also leaves open claims against former Tyco director Frank Walsh Jr. and the accounting firm PricewaterhouseCoopers LLP and its Bermuda affiliate, PricewaterhouseCoopers.
Tyco spokeswoman Sheri Woodruff did not return a telephone call. Tyco admitted no wrongdoing in the settlement.
Attorney General Milgram said in a statement that the suit was filed to hold corporations accountable and to protect state investments from fraud.
William Clark, director of the Division of Investment in the Treasury Department, says the proceeds will be returned to the portfolios. Tyco is to pay by June 2. If it does, the suit will be dismissed against the settling parties. Although the $73 million won't cover all of the damages, the state hopes to recover more from the nonsettling parties, says one of the attorneys for the state, Patrick Rocco, of Shalov Stone Bonner & Rocco in Morristown.
