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Lawyers for former Tyco International Ltd. Chairman L. Dennis Kozlowski called for a mistrial yesterday after famed litigator David Boies, who conducted an internal investigation for Tyco in 2002, testified he told former Tyco Chief Financial Officer Mark L. Swartz that there was potentially a “serious problem” with an unreported $12.5 million payment to Mr. Swartz. The defense rested its case on Thursday, but prosecutors from the Manhattan District Attorney’s Office called Mr. Boies to rebut earlier testimony by Mr. Swartz that the 1999 credit, which forgave a loan the executive had taken through a company program, was intended as a bonus. Mr. Kozlowski had received $25 million in the same program. Messrs. Kozlowski and Swartz are charged with enterprise corruption and grand larceny for allegedly taking millions in unauthorized loans and bonuses. They each face up to 30 years in prison if convicted. Mr. Boies said he told Mr. Swartz in July 2002 that he saw no justification for the $12.5 million credit, and that it had not been approved by the Tyco board. The lawyer also testified he told Mr. Swartz he was concerned because the payment had not been reported to either the Securities and Exchange Commission or the Internal Revenue Service. According to Mr. Boies, Mr. Swartz responded that the payment was a “mistake.” Defense lawyers did not cross-examine Mr. Boies but, after he stepped down, lawyers for Mr. Kozlowski moved for a mistrial on the grounds that Mr. Boies’ testimony that the payments were unjustified and had not been reported were extremely prejudicial and beyond the scope of what he had been expected to address. Manhattan Supreme Court Justice Michael Obus denied the mistrial motion on the grounds that Mr. Boies was testifying about his conversation with Mr. Swartz, but he reminded the jury that Mr. Boies’ opinions were not evidence in the case. Over objections from the prosecution, the judge also allowed Mr. Swartz to take the stand again to refute some of Mr. Boies’ testimony. In his testimony yesterday, Mr. Swartz said he had had several conversations with Mr. Boies and other lawyers from the firm Boies, Schiller & Flexner who had been initially hired by acting CEO John F. Fort in May 2002 to investigate the payment of a $20 million “finder’s fee” to a former board member, Frank E. Walsh, in connection with a 2001 acquisition by Tyco. Of the July 2002 conversation, Mr. Swartz said Mr. Boies expressed concern about the tax consequences of the $12.5 million payment not appearing on tax documents. Mr. Swartz said he had told Mr. Boies it was an oversight not to have reported the payment to the IRS, and Mr. Boies responded that the “solution” would be for him to repay the loan with interest. Mr. Swartz said he agreed to do so. Mr. Boies took the stand again following Mr. Swartz’s testimony and said he had raised the issue of the $12.5 million with Mr. Swartz because he had been concerned about repairing Tyco’s public image at the time of his conversation with Mr. Swartz, not about any issues with the IRS. Mr. Boies, well known for representing former Vice President Albert Gore before the U.S. Supreme Court in a dispute over the 2000 presidential election, had not been expected to take the stand at all. His report on Tyco and payments to executives is inadmissible hearsay at the two executives’ trial. Moreover, Mr. Boies and his firm are now representing Tyco in a civil suit against Messrs. Kozlowski and Swartz, as well as former Corporate Counsel Mark Belnick. The testimony of Mr. Boies was the last piece of evidence in the 5-month-old trial. Justice Obus excused the jury until Monday, when closing arguments are set to begin.

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