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Mark Belnick, the former general counsel of Tyco International Ltd. who was indicted in New York last month for falsifying Tyco business records, has fired back at his New York prosecutors. Belnick, through his lawyers at Steptoe & Johnson, filed on Oct. 21 a voluminous motion to dismiss allegations that he concealed $14 million in “relocation” loans from Tyco over the course of his tenure at the company, which lasted from 1998 until he was fired in June. White-collar defense lawyers say Belnick’s claims could present a formidable challenge to the prosecution if the case goes to trial, as most observers expect. The filings also highlight advice that Goodwin Procter and Wilmer, Cutler & Pickering provided on some of Tyco’s financial disclosures to the U.S. Securities and Exchange Commission. The indictment, overseen by veteran Manhattan Assistant District Attorney John Moscow, alleges that Belnick, a one-time senior partner at New York’s Paul, Weiss, Rifkind, Wharton & Garrison, omitted his loans from internal Tyco financial disclosure forms “with intent to defraud and to commit another crime.” In practical terms, criminal defense lawyers say, Moscow is claiming that Belnick left his loans off Tyco’s “Director & Officer Questionnaires” in an effort to hide the loans from the company’s board, its auditors, the SEC, and, ultimately, the company’s shareholders. Belnick has pleaded not guilty to the indictment. White-collar lawyers say there is little chance that Belnick’s case, which turns largely on a question of his intent, will be resolved on pretrial motions. They further say that Belnick’s defense to those charges could prove tough for Moscow to overcome at trial. Belnick’s lead counsel, Steptoe D.C. partner Reid Weingarten, says he intends to press for an early trial date. INSIDE TYCO In his motion, Belnick contends that his loans were known to and approved by L. Dennis Kozlowski, Tyco’s former CEO and chairman, and Mark Swartz, the company’s former chief financial officer. Belnick used the loans to buy and renovate a $2.8 million apartment on Central Park West in Manhattan and a $10 million house overlooking Park City, Utah. Belnick’s filing includes internal Tyco records that appear to establish that Belnick openly discussed the loans with at least two other Tyco executives and disclosed the loans to Tyco’s auditors at PricewaterhouseCoopers. And records from a February 2002 meeting of the Tyco board’s compensation committee list “mortgage loans for relocation purposes” to 25 Tyco insiders, including Belnick and “the flight attendant on Tyco’s corporate jet.” “The common, widespread knowledge of Mr. Belnick’s relocation loans belies any possibility that Mr. Belnick could have intended to conceal the loans or intended to defraud Tyco by omitting the loans from his D&O Questionnaires,” Weingarten contends. Other defense lawyers say he has a point. “If you’re charging a fraud on a company and the senior management and the board knew [of the allegedly fraudulent conduct], that makes it hard to prove, unless you also charge the rest of senior management and the board with being in on the scheme,” says Bruce Baird, a Covington & Burling D.C. partner and former chief of the securities fraud task force in the U.S. Attorney’s Office in Manhattan. Swartz and Kozlowski were indicted last month in New York on charges of corruption and grand larceny. But prosecutors did not indict Belnick on these charges. And Weingarten, Belnick’s lawyer, says that at the time Kozlowski and Swartz were approving his relocation loans and making decisions about SEC disclosures, Belnick had no reason to doubt that they were acting in Tyco’s best interest. “You have to go back and look at this in real time,” Weingarten says. Belnick’s interactions with Kozlowski and Swartz took place well before they were indicted, Weingarten argues, when Tyco was still widely seen as a successful business and Kozlowski viewed as a visionary, if aggressive, captain of enterprise. Some defense experts say prosecutor Moscow could have a difficult time convincing jurors that Belnick acted with the requisite intent to defraud, given that Belnick is not charged with participating in a conspiracy with his former colleagues. “If the only allegation of corruption running from Belnick to the other two” is the fact he received $14 million in loans, “then what you’ve got is a one-way benefit,” says one former federal securities prosecutor in New York. “If the government can only prove a one-way benefit, then there is substantial hay to be made from this defense, because there’s no tit for the tat,” this former prosecutor says. “If there’s some allegation that Belnick closed his eyes to misconduct by Kozlowski and Swartz, then the $14 million looks like a payoff.” Moscow’s indictment contains no such allegation. And defense lawyers say that he may be prevented from trying to persuade a jury that Belnick was simply “disclosing” his loans to others he knew were in on a scheme to fleece Tyco. The judge presiding over Belnick’s case may very well rule that evidence of misconduct by Kozlowski and Swartz must be kept out of Belnick’s trial, some defense lawyers predict. “What the jury then hears,” says the former federal prosecutor, “is that Belnick got the $14 million, failed to do this disclosure, but in fact disclosed the loans to two senior officers and others. That sounds like a pretty compelling defense. That seems to blunt [the prosecution's claim of] corrupt intent.” SEC DISCLOSURE AT ISSUE As further evidence that Belnick never intended to hide his loans, Weingarten points to two instances in which Belnick sought legal assurances regarding his disclosure obligations. According to Belnick’s motion, “the size of the Utah relocation loan prompted Mr. Belnick to raise the issue whether Tyco needed to disclose the loan in its SEC filings.” Tyco’s then-CFO, Swartz, assured him that Marian Tse, a partner at Boston’s Goodwin Procter, had “confirmed” that Belnick’s relocation loans did not have to be disclosed to the SEC, the defense motion claims. Belnick’s filings include a Sept. 7, 2001, fax from Tse consisting of some underlined SEC regulations. It is not clear from the documents themselves whether Tse sent the fax in response to a specific question about Belnick’s $10 million Utah loan. Several lawyers with knowledge of the matter say that Goodwin handled employment and executive compensation issues for Tyco. Melissa Benson, a spokeswoman for Goodwin Procter, declined to comment for this article, saying the firm does not comment on client matters. Belnick himself did not request a legal opinion on the disclosure of the loans. But Weingarten contends that Belnick’s request for assurance from Swartz demonstrates an interest in complying with the law, rather than an intent to thwart it. Belnick’s filings also assert that Goodwin’s Tse weighed in, at Belnick’s request, on SEC disclosure questions related to a rich employment deal he struck with Kozlowski in late 2001. According to Belnick’s motion, this “retention agreement” was “intended to provide funds to repay Mr. Belnick’s Utah relocation loan by the end of the agreement term in October 2003.” The agreement calls for the company to pay Belnick $10.6 million, even if he is fired. The agreement provides only one exception: If Belnick is fired due to his “conviction of a felony,” Tyco doesn’t have to pay. In a Jan. 24, 2002, e-mail included in Belnick’s motion, Goodwin’s Tse opines that this agreement “is a material contract that should be filed with the SEC.” And, indeed, it was filed as an exhibit to Tyco’s March 2002 quarterly report. Belnick’s filings contain documents suggesting that he carefully shepherded the agreement through outside counsel and ensured its disclosure in the SEC Disclosure Form 10-Q. Belnick has now filed a demand for arbitration of his claim that the company still owes him the $10.6 million. Weingarten’s court papers also detail interactions between Belnick and D.C.’s Wilmer, Cutler. The motion says Belnick’s prior experience as a lawyer “was in litigation and did not include significant experience with securities law or SEC filings”– and makes much of the fact that he brought in SEC experts from Wilmer “as outside counsel on securities matters.” According to e-mail traffic between Belnick and Wilmer filed by the defense, Belnick sought advice from the firm relating to his retention agreement. But Belnick’s motion does not include any evidence that he sought Wilmer’s advice on the disclosure of his relocation loans. Weingarten says Belnick had no reason to turn to Wilmer, given Swartz’s assurances on the subject. Weingarten adds that Belnick only brought his retention agreement to the firm because the agreement was a “contentious” issue within Tyco. William Perlstein, managing partner of Wilmer, Cutler, declined to comment, citing attorney-client privilege. A criminal indictment is not Belnick’s only problem. The SEC has filed a civil suit against him, alleging that SEC regulations required disclosure of his loans. Weingarten says that next month he will a file a motion to dismiss that suit. In New York, Assistant D.A. Moscow says he is undaunted by Weingarten’s arguments and his evidence. “His client is guilty,” Moscow states. “My reaction to these papers is: They belie the weakness of his position. We will be addressing [Weingarten's arguments] seriatim in our papers.” Moscow’s reply is due next month. A status conference in Belnick’s case is slated for Nov. 21.

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