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The Manhattan district attorney’s office has indicted former Tyco International Ltd. Chief Corporate Counsel Mark Belnick on three additional felony charges, including one count of grand larceny and one count of scheming to defraud Tyco investors in violation of state securities law. The new charges, announced Monday by District Attorney Robert M. Morgenthau, significantly raise the stakes for Belnick, who was charged last September with six counts of falsifying business records, punishable by up to four years in prison. If convicted of grand larceny, Belnick could face up to 25 years in prison. Moreover, the district attorney is also now charging that Belnick acted with former Tyco Chief Executive Officer L. Dennis Kozlowski and former Chief Financial Officer Mark H. Swartz in violating New York’s Martin Act governing state securities filings. The state’s previous case against Belnick focused on his alleged efforts to conceal a $14.5 million interest-free loan, and did not charge ongoing cooperation with Swartz and Kozlowski. Prosecutors also added another count of falsifying business records. Led into court in handcuffs, Belnick pleaded not guilty to the new charges before Manhattan Supreme Court Justice Michael Obus. Prosecutors did not request new bail. In charging Belnick with grand larceny, prosecutors are alleging he stole $12 million by accepting a “special bonus” not approved by Tyco’s board of directors. The special bonus, paid on top of Belnick’s salary and annual bonus, consisted of $2 million in cash and 200,000 shares of Tyco stock. Prosecutors allege that Belnick, Kozlowski and Swartz violated the Martin Act by engaging in a scheme to falsely represent Tyco’s financial condition to investors through means including the concealment of loans and payments made to themselves. In addition to the $14.5 million loan and the $12 million special bonus, Belnick allegedly realized $25 million through the sale of Tyco stock in the course of the scheme. Such a Martin Act violation is punishable by up to four years in prison. The seven counts of falsifying business records all stem from Belnick’s alleged failure to disclose loans and payments in internal questionnaires used by Tyco to prepare its disclosure statements to investors and the Securities and Exchange Commission. Belnick, a former partner at New York’s Paul, Weiss, Rifkind, Wharton & Garrison and the only general counsel to face criminal charges in any of the recent corporate scandals, does not face quite the litany of charges confronting Kozlowski and Swartz. They were both charged in September with enterprise corruption and conspiracy along with a Martin Act scheme to defraud and several counts of both grand larceny and falsifying business records. Kozlowski and Swartz are charged with stealing more than $600 million in unauthorized compensation, loans and stock sales. Kozlowski also faced an earlier charge of sales tax fraud. Tyco’s own suit against Belnick, filed last June in the Southern District, alleges the former general counsel participated in a conspiracy with Kozlowski and Swartz. All three also face SEC civil enforcement actions in the Southern District. NEW EVIDENCE Assistant District Attorney John W. Moscow, who has been leading the criminal prosecutions of the Tyco executives, said the new charges against Belnick stemmed in part from witnesses and other evidence prosecutors had not previously had access to, owing to privilege issues associated with Belnick’s position as general counsel. Belnick’s lawyer, Reid Weingarten of Washington, D.C.’s Steptoe & Johnson, had argued a motion to dismiss the charges against his client Jan. 9, and Justice Obus had been expected to rule on the motion this Friday. At Monday’s arraignment, lawyers agreed to address scheduling issues on Friday instead. At the Jan. 9 hearing, Weingarten had argued that Belnick’s $14.5 million loan, used to buy a Manhattan apartment and a house in Park City, Utah, was excepted from disclosure in the company’s questionnaires because such loans were routine among Tyco executives and could be characterized as arising “in the ordinary course of business.” Outside the courthouse Monday, Weingarten, standing next to Belnick, sounded similar themes. The $12 million special bonus, he said, was merely a reward for Belnick’s job performance. “The lesson is the district attorney’s office doesn’t think people should be rewarded for doing their job,” said Weingarten. “They think they should be charged with grand larceny.” Weingarten said he and Belnick were “disappointed and somewhat puzzled” by the new charges, but added that they remained confident Belnick would be vindicated. “We are confident in the system,” said Weingarten. At the Jan. 9 hearing, Moscow argued that Belnick’s “ordinary course of business” defense could be “bootstrapped” to excuse almost any corporate misconduct.

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