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The trial of the two men who have personified executive greed for the past year got under way Tuesday with both prosecutors and defense lawyers urging jurors to pay attention to details and not be distracted by the large sums involved in the case. L. Dennis Kozlowski, the former chairman and chief executive of Tyco International Ltd., and Mark H. Swartz, Tyco’s former finance chief, are both facing 35 felony counts, including enterprise corruption, grand larceny and falsifying business records. The Manhattan district attorney’s office is arguing that the two men orchestrated a scheme to systematically loot Tyco at the expense of shareholders. “This case is about lying, cheating and stealing,” Assistant District Attorney Kenneth Chalifoux said in the prosecution’s opening statement before the jury and Manhattan Supreme Court Justice Michael J. Obus. What the case was not about, said Chalifoux, was high corporate salaries or lavish executive lifestyles. Only Kozlowski and Swartz’s misappropriations of Tyco’s money to fund lavish lifestyles were at issue in the case, the prosecutor said. Chalifoux promised jurors, however, that they would hear a great deal about lavish spending by Kozlowski and Swartz. Prosecutors allege the two men stole some $170 million from the company by abusing employee loan programs and paying themselves unauthorized bonuses. They allegedly used the money to buy luxurious Manhattan apartments, jewelry, and in Kozlowski’s case, to host a spectacular birthday party for his new wife, Karen Mayo, on the Mediterranean island of Sardinia at a cost of about $2 million. Kozlowski “gave half the bill to Tyco shareholders,” Chalifoux said of the party. The two top Tyco executives were able to carry out their scheme by controlling information about their activities both internally and externally, Chalifoux said, likening the scheme to teenagers planning a wild party while their parents are away. In this case, he said, an inner circle of Tyco executives in various departments were rewarded for participating in Kozlowski’s and Swartz’s scheme, and all cooperated to prevent the “parents,” meaning the board of directors and the company’s shareholders, from discovering what was going on. The plotters became bolder the longer they got away with their scheme, Chalifoux said. The prosecutor said several former Tyco employees, including some “corrupted” by Kozlowski and Swartz, will testify against them, as will several former members of the board. In his opening statement, Stephen Kaufman, the lawyer for Kozlowski, attacked the credibility of former board members, who he said “cheerleaded” Kozlowski’s management when times were good. Characterizing Kozlowski as a hard-working, aggressive and lucky executive, Kaufman argued that the Tyco chief had earned every penny of his compensation, and that the bonuses and forgiven loans were emblematic of a company at which massive financial rewards were intended to provide incentive for performance. Both Chalifoux and Kaufman used the example of Mark Belnick, the company’s former chief corporate counsel, who is facing a separate trial for grand larceny and falsifying business records. Belnick, who both sides agreed was about to be fired by Kozlowski, received a bonus worth more than $12 million following the end of an inquiry by the Securities and Exchange Commission in 2000. Chalifoux cited Belnick as an example of an executive rewarded for protecting Kozlowski’s and Swartz’s scheme. Kaufman said the bonus was paid solely because Kozlowski was pleased that Belnick had successfully concluded the SEC investigation. In concluding his opening statement, Kaufman urged jurors not to take out on Kozlowski any anger they might feel against corporate America “because markets have gone bad” or “because people have lost money.” “There is a danger of this trial becoming a means of sending a message,” said Kaufman, a solo practitioner. Charles Stillman, representing Swartz, touched on similar themes, arguing that Swartz’s stratospheric compensation was fully approved and authorized, and was tied to a “corporate philosophy of paying employees for performance.” “Mark made his own luck by hard work, dedication and, sure, by being in the right place at the right time,” said Stillman, of Stillman & Friedman. Both defense lawyers referred to records of payments and loans to the Tyco executives, including records kept by the company’s outside auditors at PricewaterhouseCoopers. “How do you run a criminal enterprise if you open your books to everyone internally and to outside auditors?” asked Kaufman, who characterized the outside auditors’ knowledge of the Tyco officers’ transactions as a “Good Housekeeping seal of approval.” Manhattan Assistant District Attorney John Moscow is also part of the prosecution’s team. The trial, which is expected to last more than three months, continues today, with the prosecution expected to call as its first witnesses several Tyco bookkeepers and John F. Fort, the company’s former lead director.

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