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A three year-long prosecution that had become a lightning rod of criticism for Manhattan District Attorney Robert Morgenthau has climaxed with a courtroom victory that could transform his office’s reputation as well as his fall electoral prospects. The convictions Friday of L. Dennis Kozlowski, the former chief executive officer of Tyco International Ltd., and Mark Swartz, the former chief financial officer, on charges they stole some $150 million in unauthorized loans and bonuses gives the district attorney a win in one of the highest-profile cases to emerge from the corporate scandals of recent years. The men, who will be sentenced Aug. 2, were convicted of grand larceny, securities fraud, conspiracy and falsifying business records. Kozlowski’s chief lawyer, Stephen Kaufman, said Friday he was disappointed in the outcome but said his client plans to appeal. The convictions on the 11th day of jury deliberations came at exactly the right moment for Morgenthau, who has faced criticism this election year, not least from his challenger for the Democratic nomination, that his office devotes too many resources to white-collar cases that would be better handled by federal prosecutors. In a statement released Friday, Morgenthau said he was “gratified” by the outcome. He thanked the jury but also seemed to address his critics. “This verdict is an endorsement of the principle of equal justice under the law; crimes committed in corporate offices will be treated according to the same standards as other crimes,” he said. “No one is above the law — all crimes must be prosecuted vigorously and those responsible held accountable.” The long, drawn-out path to Friday’s verdicts clearly fueled criticism of the Tyco prosecution. The trial just ended lasted almost five months, and was the two executives’ second trial on the charges. The first trial, which stretched for six months between October 2003 and April 2004, ended in a mistrial after a juror identified by some newspapers as a holdout for acquittal was contacted by a third party. The two men were first indicted almost three years ago. EARLIER TYCO ACQUITTAL Another blow to prosecutors came when Tyco general counsel Mark Belnick, who was tried separately for allegedly stealing $30 million in loans and bonuses, was acquitted on all charges last July. Meanwhile, Morgenthau’s federal counterparts in the Southern District won white-collar convictions against lifestyle guru Martha Stewart, former WorldCom Inc. CEO Bernard Ebbers and former Silicon Valley investment banker Frank Quattrone. Though federal prosecutors have had their own setback recently with the U.S. Supreme Court’s overturning of the obstruction of justice conviction of Arthur Andersen, state prosecutors also took a hit earlier this month when New York Attorney General Eliot Spitzer failed to win a conviction for grand larceny of Theodore Sihpol, a former Bank of America broker accused of helping a hedge fund trade after the market close. Former Acting Manhattan Supreme Court Justice Leslie Crocker Snyder, who is challenging Morgenthau for the Democratic nomination, has made the resources devoted by Morgenthau to white-collar prosecutions one of her major campaign issues. She has said she believes federal prosecutors have better tools to take on such prosecutions. Ronald Blum, a partner at Manatt Phelps & Phillips and a former assistant district attorney under Morgenthau, said acquittals on Friday would definitely have boosted Snyder’s campaign. He said the convictions could have the opposite effect. “This verdict will silence some of the critics who have complained about the resources the office puts into white-collar prosecutions.” He added that he thought it was hard to argue that a Manhattan prosecutor should avoid white-collar crimes, given that the borough is home to so many white-collar workers. REPUTATION ENHANCED Gregory Wallance, a partner at Kaye Scholer and former federal prosecutor, said the extremely high-profile nature of the Tyco case would definitely boost the Manhattan District Attorney’s Office image among white-collar prosecutors. The office’s reputation in the area has heretofore been largely defined by its unsuccessful prosecutions in the early 1990s of figures tied to the Bank of Credit and Commerce International. Wallance also said he believes the greater efficacy of federal prosecutions is a myth that the Tyco convictions could bury. “This was not an easy case to make,” he said, “and they were up against some very good lawyers.” The case put forth by a prosecution team led by Assistant District Attorney Owen Heimer relied heavily on the testimony of former members of the Tyco board of directors. Those former directors testified that they never approved certain bonuses and loans for Kozlowski and Swartz. The prosecution claimed the executives sought to conceal these amounts and bought the loyalty of other employees that helped them to do so. Once among the most lauded figures in Corporate America, Kozlowski in particular became a tabloid emblem of executive greed when it was disclosed that some of the disputed funds were used to buy lavish Manhattan apartments, expensive paintings, jewelry and, most infamously, a $6,000 shower curtain. Both Kaufman and Swartz’s chief lawyer, Charles Stillman of Stillman & Friedman, sought to place the disputed amounts in a more favorable context. Arguing that all of the executives’ compensation had been approved by board members who had changed their stories to fend off later shareholder suits, the defense lawyers pointed to the vast sums Kozlowski and Swartz were legitimately paid. They said the two had no reason to steal, given the extreme wealth they already possessed. The defense also stressed the enormous improvement in Tyco’s performance under Kozlowski, with revenue increasing tenfold from $3 billion to $30 billion. Both men testified in their own defense. They said their compensation had been approved by Philip Hampton, a Tyco board member and compensation committee chair who died in 2001. They said their failure to report bonuses worth $25 million and $12.5 million on tax returns were administrative oversights. Kozlowski and Swartz face up to 25 years in prison on the top count of grand larceny.

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