Tyco in Turmoil

Special to CONTRACTOR

NEW YORK — The day after Tyco International announced that Dennis Koslowski had resigned for personal reasons, Koslowski was indicted by Manhattan District Attorney Robert Morgenthau on charges of allegedly evading more than $1 million in state and city sales taxes on purchases of artwork. Tyco announced Koslowski’s resignation June 3 (June, pg. 19).

Tyco’s Fire & Security division is the country’s largest fire sprinkler contractor.

Koslowski, Tyco’s then-chief executive officer, allegedly purchased fine art and claimed it was shipped to Tyco’s New Hampshire headquarters when it was actually installed in his Manhattan apartment, Morgenthau said.

Tyco’s woes, however, did not begin and end with Koslowski’s resignation.

On June 17, Tyco announced that it is suing its former chief corporate counsel, Mark A. Belnick, charging that he engaged in a broad pattern of misconduct for personal gain, including receiving $35 million in compensation that was not approved by either the Tyco board or its compensation committee, “as well as an ongoing cover-up that repeatedly breached his duties of care and loyalty to Tyco.”

The cover-up allegedly included concealing Belnick’s compensation and benefits from Tyco’s board of directors and the compensation committee; failing to disclose information on his compensation and loans in required public filings with the Securities and Exchange Commission; concealing the criminal investigation of Koslowski, from Tyco’s board; and Belnick’s deletion of computer files and attempt to remove files when he knew an internal investigation of these and other matters was underway.

After Koslowski’s resignation, the board appointed John F. Fort III as interim chief executive officer. Fort was Tyco’s lead director and had been CEO from 1982 to 1992. Tyco, however, was soon investigating Fort to see if he had sold a house in New Hampshire to Koslowski in 1996 that improperly used corporate funds. In addition, Tyco is investigating whether Fort was an active investor in DLJ Merchant Banking Partners II when the investment group purchased Mueller Co. and Grinnell Supply Sales from Tyco.

Tyco is also suing former outside director Frank Walsh, accusing him of negotiating a $20 million “finder’s fee” with Koslowski as part of Tyco’s takeover of CIT Financial, without the knowledge or approval of the board.

Tyco is also investigating if there were any improprieties when outside director Stephen Foss leased an airplane to the company.