3 Corporate Scandal Trials Begin

Tyco chief financial officer Mark Swartz (left, March 29, 2004) and Tyco's former CEO, L. Dennis Kozlowski (March 26, 2004). AP

The former CEO of Tyco and a onetime Wall Street investment banker on Monday became the first two people to go on trial in the wave of recent scandals that have shaken faith in corporate America.

Jury selection in the trials of Dennis Kozlowski and former banker Frank Quattrone began just blocks apart in separate Manhattan courts.

Quattrone and Kozlowski have both come to symbolize the corporate excess of the late 1990s, and their trials are being closely watched by the financial community as a sign of how authorities will prosecute alleged corporate corruption.

Kozlowski is accused of looting $600 million from Tyco and spending the money on everything from high art to furniture, including a $6,000 shower curtain and a $15,000 antique umbrella stand.

In one well-known episode, Tyco picked up half the tab for a $2 million birthday party for Kozlowski's wife in Italy that featured musician Jimmy Buffett and an ice sculpture of Michelangelo's David.

Kozlowski, 56, and former Tyco financial chief Mark Swartz, 43, have both pleaded not guilty to grand larceny charges and could each get 30 years in prison if convicted.

They are expected to argue that the millions they are accused of stealing were actually loans and bonuses approved by the board and disclosed to outside auditors.

Justice Michael Obus cautioned prospective jurors that "we are not here to conduct some kind of sociological survey. We are not here to send messages to anybody."

"This is not a case about Enron or WorldCom or any other company you may have heard about," Obus said. "It is not an evaluation of the New York Stock Exchange or how much corporate executives should be paid. This is about the charges in this case."

Prosecutors asked the judge to dismiss two counts of the Tyco indictment, both related to filing false business records, in an attempt to shorten the trial. They said the issues covered by those counts would still be part of the case.

Obus and lawyers estimated that trial will take about two months.

Quattrone, an influential investment banker at Credit Suisse First Boston during the 1990s, was paid tens of millions of dollars a year to help take technology companies public.

He is accused of encouraging CSFB employees to get rid of documents as a grand jury and regulators looked into how the firm doled out shares of initial-public offerings during the dot-com boom.

He has pleaded not guilty to obstruction and witness-tampering charges and faces 25 years in prison if convicted.

U.S. District Judge Richard Owen asked potential jurors in Quattrone's trial whether the blizzard of corporate scandal news over the past year would keep them from being impartial.

"There's been a lot of major questions raised about big corporations and their executives and financial transactions," Owen told one man who was part of the jury pool.

"I have opinions, but I could still be fair," the man replied.

Owen told possible jurors the trial would last about two weeks. Opening statements could come as early as Tuesday.

In Harrisburg, Pa., meanwhile, opening statements began in the trial of former Rite Aid Corp. executive Franklin C. Brown, with a prosecutor saying several other former top managers who pleaded guilty will testify against Brown.

The former general counsel and vice chairman is accused of conspiring to inflate the company's financial statements during the late 1990s, a period when the company's stock soared. In 2000, the company restated its net earnings downward by $1.6 billion.


By Erin McClam
  • Jarrett Murphy

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