Tyco Titan Charged With Tax Violations

Dennis Kozlowski, the dealmaking titan who built Tyco International Ltd. into a massive conglomerate, was charged Tuesday with avoiding more than $1 million in sales tax on paintings, including works by Renoir and Monet.

Kozlowski, who resigned Monday amid news of the investigation, surrendered Tuesday morning. At his arraignment Tuesday afternoon, he pleaded innocent to the charges and was released on a $3 million personal recognizance bond.

Kozlowski, who bought roughly $13 million in paintings, was charged with conspiracy, tampering with physical evidence, falsifying business records and sales tax violations, Manhattan District Attorney Robert Morgenthau said. Each of the 11 felony counts are punishable by up to four years in prison; Kozlowski also faces a misdemeanor conspiracy charge.

The paintings included "Fleurs et Fruits" by Pierre Auguste Renoir and "Pres Monte Carlo" by Claude Monet.

"The defendant and his coconspirators agreed to generate false documents, such as invoices and shipping documents, to make it appear as though the artwork was to be shipped out of state and therefore not covered by New York state sales tax provisions," Morgenthau said in announcing the indictment.

"Tyco employees were directed to sign false documents reflecting the receipt in New Hampshire of artwork, in an effort to thwart tax auditors," he added.

Morgenthau, who did not name the alleged coconspirators, said the investigation was ongoing. He said prosecutors are also looking at dealers and collectors as part of the investigation.

Kozlowski's next court date is June 26. He was instructed not to leave the country without written permission from the court. Neither Kozlowski nor his lawyer, Stephen Kaufman, had any comment outside the court.

Tyco was already under fire for Enron-inspired questions about how it accounted for the huge number of corporate acquisitions Kozlowski made in the 1990s as he turned Tyco into a 277,000-employee behemoth producing everything from undersea fiber-optic cable to coat hangers.

The company said Kozlowski resigned for personal reasons after informing board members Friday about the investigation.

Kozlowski has been under criminal investigation since January, and a grand jury began issuing subpoenas and taking testimony in recent weeks.

"He's someone that pushed the envelope, and this is something that could lead to further questions of the company," said Steven Altman, an analyst with Commerzbank in New York.

Kozlowski and his lawyer did not return calls seeking comment Monday. No one answered the door at Kozlowski's palatial seaside home in North Hampton, N.H.

The resignation of Kozlowski — a motorcyclist, sailing enthusiast and avid tennis player who split his time between the company's offices in New Hampshire and in Boca Raton, Fla. — came as the company has struggled for months.

Critics say Tyco used accounting tricks when it bought companies to make its profits appear to grow faster than they actually did.

Investors sent Tyco shares down nearly 27 percent Monday in heavy trading. In Tuesday afternoon trading, the stock was up 39 cents, or 2.4 percent, at $16.44 a share on the New York Stock Exchange. The shares traded as high as $60.09 in the 12 months.

"The fear is some of Kozlowski's behavior spilled over into his professional life," said Rob Plaza, an analyst with Morningstar Inc. in Chicago.

Plaza said board member John Fort, who has been brought in as temporary chief, won't be able to restore investor confidence and that Tyco needs to bring in an outsider to lead the company.

"The best way to look at it is guilt by association. You really need to bring in an outside leader with some credibility who wouldn't be afraid to clean house."