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Tyco Execs Found Guilty

Two former top executives of Tyco International Ltd. were convicted Friday of looting the industrial products and services company of more than $600 million to fund extravagant lifestyles featuring expensive jewelry, an opulent Manhattan apartment and a gaudy Mediterranean birthday party.

Former chief executive Dennis Kozlowski and finance chief Mark Swartz were found guilty of grand larceny, securities fraud, falsifying business records and other charges.

The grand larceny conviction alone carries a penalty of up to 25 years in prison.

A state court jury deliberated over 11 days before returning the verdict in the second prosecution of Kozlowski, 58, and Swartz, 44. The verdict came after a four-month trial in Manhattan state Supreme Court.

The pair had testified they were unaware of any wrongdoing when they accepted the hundreds of millions in money and loans.

"We are disappointed, and we will deal with this on appeal," promised Swartz's attorney, Charles Stillman.

Although prosecutors called for the pair to be jailed pending sentencing, both were allowed to remain free on $10 million bail apiece. Their dejected wives sat in the courtroom, their heads hanging, as the jury
foreman intoned guilty verdict after guilty verdict against the pair – 22 for each.

Kozlowski and Swartz, who were each acquitted of just a single charge, were due back in court Aug. 2 for a pre-sentencing hearing.

"This is close to the worst-case scenario for these guys, who now face almost certain prison time," says CBS News Legal Analyst Andrew Cohen. "Grand larceny is a big deal and it's inconceivable that a judge will show much mercy in sentencing, given how much money was in play here."

Cohen says the case was "not all that complicated. This jury believed that these guys stole money from the company through unauthorized loans and other shenanigans they shouldn't have been doing. And that's grand larceny as much as stealing from a bank is."

Kozlowski and Swartz join a string of executives convicted in recent years in high-profile corporate wrongdoing cases, among them former WorldCom CEO Bernard Ebbers and Adelphia Communications Corp. founder John Rigas and his son, Timothy.

Richard Scrushy, founder and former chief executive at HealthSouth Corp., is on trial on fraud charges and awaiting a jury verdict in federal court in Birmingham, Ala. And former Enron Corp. executives Kenneth Lay and Jeffrey Skilling are scheduled to go on trial early next year.

The first trial of the former Tyco executives ended in an April 2004 mistrial because a juror, identified by a newspaper as a holdout for acquittal, received a menacing telephone call and letter.

Kozlowski and Swartz were accused of enriching themselves by nearly $600 million by taking unauthorized pay and bonuses, abusing loan programs and selling their company stock at inflated prices after lying about Tyco's finances.

Often, prosecutors said, the defendants hid their alleged thefts by failing to disclose the bonuses and loan forgivenesses in company prospectuses and federal filings, and bought the silence of underlings with outsized compensation.

Both used Tyco's money to buy extravagant lifestyles that featured art, jewelry and real estate, prosecutors said. An example of that spending was the gaudy $2 million party Kozlowski threw for wife Karen's 40th birthday on the Mediterranean island of Sardinia, they said. Tyco paid about half of the party's cost.

The prosecution's emphasis in the first trial on the lavish spending was pared in the second. Less time was spent on the Manhattan apartment that Kozlowski said he bought for Tyco, which with an $18 million purchase price and furnishings that included a $6,000 shower curtain, raised the cost of the place to more than $30 million.

Lawyers for Kozlowski, with Tyco from 1975 until 2002, and Swartz, who joined Tyco in 1991 and left in 2002, said the executives believed they were acting lawfully when they accepted compensation and loan forgivenesses or spent Tyco's money. There was no criminal intent by either man, they said, and therefore there were no crimes.

A major difference in the second trial was four days of testimony by Kozlowski, who did not testify in the first. He told the jury that he never abused Tyco loan programs or received a bonus to which he was not entitled, and that he never stole anything.

Asked by one of his lawyers, Stephen Kaufman, why a $25 million bonus that he received as a loan forgiveness from the company did not appear on his 1999 tax return, Kozlowski said he could not explain why.

"I just was not thinking when I signed my tax return that I had a $25 million loan forgiveness," Kozlowski said. "Year in and year out at Tyco, my tax returns for the most part had been correct. I didn't pick up on it."

Prosecutors called Kozlowski's explanation for this omission and for other actions by him and Swartz "ludicrous," and "despicable."

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