Tyco Tycoons Scramble For Bail Money
The two men who formerly were Tyco's chief executive officer and its chief financial officer are facing a real possibility of not being able to make bail and being ordered to jail as early as Thursday.
At a hearing Tuesday, lawyers for former CEO L. Dennis Kozlowski and former CFO Mark Swartz said it isn't that the two don't have any money - they just can't get their hands on it, because their assets have been frozen by court order.
"He's got more assets than Custer had Indians," says Kozlowski's lawyer, Stephen Kaufman, explaining that the problem is getting access to the money. "He can't even go to an ATM."
Kozlowski, 55, and Swartz, 42, are accused of looting millions of dollars from the conglomerate, which makes everything from security systems and medical devices to coat hangers and plastic wrap.
Money offered by relatives and others close to the two defendants - even Kozlowski's ex-wife - is being objected to by prosecutors. They argue that the assets shouldn't be allowed as bail money because they could have been acquired through profits of the crime with which the two men are charged.
Last week, State Supreme Court Justice Michael Obus set bonds of $100 million for Kozlowski and $50 million for Swartz, who will be jailed unless they come up with ten percent of that amount - the standard requirement for bail - by Thursday.
Heading into Thursday's bail deadline with empty pockets, the defendants have been told to post whatever assets they believe might be eligible for use as bail money, and if the prosecution objects to the source of the money, a hearing on that issue will be held.
Arguing on behalf of Kozlowski, Kaufman told the judge Tuesday that his client's ex-wife, Angie, had agreed to put up her $10 million house in Greenwich, Conn., or $10 million in municipal bonds as bond security.
Assistant District Attorney John Moscow described both as "possibly attributable to the course of conduct" charged in the indictment.
"We have made every reasonable effort to satisfy the bond that your honor set," said Kaufman.
Moscow replied: "It doesn't seem appropriate that the proceeds of the crime should be used as bail. All we want to know is if the bail is the proceeds of the crime."
Kaufman says the restraining order Obus issued last week keeps Kozlowski from using his assets anywhere in the country for his bond. The defense attorney adds that he believes it is legally questionable whether a New York judge has the authority to issue such an order.
Swartz's lawyer, James Mitchell, told the judge "we find ourselves in essentially the same situation as Mr. Kaufman."
Mitchell said his client's wife had offered property she and the defendant owned jointly.
Moscow told Obus that given the employment history of Swartz's wife "it is quite obvious that that the source of the funds is the defendant."
Obus said it appeared to him that some of the bond collateral offered by the defendants might not be subject to his restraining order. He told the defense to return Thursday, post the security, and if Moscow objects, the court will hold a hearing on whether it is acceptable.
Kozlowski and Swartz were charged last week with enterprise corruption and grand larceny for allegedly stealing some $600 million from Tyco. They face up to 25 years in prison on each of those charges if convicted.
Tyco's former general counsel Mark Belnick, 55, was charged at the same time with falsifying business records to cover up $14 million in improper loans. Belnick, who could get as much as four years in jail if convicted, was released last week on an unsecured personal recognizance bond of $1 million.
Prosecutors filed criminal charges against the men soon after the Securities and Exchange Commission accused them of hiding huge loans and other money they allegedly took out of Tyco, which is based in Bermuda but headquartered in New Hampshire.
The SEC said Kozlowski used $242 million from an employee loan program, established to help workers buy Tyco stock, to pay for yachts, fine art, jewelry, luxury apartments and vacations.
Kozlowski had already been indicted in June on charges of evading New York sales taxes on $13 million in art, including works by Renoir and Monet. He resigned from Tyco in June a day before being indicted. He has pleaded not guilty in that case.
The court order froze $600 million of Kozlowski assets. Tyco furthermore is in the process of seizing most, if not all of Kozlowski's assets, including a $17 million Fifth Avenue apartment, a $7 million Park Avenue apartment he turned over to his ex-wife, a $5 million Nantucket home and a $30 million compound in Boca Raton, Florida.
Swartz is accused of using company money to invest in sports teams and buy expensive jewelry and improper expenses allegedly incurred by Kozlowski include a $2.1 million birthday party for his wife in Sardinia, Italy.
Other alleged unauthorized expenses incurred by Kozlowski include $6,000 for a shower curtain, a $15,000 umbrella stand, a $6,300 sewing basket and $445 for a pin cushion.