Tyco CEO Dennis Kozlowski Indicted for $600 Million Fraud

On September 12, 2002, Manhattan District Attorney Robert Morgenthau indicted former Tyco International CEO Dennis Kozlowski, CFO Mark Swartz, and General Counsel Mark Belnick on charges of looting at least $600 million from the company through fraudulent loans and unauthorized stock sales. The three executives were led into court in handcuffs and pleaded not guilty.

Prosecutors charged that Kozlowski and Swartz stole $170 million in company loans and other unauthorized funds, while obtaining more than $430 million through fraudulent securities sales. The men used company money to purchase homes in Nantucket, Massachusetts, and Rye, New Hampshire, as well as yachts, jewelry from Tiffany and Harry Winston, and lavish home renovations—including Kozlowski’s infamous $2 million birthday party for his wife, half charged to Tyco.

Kozlowski was released on $100 million bail while Swartz’s bail was set at $50 million. A restraining order froze approximately $600 million in assets belonging to both men. The SEC simultaneously filed parallel civil enforcement actions charging the executives with violating federal securities laws by failing to disclose the multi-million dollar low-interest and interest-free loans they had taken from the company.

The Tyco case represented another instance of brazen executive looting in the brief 2001-2002 accountability era. Coming months after Enron’s collapse, WorldCom’s $107 billion bankruptcy, and the passage of Sarbanes-Oxley, the Kozlowski indictment demonstrated that corporate fraud extended far beyond energy and telecommunications. However, this would prove to be the last wave of aggressive criminal prosecutions of Fortune 500 executives—after 2008, similar executive enrichment at the expense of shareholders would be addressed with civil settlements rather than criminal charges.