Labels: corporate ethics, corporate governance, Tyco

Labels: Dennis Kozlowski, Tyco

Labels: class action, Dennis Kozlowski, Melvyn Weiss, Milberg, Milberg Weiss, Schiffrin Barroway, securities, Tyco

Labels: Tyco

Labels: Dennis Kozlowski, Tyco

Conditions still ripe for ... another Enron?

By Carrie Johnson and Ben White
The Washington Post
February 12, 2006

Four years after the collapse of Enron spurred the most sweeping revisions in business regulation since the Great Depression, experts warn that the ingredients for a similar financial disaster remain. Despite new laws and regulations, companies still face enormous pressure to meet short-term financial goals, creating a powerful motive for accounting fraud. Outsized executive compensation grows by the year, offering another rich incentive to cook the books. And there is no certainty that Congress will continue to fund regulatory budgets at current levels.

But some things have changed since December 2001, when Enron's sudden descent into bankruptcy protection rocked investor confidence and left the markets reeling. Accountants face independent oversight for the first time in 70 years. Most corporate board members take their jobs far more seriously. Wall Street is somewhat less willing to accommodate clients' interests.

Nearly a dozen experts contacted by The Washington Post, including regulators, accountants, chief executives and board members, agreed to fill out a corporate governance report card on the eve of the Enron trial. The Houston energy trader's implosion exposed wide gaps in the safety net designed to protect shareholders. Former executives Kenneth Lay and Jeffrey Skilling are standing trial in Houston on fraud and conspiracy charges.

Accountants exploited loopholes to curry favor with companies that paid their fees. Executives collected more than $400 million in salary and bonuses but denied knowing about fraud on their watch. Investment bankers engaged in sham deals to help clients meet quarterly profit targets. Boards of directors waived conflicts-of-interest policies and turned a blind eye to overly aggressive business practices. And overwhelmed regulators failed to devote enough resources to combat fraud.

Congress passed the Sarbanes-Oxley Act in July 2002, imposing new duties on corporate executives, auditors and directors. The Securities and Exchange Commission (SEC) and the Justice Department spent tens of millions of dollars to root out malfeasance. Along the way, prosecutors won criminal convictions and decades-long prison terms for former leaders of Adelphia, Tyco and WorldCom.

But the government efforts may have backfired, inspiring a dangerous overconfidence among investors.

"I just don't think we are as far along as we need to be," said former SEC Chairman Harvey Pitt, who led the agency when it brought the biggest-ever fraud case against telecommunications company WorldCom in 2002. "Many shareholders may have been led to believe that [reforms] have cured all the problems and we're home free. Unfortunately, that's a prescription for disaster"...

Labels: Department of Justice, Enron, Tyco

Opportunity for Corporate Fraud Has Shrunk -- but It's Still There

By Carrie Johnson and Ben White
Washington Post Staff Writers
Thursday, January 26, 2006; D01

Four years after the collapse of Enron Corp. spurred the most sweeping revisions in business regulation since the Great Depression, experts warn that the ingredients for a similar financial disaster remain.

Despite new laws and regulations, companies still face enormous pressure to meet short-term financial goals, creating a powerful motive for accounting fraud. Outsized executive compensation grows by the year, offering another rich incentive to cook the books. And there is no certainty that Congress will continue to fund regulatory budgets at current levels.

But some things have changed since December 2001, when Enron's sudden descent into bankruptcy protection rocked investor confidence and left the markets reeling. Accountants face independent oversight for the first time in 70 years. Most corporate board members take their jobs far more seriously. Wall Street is somewhat less willing to accommodate clients' interests.

Nearly a dozen experts contacted by The Washington Post, including regulators, accountants, chief executives, board members and investor advocates, agreed to fill out a corporate governance report card on the eve of the Enron trial.

The Houston energy trader's implosion exposed wide gaps in the safety net designed to protect shareholders, some of which remain today. Former executives Kenneth L. Lay and Jeffrey K. Skilling go to trial Monday on fraud and conspiracy charges.

Accountants exploited loopholes to curry favor with companies that paid their fees. Executives collected more than $400 million in salary and bonuses but denied knowing about fraud on their watch. Investment bankers engaged in sham deals to help clients meet quarterly profit targets. Boards of directors waived conflicts-of-interest policies and turned a blind eye to overly aggressive business practices. And overwhelmed regulators failed to devote enough resources to combat fraud.

Congress passed the Sarbanes-Oxley Act in July 2002, imposing new duties on corporate executives, auditors and directors. The Securities and Exchange Commission and the Justice Department spent tens of millions of dollars to root out malfeasance. Along the way, prosecutors won criminal convictions and decades-long prison terms for former leaders of Adelphia Communications Corp., Tyco International Ltd. and WorldCom Inc.

But in a sense, the government efforts may have backfired, inspiring a dangerous overconfidence among investors...

Labels: Department of Justice, Enron, Tyco

Status of high-profile corporate scandals

November 23, 2005
By The Associated Press

A look at some of the high-profile corporate scandals of recent years and the status of legal action in each.

ADELPHIA COMMUNICATIONS CORP. -- Michael Rigas, a son of the founder of Adelphia Communications Corp., pleaded guilty on Wednesday to a charge of making a false entry in a financial record, eliminating the need for his retrial on securities fraud and bank fraud charges in a scandal that forced the cable giant into bankruptcy. John Rigas and his son Timothy were convicted in federal court last year of conspiracy, bank fraud and securities fraud. On June 20, John Rigas was sentenced to 15 years in prison, and Timothy Rigas to 20 years. They are free pending appeal. A fourth executive, Michael Mulcahey, was found not guilty of conspiracy and securities fraud. Last month, John and Timothy were indicted in Philadelphia on charges they and other family members didn't pay $300 million in taxes.

WORLDCOM INC. -- Bernard Ebbers, who as CEO of WorldCom oversaw the largest corporate fraud in U.S. history, was sentenced on July 13 to 25 years in prison. The sentence was handed down in Manhattan three years after WorldCom collapsed in an $11 billion accounting fraud, wiping out billions of investor dollars. A judge ruled in September that Ebbers can stay out of prison while he appeals his conviction.

HEALTHSOUTH CORP. -- Former CEO Richard Scrushy was acquitted on June 28 on all 36 counts of conspiracy, false reporting, fraud and money laundering in an alleged $2.7 billion earnings overstatement at the rehabilitation and medical services chain over seven years beginning in 1996. He blamed the fraud on 15 former HealthSouth executives who pleaded guilty. Hannibal "Sonny" Crumpler, a former HealthSouth executive, the second person to stand trial in the fraud was convicted last Friday of conspiracy and lying to auditors for his role in the fraud.

TYCO INTERNATIONAL LTD. -- Former Chief Executive L. Dennis Kozlowski and Chief Financial Officer Mark H. Swartz were convicted June 17 on 22 of 23 counts of grand larceny, conspiracy, securities fraud and falsifying business records. Prosecutors accused the two of conspiring to defraud Tyco of millions of dollars to fund extravagant lifestyles. The two were sentenced Sept 19 to eight and one-third to 25 years in prison. A judge refused to release Kozlowski and Swartz on bail while they are appeal their convictions.

ENRON CORP. -- Enron founder Kenneth Lay, former CEO Jeffrey Skilling and former top accountant Richard Causey are scheduled to go to trial in January on federal fraud and conspiracy charges. Former CFO Andrew Fastow pleaded guilty in January 2004 to two counts of conspiracy, admitting to orchestrating schemes to hide the company's debt and inflate profits while pocketing millions of dollars. He agreed to serve the maximum 10-year sentence, which will begin in July 2006, after he testifies against his former bosses.

Fastow's wife, Lea Fastow, completed a yearlong sentence in July on a misdemeanor tax charge for failing to report her husband's kickbacks. Former Enron treasurer Ben Glisan Jr. is serving a five-year sentence for his role in the scandal. And two former Merrill Lynch & Co. executives were sentenced to short prison terms for their roles in a bogus Enron sale of power barges.

CREDIT SUISSE FIRST BOSTON -- The company's former investment banking star, Frank Quattrone, was convicted in May 2004 on federal charges of obstruction of justice, after his first trial ended in a hung jury. Quattrone, who made a fortune taking Internet companies public during the dot-com stock boom, was sentenced to 18 months in prison. He is free on bail, appealing the conviction.

MARTHA STEWART: The founder of the homemaking empire was released March 4 after serving five months in prison, and finished serving an additional five months and three weeks of home confinement at the end of August. She was convicted in federal court last year of conspiracy, obstruction of justice and making false statements related to a personal sale of ImClone Systems Inc. stock. Her former broker at Merrill Lynch, Peter Bacanovic, served a five-month sentence and was released June 16. He still faces five months of home confinement. Stewart's conviction was not related to the company she founded, Martha Stewart Living Omnimedia Inc.

CENDANT CORP.: Former Cendant Corp. Vice Chairmen E. Kirk Shelton was convicted in January of conspiracy and securities, wire and mail fraud. He was sentenced on August 3 to 10 years in prison and ordered to pay full restitution for his role in an accounting scandal that cost investors and the company more than $3 billion. Shelton was ordered to pay $3.27 billion to Cendant including an initial "lump sum" payment of $15 million last month. Shelton delivered cash, company stock and company-funded insurance policies, a combination that Cendant said is at least $2.4 million short and fluctuates daily. Shelton stood trial with former Cendant Chairman Walter Forbes, whose case ended in a mistrial and will be retried. Four other former executives have already pleaded guilty.

Labels: 2006, Andy Fastow, Cendant, Dennis Kozlowski, Enron, Health South, money laundering, Tyco

Curtains for Tycho's Thief Exec as he gets 25 Years

By Laura Italiano
September 20, 2005

The $6,000 shower curtain has finally fallen on Tyco marauder Dennis Kozlowski. The spend-a-holic former CEO — as infamous for his bizarrely pricey home furnishings as for his $600 million looting of his company — is heading up the river without a yacht for a grueling state prison stint of 8 1/3 to 25 years.

"He has committed theft and securities fraud on an unprecedented, staggering scale, exceeding anything ever prosecuted in this state," Assistant District Attorney Owen Heimer said during a sentencing hearing yesterday in Manhattan Supreme Court. "It was a shocking spree of self-indulgence," Heimer said.

But the 58-year-old Kozlowski — who showed so much gall at the helm of Tyco he kept two ex-mistresses on his payroll and even charged the company for his "yacht stylist" and his $80,000-a-year housemaid — remained dry-eyed as he was handcuffed by court officers and led out by the arm.

Just three years ago, the ruddy robber baron enjoyed a Colorado ranch, a Boca mansion, and a Nantucket beach home — multimillion-dollar residences financed through larcenous bonuses, shady employee loans and fraudulently inflated stock-sale windfalls.

Now, Kozlowski will spend the next 10 days in a 9-by-7 cell in lower Manhattan's Tombs, before being moved to Rikers Island, and, ultimately, to a yet-to-be-determined upstate prison. His dinner last night was a hamburger, mashed potatoes with gravy, and four ounces of chocolate pudding, city correction spokesman Tom Antenen said.

It will be 2013 before Kozlowski is eligible for parole. But he may be eligible for work release in 2011. Sentenced to the same time alongside Kozlowski was his former chief financial officer, Mark Swartz, derided by prosecutors as the "architect" of the pair's grand larcenies. Between them, the two must pay Tyco back $134,351,397 in restitution, with Kozlowski on the hook for $97 million of that money.

Kozlowski was additionally slammed with $70 million in fines. That brings his total Criminal Court financial hit to $167 million — although civil litigation by the company and its shareholders could empty his pockets still further...

...Assistant District Attorney Owen Heimer, who was speaking at the sentencing of former Tyco top executives L. Dennis Kozlowski and Mark H. Swartz, said the fraud may have resulted in the inflation of the Bermuda conglomerate's results by $1 billion.

...A prosecutor in the Manhattan District Attorney's office said Monday that the enforcement staff of the Securities and Exchange Commission has recommended the agency begin an accounting fraud investigation of Tyco International Ltd. (TYC).

Labels: Dennis Kozlowski, Tyco

Questions over jail time for white-collar crime

By Andrew Ross Sorkin
September 17, 2005
The New York Times

On Monday morning, L. Dennis Kozlowski, the former chief executive of Tyco, will learn his fate. Kozlowski, who has been convicted of grand larceny, falsifying business records, securities fraud and other charges, is to be sentenced in New York Supreme Court. He faces a maximum prison sentence of 30 years.

Recent lengthy sentences for white-collar crimes have been seen, by some, as desperately needed deterrents after a deluge of corporate scandals. But the sentencing of Kozlowski, 58, comes at a time when a number of lawyers, including former prosecutors, are questioning whether such sentences are justified.

Bernard Ebbers, the former chairman of WorldCom who was convicted of masterminding an $11 billion accounting fraud that bankrupted the company, was sentenced to 25 years in prison. Because Ebbers is 63, some have contended that the sentence amounts to a life term. Shortly before, John Rigas, the 80-year-old founder of Adelphia Communications, was sentenced to 15 years in prison for his role in looting and hiding debt, in a scandal that bankrupted the cable-television company.

"You have to ask yourself whether the proof in these cases warrants such a sentence," said Otto Obermaier, a former U.S. prosecutor who worked on white-collar crimes from 1989 to 1993. Unlike Ebbers or Rigas, Kozlowski - along with Mark Swartz, Tyco's former chief financial officer who was convicted of the same set of crimes - is being sentenced in a state court. As a result, the judge in the Tyco case, Michael Obus, may have more latitude in his sentencing than U.S. judges, who have a strict set of guidelines to follow.

No lawyer is suggesting that white-collar criminals should not serve time. The question in legal circles has become what is appropriate for white-collar crimes in a post-Enron world? Jonathan Simon, a professor of law at University of California, Berkeley, said: "The most obvious comparison for the emerging attitude toward white-collar criminals is the harsh punishment we give to people involved in the drug trade. But both represent increasingly irrational and inhumane levels of punishment."

The main argument for imposing lengthy sentences is that they serve as a warning to other executives. After Ebbers's conviction in July, Alan Hevesi, the New York state comptroller and court-appointed lead plaintiff in the WorldCom securities class action, said it was "important to send a strong message" because of the billions of dollars and thousands of jobs that were lost as a result of the fraud.

Yet Simon, for one, said he had doubts about whether an especially long sentence worked as a significantly greater deterrent to potential white-collar criminals than shorter periods. He said that "it would be far more effective to impose a lot of short sentences on a wider group of offenders rather than the example model of harshly punishing a few celebrity cases while most potential offenders know that they are unlikely ever to be caught and punished."

Still, some prosecutors and lawyers suggest that lessons that were supposedly learned during the crackdown on corporate crime in the late 1980s did not stick, in part because the sentences were too lenient. Michael Milken was sentenced to three and a half years and served less than two.

Lawyers for Kozlowski and Swartz are expected to emphasize on Monday how different their cases are from those of Enron, WorldCom and Adelphia, companies that were forced to file for bankruptcy protection as a result of the crimes. Tyco never filed for Chapter 11 bankruptcy protection, and its underlying business was relatively unaffected. The two Tyco officials were convicted of stealing about $150 million by paying themselves unapproved bonuses and conspiring to keep the thefts secret.

In addition to determining a sentence, Obus is expected to make Kozlowski and Swartz disgorge the money they stole. Prosecutors may also seek to have the men pay hundreds of millions of dollars that they say shareholders lost as a result of falsified business records and the hiding of information from investors, as well as possibly millions of dollars in fines.

The original article (which first appeared in the New York Times) can be found here.

Labels: Dennis Kozlowski, Enron, Tyco

SEC probes dwarf-tossing party for Fidelity trader

By Jason Nisse
August 14, 2005

What would top brokers give to please traders from the world's largest fund manager? Lavish yachts, attractive female company and a dwarf to toss.

US regulators probing "inappropriate gifts" given to dealers at the financial giant Fidelity Investments have unearthed evidence of an astonishing party.

The March 2003 bachelor weekend for Thomas Bruderman Jnr, a star Fidelity trader, was paid for by three Wall Street firms - Jefferies & Co, Lazard and SG Cowan. A $65,000 (£36,000) private jet was laid on to take Mr Bruderman and his guests, who included Fidelity's then head of stock trading, Scott DeSano, and Dennis Kozlowski, the former head of Tyco International, from Boston to Miami. They were put up at the Delano Hotel, beloved of celebrities such as Madonna, and taken out on a yacht, along with at least two women who were hired to attend.

Another person hired was Danny Black, who describes himself as the "Heidi Fleiss of dwarf talent". His official role was as a waiter, but he also allowed himself to be thrown by partygoers in an activity called "dwarf tossing". Mr Black said that it "was a lavish party and a good time was had by all".

However, the US Securities & Exchange Commission is now investigating whether its rules - thatgifts from a broker to traders must not exceed $100 in value - were broken.

An internal investigation at Fidelity found that at least 16 of its employees had broken the company's rules on accepting freebies.

Mr Bruderman has left the firm and Mr DeSano has been moved to another unit at Fidelity, which focuses on strategic business development.

Both Fidelity and Mr DeSano received "Wells notices" from the SEC investigators last week, saying they were recommending that legal action be taken against them.

What would top brokers give to please traders from the world's largest fund manager? Lavish yachts, attractive female company and a dwarf to toss. US regulators probing "inappropriate gifts" given to dealers at the financial giant Fidelity Investments have unearthed evidence of an astonishing party.

The March 2003 bachelor weekend for Thomas Bruderman Jnr, a star Fidelity trader, was paid for by three Wall Street firms - Jefferies & Co, Lazard and SG Cowan. A $65,000 (£36,000) private jet was laid on to take Mr Bruderman and his guests, who included Fidelity's then head of stock trading, Scott DeSano, and Dennis Kozlowski, the former head of Tyco International, from Boston to Miami. They were put up at the Delano Hotel, beloved of celebrities such as Madonna, and taken out on a yacht, along with at least two women who were hired to attend.

Another person hired was Danny Black, who describes himself as the "Heidi Fleiss of dwarf talent". His official role was as a waiter, but he also allowed himself to be thrown by partygoers in an activity called "dwarf tossing". Mr Black said that it "was a lavish party and a good time was had by all".

However, the US Securities & Exchange Commission is now investigating whether its rules - thatgifts from a broker to traders must not exceed $100 in value - were broken. An internal investigation at Fidelity found that at least 16 of its employees had broken the company's rules on accepting freebies. Mr Bruderman has left the firm and Mr DeSano has been moved to another unit at Fidelity, which focuses on strategic business development. Both Fidelity and Mr DeSano received "Wells notices" from the SEC investigators last week, saying they were recommending that legal action be taken against them.