• E-mail
• Print
• Comment
• Font Size
• Digg
• del.icio.us
• Discuss article

Judge Sentences Former Tyco Executives to Up to 25 Years in Prison

Posted on: Tuesday, 20 September 2005, 00:00 CDT

Sep. 20--NEW YORK -- Former Tyco International chief executive L. Dennis Kozlowski stared forward and sat motionless on Monday when a New York judge sentenced him to eight to 25 years in prison for siphoning hundreds of millions from the company.

The same was true for his co-defendant Mark Swartz, the company's one-time financial chief.

It was a departure from the emotional display at the recent sentencing of Bernie Ebbers, the former WorldCom CEO convicted for his part in an $11 billion accounting fraud who buried his head in his hands to hide his tears. Kozlowski, who was convicted in June for his role in the theft of $170 million from Tyco and improperly manipulating shares to cash out $430 million in options, appeared to have expected a sentence in line with the recent spate of corporate executive convictions.

Two months ago, a federal court sentenced Ebbers to 25 years in prison. Earlier in the year, John J. Rigas, the 80-year old former chairman of Adelphia Communications, was sentenced to 15 years while his son Timothy was given 20 years. All three remain free on bail.

"For white-collar criminals, it's a whole new world," said Arthur Jakoby, a former SEC prosecutor now a partner with Herrick, Feinstein in New York. "The sentences are getting tougher and tougher. The old clubbie atmosphere in which judges looked the other way when sentencing corporate executives is long gone."

Minutes after the sentences were read, court officers handcuffed the two gray-suited men and escorted through a side door by court police. Kozlowski, 58, and Swartz, 45, appeared resigned to their fates as they looked back wearily in the direction of their wives and families.

In addition to their jail sentences, Kozlowski was ordered to pay $97 million in restitution and $70 million in fines. Swartz was ordered to pay $37 million in restitution and $35 million in fines. In a hallway outside the lower Manhattan courtroom, Kozlowski's lead attorney Stephen Kaufman said he would appeal the conviction in hopes that his client would be freed on bail pending appeal.

The two men were convicted of grand larceny, securities fraud, conspiracy and falsifying documents. Together, they stole $170 million by arranging unauthorized bonuses and company loans. There were also convicted of lying about Tyco's financial health to investors in order to pump up its share price and cash in on $430 million in stock options.

For Kozlowski, the working-class kid from Newark, New Jersey who built Tyco into a $36 billion industrial giant, the sentencing marked an end to two lengthy, high-profile trials held during the two years. The first ended in April 2004 in a mistrial.

Kozlowski's looting of Tyco's treasury was best symbolized by the extravagant party he held to celebrate his wife's 40th birthday party on the Italian island of Sardinia. The $2-million party, some of which was recorded on a well-publicized video, showed waiters in togas filling glasses with vodka that poured off an ice sculpture in the form of Michelangelo's David.

But the focus of the government's case centered on how Kozlowski used his position to bilk Tyco so that he could build multi-million dollar homes for himself in New York City, Boca Raton, Fl., and Nantucket, Mass. Some $10 million used to purchase Monet and Renoir paintings while millions more was funneled to his alma mater and schools attended by his daughters.

During their trials, Kozlowski and Swartz asserted that board directors approved their multi-million dollar bonuses and loans, most of which were later forgiven.

Earlier in court, Assistant District Attorney Owen Heimer asked Judge Michael Obus of the State Supreme Court of New York to hand Kozlowski the maximum sentence for his crimes -- 15 to 30 years in prison.

"If the maximum consecutive sentence is not appropriate in this case, then there is no case in which it is appropriate," Heimer said. "The scale and amount of theft is the largest in the state's history."

Under New York state law, Kozlowski and Swartz could be eligible for parole, with good behavior, after serving just seven years of their sentence. Standard parole eligibility kicks in after eight years. Several legal experts suggested that the two men would likely spend more than 10 years behind bars.

The sentences added fuel to the raging debate within the legal community about the efficacy of long prison sentences for white-collar criminals.

Jennifer Arlen, a professor at New York University School of Law and an expert in corporate crime, said that in general there is a trend across federal and state courts for longer sentences. Back in the late 1980s, she said, Michael Milken, the infamous junk-bond salesman, was sentenced to three and a half years in prison but served just 22 months.

In the wake of the Enron and WorldCom bankruptcies, she said, public sentiment had grown more intolerant of white-collar crimes. Even the low-end of Kozlowski's sentence would have been unimaginable eight or 10 years in a criminal case involving a corporate executive, she said.

"There's been a shift in thinking," Arlen said. "People want to know that the sanction will not only punish the wrongdoer but it will unquestionably deter other people from doing the same thing."

But others in the legal community argue that there is a point at which lengthy sentences for white-collar criminals cease being a deterrent, and are instead unreasonably, especially in cases in which the convicted is near retirement.

"Certainly, the judge had to strike a balance by sending a message that these were serious crimes," said Andrew Genser, a white-collar criminal defense lawyer at Kirkland and Ellis, and former federal prosecutor. "But it is arguable that you shouldn't be going away for as long as someone who commits manslaughter or homicide."

But jail time and severe punishment are not the most crucial components in deterring criminal crime, argued Nomi Prins, a former investment banker and author of "Other People's Money" (The New Press).

Too much attention, Prins argued, has been placed on the question of whether corporate criminals are receiving excessive sentences. Rather, she said, the focus should be on the work of regulatory agencies as well as the day-to-day actions of corporations.

"Relative to physical crimes, these probably are high sentences," Prins said. "But there's a danger in giving a few people high sentences, while not examining the larger financial and government structures that continue to allow these crimes to take place."

Unlike Enron or WorldCom, Tyco was not forced into bankruptcy. The company, which has filed lawsuits against both Kozlowski and Swartz, has been under new management since 2002. That same year the company moved its headquarters to West Windsor, N.J. from Exeter, New Hampshire.

-----

To see more of the Chicago Tribune, or to subscribe to the newspaper, go to http://www.chicagotribune.com.

Copyright (c) 2005, Chicago Tribune

Distributed by Knight Ridder/Tribune Business News.

For information on republishing this content, contact us at (800) 661-2511 (U.S.), (213) 237-4914 (worldwide), fax (213) 237-6515, or e-mail reprints@krtinfo.com.

TYC, MCIP,

Source: Chicago Tribune

More News in this Category