Auditor Knew of Tyco
International Deals, Prosecutor Says
| | HOME | NEWS ALERTS | SMK RECOMMENDATIONS | |
|
|
| NEW YORK, Feb 08, 2003 (The Boston Globe - Knight Ridder/Tribune Business News via COMTEX) -- The outside auditors for Tyco International Ltd., PricewaterhouseCoopers LLP, knew about most of the transactions that make up the case against the firm's former executives, including L. Dennis Kozlowski, the lead prosecutor said yesterday. Manhattan Assistant District Attorney John Moscow said that Pricewaterhouse auditors recorded many of the transactions that Kozlowski and former finance chief Mark Swartz were involved in and that form the basis of the indictment against the two. Moscow also said the US attorney in Concord, N.H., is preparing to indict Tyco officials on tax charges. "We will stipulate [or agree] that Pricewaterhouse knew about most of the transactions in the indictment," said Moscow, as he argued for a speedy trial. "I think we can stipulate to that." In the past 12 months, disclosures about Tyco have focused on a trio of top executives, including former general counsel Mark Belnick. The three allegedly abused company compensation programs, securing unauthorized loans, bonuses, and other compensation totaling hundreds of millions of dollars. The new allegations now turn the spotlight on Pricewaterhouse, the world's largest accounting firm, and raise questions as to whether the auditors contributed to the executives' alleged wrongdoing. Similar accusations against Arthur Andersen, the auditor for Enron, led to the firm's dissolution. "We do not disagree with Assistant District Attorney Moscow's assertion that PwC was aware of some of the loans, but had no knowledge that any of the loans or bonuses at issue were unauthorized or unknown to the company and its board of directors," said David Nestor, a spokesman for Pricewaterhouse. The firm "has been and continues to cooperate with the Manhattan DA's Tyco investigation. It doesn't appear that anything said in court today is new or hasn't been previously reported." The audits were done out of the firm's Boston and New York offices. In yesterday's proceeding, Moscow argued for a speedy trial, saying that federal prosecutors in New Hampshire are preparing tax charges against the former executives. Moscow said US District Court in New Hampshire "possesses tax charges but the indictment is not yet filed. We would like to get this resolved without multiple claims on the defendants' attention." A source familiar with the investigation confirmed that a grand jury has been convened in Concord. Tax charges are expected to be filed against Kozlowski and Swartz, but not Belnick. Bill Morse, assistant US attorney in Concord, refused either to confirm or deny any investigation. Defense attorneys for the former executives pounced on Moscow's disclosure about Pricewaterhouse's knowledge of the loans. "The district attorney has acknowledged Pricewaterhouse, the outside auditors, knew about the actions for which the district attorney wants to send my client to state prison," said attorney Charles Stillman, who represents Mark Swartz, Tyco's former chief financial officer. "The district attorney says we have the board minutes, but they are only a starting point. Directors have personal notes, and we have to subpoena them. The events of this case did not take place in a closed-door atmosphere." Responding to Moscow's concern about the pending federal tax case in New Hampshire, Stillman said, "The tax investigation in New Hampshire is no business of this district attorney. That is our cross to bear." The prosecution from the office of Manhattan District Attorney Robert Morgenthau is focusing on loans and stock options allegedly granted without the approval of Tyco's directors. Kozlowski and Swartz were charged in September with running a criminal enterprise that looted Tyco of $600 million. Belnick was charged with falsifying business records. This week, those charges were revised: Belnick was further charged with grand larceny for accepting an unapproved bonus of cash and stock worth $12 million. The case, Moscow said, is about proving Kozlowski, Swartz, and Belnick "took certain money without permission or authority." Outside the court, Stillman said, "They took loans. That is not stealing money. It's hard to steal if the outside auditor is conscious of the transaction. Nothing bad happened here. These are business transactions." Asked whether the board knew about the transactions, Stillman said, "We'll see who knew what, and when." State Supreme Court Justice Michael Obus set the trial for Kozlowski and Swartz for Sept. 29. Kozlowski's attorney, Stephen Kaufman, had sought a trial starting next January, while Moscow was pushing for the June 1 date Obus had set in November. Obus tried to balance the attorney's schedules and Belnick's desire for a quick trial. Belnick's trial won't start until after the other trial concludes. Obus said Sept. 29 gives the lawyers for Kozlowski and Swartz adequate time to review evidence, which includes more than 50,000 e-mails. "It seems the defendants have a handle on this case," Obus said. "As far as Pricewaterhouse is concerned, the defendants in a general sense know what was disclosed to Pricewaterhouse. I'm not sure how startling Mr. Moscow's stipulation was, but I am sure it will be part of the defense." A Tyco spokesman declined to comment on the court proceeding. By Matthew Brelis and Jeffrey Krasner |