Tyco Stock Drop Linked To Fuzzy Accounting Practice; Stockholders Sue Company

EXETER, New Hampshire (March 28, 2000)—On the same day that Tyco International's stock price fell 23 percent, on word of a Securities and Exchange Commission investigation into allegedly improper accounting practices by the company, stockholders filed class-action lawsuits alleging that the company's top officers artificially inflated prices and pocketed hundreds of millions of dollars.

The lawsuits were filed in Florida and New York. The suits claim that while the company used accounting methods that artificially boosted its finances, Chairman Dennis Kozlowski and Chief Financial Officer Mark Schwarts sold 2.8 million shares for $280 million.

The officers misled stockholders while selling millions of their own shares at near-peak prices, the lawsuit claims. On the day the class action lawsuits were filed, Tyco stock was valued at less than half of what it was when the officers cashed in their stock. Tyco's stock began to fall in October of 1999 after a Dallas fund manager openly questioned Tyco's accounting practices, suggesting that the company was intentionally overstating the value of its holdings.

Tyco Complaint About Lawsuit Rings Hollow

BERMUDA (May 23,2000)—Tyco International announced from its Bermuda offshore headquarters that it was "disappointed" that it had been sued by another company.

Claiming the suit against its subsidiary, Tyco Submarine Systems Ltd., by Global Crossing Ltd., was an attempt by Global Crossing to "stifle competition," Tyco lashed out at Global Crossing for filing a lawsuit, although the practice is a common business tactic for Tyco and its subsidiaries throughout the United States.

"We are disappointed that Global Crossing has chosen the tactic of litigating rather than attempting to proceed in a businesslike manner,"  Tyco said in a press release.

The Global lawsuit sought arbitration to settle a financial dispute between the two companies. Apparently Tyco was concerned about having an unbiased arbitrator attempt to settle the dispute.

ST. LOUIS, Missouri (July 4, 2000)—Tyco International purchased Mallinckrodt Inc., for $4.2 billion in stock.

Mallinckrodt Inc. is the number one manufacturer of bulk narcotics and other drug chemicals, according to the Associated Press.

When the local newspaper outs you as "selfish...with selfish motives and a lot of money," there’s not many places in town you can hide until things blow over.

This was the recent experience of a Tyco International Ltd. executive in New Hampshire, who was vilified in a Concord Monitor newspaper article for opposing proposals to rescue the state’s school system from a critical funding crisis.

Tyco International Ltd. Chief Financial Officer Mark Swartz and about 20 other New Hampshire business leaders pooled tens of thousands of dollars to run expensive television advertisements claiming that New Hampshire’s school system didn’t need 99 percent of the money that the state Legislature claimed was necessary to provide an adequate education for the state’s students.  

The state Legislature said the state’s schools need $1.2 billion to meet their obligations. The Tyco executive’s position was the schools needed just $12 million. The television ads generated much attention and many complaints.

"It’s scary that selfish people with selfish motives and a lot of money can change public policy," New Hampshire legislator Katie Wheeler said of the Tyco executive and his pals, who were also criticized for not taking an interest in the state’s school system until it formed the anti-school funding group.

"In a way, it is a sad misapplication of power in such an important time," said Legislator Peter Burling. "I don’t mean this meanly, but it does seem (Swartz and the others) didn’t seem to whimper until an income tax was mentioned. I guess that’s self-interest."

New Hampshire is the seventh-richest state in the country when measured in personal income.

Business executives from companies with established records of corporate generosity were not impressed by the selfish tactics of their peers.

"I’m not in agreement with their position," said John Swope, a former executive at Chubb Life Insurance and a board member for Blue Cross and Blue Shield of New Hampshire and Northeast utilities. "Their advertisements...appear to be scare tactics and not a thoughtful description of their position."

Swope pointed out that the Tyco executive and the others lack credibility.