Tyco International whose top two officers were imprisoned for fraud, has agreed to pay almost $3 billion to settle class-action suits brought by investors, the company announced today.
The settlement, described as the largest payment ever by a company in such a suit, seeks to help put to rest one of the nation’s most notorious cases of fraud. Tyco investors might be in a position to recover even more money because they would also share in any proceeds from litigation that is still outstanding against L. Dennis Kozlowski, the former Tyco chief executive, and two other former company officials, and against the company’s former auditor, PricewaterhouseCoopers.
The settlement came as the company is seeking to split into three parts and is involved in separate litigation with bondholders who contend they are not being offered sufficient compensation for the change in corporate structure.
“With this settlement we are taking an important step to resolve our most significant remaining legacy legal matter,” said Ed Breen, Tyco’s chief executive. “Our balance sheet and cash flow remain strong and will allow us to readily absorb these costs while removing much of the uncertainty around legacy legal matters.”
Under Mr. Kozlowski, Tyco grew drastically through acquisitions, and its stock price soared to a high of $63.21 in 2001. It vigorously disputed claims that it used aggressive accounting for acquisitions to inflate profits, but the Securities and Exchange Commission later concluded it had done just that, and that it has also hid millions in executive compensation.
Mr. Kozlowski and Mark H. Swartz, the company’s former chief financial officer, were convicted of grand larceny, falsification of business records and conspiracy and are now serving sentences of up to 25 years in New York state prisons. A former director, Frank Walsh, who received a secret $20 million payment for arranging a merger, pleaded guilty to securities fraud, but was not sentenced to prison.