L. Dennis Kozlowski, the former chief executive of Tyco International, and his top lieutenant were convicted yesterday on fraud, conspiracy and grand larceny charges, bringing an end to a three-year-long case that came to symbolize an era of corporate greed and scandal.
L. Dennis Kozlowski, the former chief executive of Tyco, leaves court on Friday with his wife, Karen. He was convicted of stealing $150 million from Tyco and reaping $430 million more by covertly selling shares.
Mark H. Swartz and his wife, Karen, left New York State Supreme Court in New York on Friday. When the verdict was read he looked at his wife, who mouthed "I love you" to him.
The verdict, which came after 11 days of deliberations by a New York jury of six men and six women, is the latest in a string of convictions of corporate executives in recent years.
As the verdict was read aloud, Mr. Kozlowski, dressed in a dark suit and a blue tie, stared straight ahead, trying to hold back his emotions as his face flushed. His wife, sitting with one of his daughters, wiped tears from her eyes. His co-defendant, Mark H. Swartz, Tyco's former chief financial officer, tensed up and looked at his wife; she mouthed, "I love you."
Lawyers for the two vowed to appeal.
The verdict is also vindication for the Manhattan district attorney's office, and its chief, Robert M. Morgenthau, after they were criticized for how they handled the first trial of the two executives.
The four-month-long trial was the second time Mr. Kozlowski and Mr. Swartz were tried on charges of stealing $150 million from Tyco - a conglomerate whose products range from security systems to health care - and reaping $430 million more by covertly selling company shares while '"artificially inflating" the value of the stock.
The first case against them was declared a mistrial in April 2004, when a juror holding out for an acquittal made what appeared to be an "O.K." signal to the defense and subsequently received a threatening letter from a stranger, upending the trial.
Yesterday, Mr. Kozlowski and Mr. Swartz were convicted on all but one of the 23 counts of grand larceny, conspiracy, falsifying business records and securities fraud against each of them.
Even as some have suggested that regulatory scrutiny and prosecutorial zeal have been too harsh on corporate America, the convictions are among a steady march of government victories at trial: Martha Stewart; Bernard J. Ebbers, the former WorldCom chief; and John J. Rigas, who founded the cable company Adelphia Communications.
A federal jury is currently deliberating in the trial of Richard M. Scrushy, the former chief executive of HealthSouth. Kenneth L. Lay and Jeffrey K. Skilling of Enron will go on trial next year.
"There's been a bit of excess C.E.O. bravado recently," said Jeffrey A. Sonnenfeld, an associate dean at the Yale School of Management, noting reactions after the Supreme Court overturned the conviction of the accounting firm Arthur Andersen and the acquittal of Theodore C. Sihpol III, a former broker, in a mutual fund trading case.
Yesterday's verdicts, he said, "will help C.E.O.'s take public positions of moral integrity as the judicial system stands behind them"
Mr. Kozlowski and Mr. Swartz face sentences of a minimum of 8¾ years to a maximum of 25 years. And unlike executives convicted of federal white-collar crimes, the two would serve their time in a New York State prison like Attica, not a minimum-security federal prison.
The retrial of Mr. Kozlowski, 58, and Mr. Swartz, 44, was markedly different from the first trial. Prosecutors, who had been criticized by jurors from the first trial for presenting an often meandering and disorganized case, refocused their arguments and trimmed their witness list.
Prosecutors also limited much of the most salacious testimony about Mr. Kozlowski's consumption that had made the first trial fodder for the tabloids and entertainment television news programs, but had backfired badly with the jury.
Instead of days of testimony about Mr. Kozlowski's now infamous $6,000 shower curtain or a $2 million birthday party for his wife that was partly paid for by the company, prosecutors spent most of the trial drilling into the accounting issues surrounding the $150 million that Mr. Kozlowski and Mr. Swartz were accused of stealing.
The case turned on whether the jury believed that several large payments both men received had been authorized by the board of Tyco as part of a preset bonus formula or had been secretly siphoned by the men and dishonestly classified as bonuses. Several members of Tyco's board and the company's lawyer, David Boies, testified that the payments were never authorized.
"This wasn't about trying two men or corporate America; it was about the evidence," said Devin Richardson, one juror. "We were looking for verification of what the board said versus what Kozlowski and Swartz said."
Mr. Richardson said that the defense presented no documentation to back up the claims of the executives.
The biggest difference between the first trial and the retrial was the defense's decision to put Mr. Kozlowski on the witness stand. His testimony, which at times became heated during cross-examination, offered the most drama and levity in the often tedious case.
In what may have been the most damning piece of evidence against him, his own lawyer and the prosecutor quizzed him about why he signed his tax return when his W-2 form was missing $25 million.
"I cannot explain why," he told the court. "I was not thinking when I signed my tax return."
Mr. Kozlowski portrayed himself as a self-made entrepreneur who has become the victim of an overzealous prosecutor interested in sensational headlines and a board trying to protect itself from shareholder lawsuits. He described himself on the stand as an overworked executive who often delegated details to others.
He described as "god awful" some of the expensive decorations used in remodeling an $18 million apartment on Fifth Avenue that he had the company buy and he told jurors that "I stuffed some of it in the closet." He acknowledged, "I did not oversee this in the manner in which I should have overseen that apartment."
Throughout his testimony, however, he proclaimed his innocence and said that he never tried to steal anything from the company. "I'm here so I can explain to them why I'm innocent of all the charges against me," he said.
Mr. Swartz also took the stand, as he did in the first trial. Much of his defense was based on his contention that he took orders from Mr. Kozlowski and that he believed that the payments were authorized.
"We are obviously disappointed with the verdict," said Stephen Kaufman, Mr. Kozlowski's lawyer. "We're looking forward with confidence to his appeal."
Charles A. Stillman, Mr. Swartz's lawyer, said: "Mark Swartz didn't do this. He's just not a thief. We'll never, never, never give up."
The prosecution told the judge the men should be immediately remanded. "The temptation to flee is perhaps overwhelming," said Owen Heimer, an assistant Manhattan district attorney.
The judge, Michael J. Obus, disagreed, ordering everyone to return to court on Aug. 2 for a hearing on sentencing.
The prosecution's success may translate into political benefits for Mr. Morgenthau, 85, who has been district attorney for 30 years. He is facing his first re-election challenge in two decades.
Leslie Crocker Snyder, the former judge who is running against him in the Democratic primary in September, has sharply criticized his emphasis on white-collar crime cases, and suggested federal or state prosecutors are better equipped to handle them. Exhibit A in her argument has been the district attorney's long and initially unsuccessful effort to prosecute Mr. Kozlowski.
Mr. Morgenthau has insisted that his office takes white-collar cases that other prosecutors cannot or will not. "This verdict is an endorsement of the principle of equal justice under the law," Mr. Morgenthau said yesterday.
Despite the guilty verdict, Ms. Snyder still thinks the case would have been better handled by federal prosecutors, according to a statement from a spokesman for her campaign, Eric Pugatch.
The trial also opened a window into how sloppily Tyco operated during the 1990's boom and even earlier. Evidence showed that the management used loan programs designated for tax purposes as personal accounts for years, long before Mr. Kozlowski was even the chief executive. And other evidence was presented that the board rarely took accurate minutes of its meetings. Indeed, several executives testified that the minutes were typically drafted before the meetings ever took place.
The two former executives still face other possible charges. Mr. Kozlowski is accused in a separate New York State case of evading more than $1 million of sales taxes on six paintings that he bought in 2001. His resignation from Tyco, in June 2002, came a day before the tax case became public.
Mr. Swartz may face tax evasion charges in New Hampshire if federal prosecutors decide to refile a case that was dropped last year because of jurisdictional issues.
Their former company, Tyco, faces a sea of shareholder lawsuits stemming from bookkeeping irregularities during the reign of Mr. Kozlowski and the former board. Some analysts predict that it may cost Tyco about $1.25 billion to settle the remaining litigation. Tyco's current management, led by Edward D. Breen, said it would pursue separate civil actions against the former executives.
During the trial, the courtroom on the 13th floor of the New York State Supreme Courthouse in Manhattan often had the feel of a reunion of people from the first trial. Even some jurors from the first trial dropped in from time to time to sit in the gallery. Ruth B. Jordan, Juror No. 4 from the first trial, was a frequent spectator.
As she left the courthouse yesterday she said she was disappointed with the verdict. "I still think they are not guilty," she said. "I'm a little shocked."
