June 17 (Bloomberg) -- L. Dennis Kozlowski, the former chief executive officer of Tyco International Ltd., and Mark Swartz, the former finance chief, were convicted of taking $137 million in unauthorized compensation and making $410 million from sales of inflated shares.

Kozlowski, 58, and Swartz, 44, were convicted of all but one charge contained in the 31-count indictment. Each faced 23 counts. The jury convicted the two men of conspiracy, grand larceny and eight of nine counts of falsifying business records. The verdict, which came in the 11th day of deliberations in the second trial for the two men, was a victory for Manhattan District Attorney Robert Morgenthau, whose first prosecution ended in a mistrial in April 2004.

``We appreciate the sacrifice, the effort, the work you put in here,'' New York state Supreme Court Justice Michael Obus said before dismissing the jury.

Swartz and Kozlowski sat impassively as the jury foreman read the verdicts. Karen Swartz and Karen Kozlowski, the defendants' wives, also sat quietly.

The two men face 25 years in prison for grand larceny, the most serious offense. They remain free on bail. Prosecutors had asked that they be jailed immediately. Sentencing is scheduled for August 2.

Both men testified during the trial, which began Jan. 18.

`Huge Win'

``This is a huge win for the Manhattan D.A.'s office, who've been struggling with keeping up with federal prosecutors in the race to prosecute large corporate scandal,'' said Robert Mintz, a former federal prosecutor who followed the trial. ``The D.A.'s office has presented a much more focused, much more streamlined case the second time around.''

Assistant District Attorney Owen Heimer told jurors during closing arguments that the defendants took interest-free loans from Tyco to buy multimillion-dollar homes.

``Tyco was the thing that produced huge unauthorized payments for them,'' he said.

Kozlowski was one of several CEOs accused of white-collar crimes following the disclosure of an accounting fraud at Enron Corp. in 2001. WorldCom Inc.'s CEO Bernard Ebbers was convicted of fraud in March. HealthSouth Corp.'s CEO Richard Scrushy is on trial for fraud in Birmingham, Alabama. The jury in that case is deliberating.

Loan Programs

During the Kozlowski trial, prosecutors showed that he and Swartz used company tax and relocation loan programs to make personal investments, buy jewelry and art and live ``like royalty.'' They were accused of awarding themselves and others $137 million in unauthorized payments in the form of cash, Tyco stock and company loan forgiveness.

The executives forgave their own debts without getting proper approval from the compensation committee of Tyco's board, prosecutors said. They were also charged with misleading Tyco's investors about the company's financial condition while selling $575 million in Tyco shares and options.

Kozlowski was ousted in June 2002 just before Morgenthau accused him of evading sales tax on purchases of art work. That case has yet to reach trial.

New management took over Tyco and avoided bankruptcy after disclosure of Kozlowski's charges. Bermuda-based Tyco, which operates out of West Windsor, New Jersey, is the world's biggest maker of electronic connectors, industrial valves and security systems.

The Deliberations

The jury of six men and six women have deliberated since June 2. The trial included a 13-week prosecution case with 24 witnesses -- about half the number at the first trial -- and thousands of documents.

Thomas Curran, a former prosecutor with Morgenthau's office, said Kozlowski will probably be permitted to remain free on bail while he appeals the verdict. Obus will likely sentence the former CEO to a minimum term, he said, not the 25-year maximum.

``Al Capone wouldn't get that the first time out,'' Curran said. ``No one gets the maximum in a non-violent context their first conviction.''

The defense began its case April 27, and Kozlowski spent four days testifying on his own behalf. Swartz testified for eight days in May. There were no other defense witnesses.

Five former Tyco directors on the board's compensation committee took the stand to testify that they had never known about nor authorized any of the disputed payments to Kozlowski and Swartz. The defendants said the sixth committee member, director Philip Hampton, who died in 2001, was aware of some of the payments.

`Despicable'

Assistant District Attorney Ann Donnelly said it was ``despicable'' to use a dead man's testimony as a defense.

Kozlowski and Swartz testified that they had no intention of deceiving anyone and that they were entitled to the payments as bonuses under the company's board-approved compensation formulas. They said that company loan programs they used to buy art, jewelry and real estate were not just for the purposes described in company documents -- namely, the payment of taxes on grants of Tyco stock or relocation expenses.

In his closing statement, Kozlowski's lawyer Austin Campriello called the prosecution ``a case in search of a crime.''

Prosecutors presented their case in less time than the 18 weeks they took during the first trial. After the mistrial, jurors said prosecutors spent too much time on details of Kozlowski's lavish lifestyle, such as a $2 million birthday party, half of which was funded by Tyco, which he gave for his wife on the Italian island of Sardinia.

Fewer Witnesses

The 24 prosecution witnesses amounted to 23 fewer than at the first trial. In addition to the five former directors, 12 current and former Tyco employees testified. Some shared in the payments Kozlowski and Swartz are accused of stealing, and much of their testimony was spent explaining hundreds of Tyco documents that chronicled the transactions.

None of the documents, prosecutors pointed out, was prepared by or for Tyco's compensation committee.

Jurors after the first trial criticized prosecutors for dwelling on Kozlowski's $30 million Manhattan apartment, $6,000 shower curtain, $15,000 umbrella stand and the birthday party. This time the shower curtain and umbrella stand were mentioned only in passing, and jurors saw only one-fourth of the Sardinia party video shown at the first trial.

Swartz became finance chief at Tyco in 1995 and left the company in September 2002. Kozlowski left Tyco on June 3, 2002, the day before he was indicted on charges of evading taxes on millions of dollars in art purchases.

The case is People v. Kozlowski, 2002 Cr. 5259, State Supreme Court, New York County.

To contact the reporter on this story: Andrew Dunn in State Supreme Court in Manhattan at adunn8@bloomberg.net.

Last Updated: June 17, 2005 15:22 EDT