Tyco Sued for $60 Million by Convicted Executive Swartz

Tyco International Ltd.’s former Chief Financial Officer Mark Swartz sued to recover $60 million he said is owed under agreements he made with the company when he stepped down in 2002.

Swartz, who served as Tyco’s finance chief from February 1995 to September 2002, and former Chief Executive Officer Dennis Kozlowski were convicted by a Manhattan jury in 2005 of defrauding shareholders of more than $400 million. They are both serving 8 1/3- to 25-year prison sentences for stealing from the company and deceiving shareholders.

In a complaint filed May 4 in New York State Supreme Court, Swartz accused the company of breach of contract and unjust enrichment, seeking to enforce commitments made in the summer of 2002, when he agreed to step down as CFO and resign his board position.

“Mr. Swartz has timely made court-ordered restitution to Tyco of all amounts he was determined to have improperly received,” lawyers for Swartz said in the complaint. “He has made demand on the company for it to comply with its own binding commitments, but Tyco has refused.”

Swartz, 51, and Kozlowski, 65, are currently serving their sentences in the Lincoln Correctional Facility, a minimum-security facility on Manhattan’s 110th Street near Fifth Avenue, and participating in a work-release program, said Peter Cutler, a spokesman for the state Department of Corrections and Community Supervision.

‘No Basis’

“Tyco has not yet been served with the complaint but we know of no basis on which Swartz could recover from the company,” Tyco said in an e-mailed statement. “The court previously ruled against Swartz with liability resolved in Tyco’s favor. The trial to fix the amount Swartz must pay Tyco is scheduled for September.”

Kozlowski was ousted as Tyco’s CEO in June 2002 after he revealed that he was under investigation by the Manhattan District Attorney’s Office over allegations that he avoided paying sales tax in connection with purchases of fine art.

By the time Swartz agreed to resign from the company’s board in July 2002, Tyco knew that he, too, was under criminal investigation, according to Swartz’s complaint. Swartz said he fully cooperated with the district attorney’s probe. When Swartz was told the same month that an internal investigation by the company revealed that he owed a debt to Tyco, he “promptly” repaid it with interest, according to the complaint.

Under the separation agreement with Tyco that Swartz signed in August 2002, the company agreed to pay him about $10 million in deferred compensation; $24.6 million owed under an executive life insurance plan; the $274,317 value of his 401(k) plan; and $656,286 in payments due under a senior executive retirement plan, according to the complaint. Swartz says he is also owed money under a January 2001 retention agreement.

Separation Agreement

The separation agreement was approved by Tyco’s board on Aug. 14, 2002, and Swartz was paid about $45 million, according to the complaint.

Swartz in June 2010 wrote to Tyco and demanded it pay him about $54 million under the agreement, including about $44.9 million in retirement pay and $9 million paid against New York state and city taxes for periods he worked at the company, according to the complaint. Tyco has refused to honor the demands, Swartz alleged.

“That was an investigation in which Mr. Swartz’s cooperation was active and unstinting,” lawyers for Swartz said in the complaint. “The company knew at the time of their bargain both of the fact that Mr. Swartz would be charged and of the subject matter of the charges. No party was misled.”

The Schaffhausen, Switzerland-based company is the world’s biggest maker of security systems.

The case is Swartz v. Tyco International Ltd., 651533/2012, New York State Supreme Court (Manhattan).

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