Time to Face the Jury, Mr. Kozlowski
On Sept. 29, former Tyco International (TYC ) Ltd. chief L. Dennis Kozlowski stands trial in downtown Manhattan. His trial will kick off a string of upcoming cases against executives in the next few months. The trial of Credit Suisse First Boston (CSR ) investment banker Frank Quattrone starts the same day, and WorldCom CFO Scott Sullivan and Martha Stewart look set to have their day in court early next year.
Kozlowski hasn't cut a deal to settle the charges, unlike recent cases against other corporate top dogs, including Sotheby's Holdings (BID ) CEO Diana D. Brooks and former Rite Aid CEO Martin L. Grass. The case against Samuel Waksal, the now-imprisoned former CEO of ImClone Systems (IMCL ) Inc., was settled long before it reached jury selection. Given that Kozlowski lawyer Stephen Kaufman is well known for striking pretrial deals on behalf of famous clients like Brooks, the march to trial has surprised observers and may in part reflect how hard it will be to prove the charges.
Prosecutors from Manhattan District Attorney Robert M. Morgenthau's office allege that Kozlowski and his former CFO, Mark H. Swartz, created a criminal enterprise that they used over seven years to steal $170 million from Tyco in unauthorized loans and bonuses and to defraud investors of an additional $430 million. Like Kozlowski, Swartz has pleaded not guilty to all charges. Here's a look at the trial to come:
How will the prosecution build its case?
Morgenthau has put five top lawyers on the case, including the pair who convicted mother-and-son grifter team Sante and Kenneth Kimes of murder, despite having had no body. (That conviction is on appeal.) The DA's office is expected to put hundreds of documents into evidence and call a variety of former Tyco employees and board members to the stand. Included on the roster could be the company's former outside auditor, Richard Scalzo of PricewaterhouseCoopers. He recently settled Securities & Exchange Commission charges of negligence at Tyco without admitting wrongdoing and agreed not to audit public companies. Prosecutors are also likely to call on former board members and Tyco staffers in an attempt to prove that Kozlowski was a financially savvy executive who flouted board limits on compensation and entered into secret financial deals with executives and directors. That will take months, raising another challenge for the prosecution: keeping the jury's attention.
What will Kozlowski's defense be?
He'll depend heavily on the argument that auditors and the board approved what was going on. Lawyers for Kozlowski and Swartz declined to comment on their case, but in pretrial motions they won the right to introduce evidence that Tyco's outside auditors were given full access to Tyco personnel and financials. In pretrial hearings, Kozlowski lawyer Austin V. Campriello argued that a key to Kozlowski's defense will be showing he did not hide his actions. Why? Proving larceny charges requires convincing a jury that he intentionally stole from the company, then tried to hide it.
Will Kozlowski take the stand?
Former prosecutors and criminal lawyers say probably not, for fear of opening himself up to damaging questions about his lavish lifestyle. A trip to the stand, for instance, could find Kozlowski answering questions about the now infamous Sardinian birthday party he threw for his wife, Karen, in 2001; prosecutors allege the company picked up much of the $2 million tab. "It's usually a last resort only if the case goes really badly for him," says Robert Seiden, a prosecutor in Morgenthau's office for 11 years and president of Fortress Global Investigations Corp.
How serious are the charges?
Enterprise corruption, one of 37 charges Kozlowski and Swartz face, is a class of crime comparable to manslaughter in the first degree. The penalty: up to 30 years in New York State jail for that alone.
But if Kozlowski is worried, it doesn't show. At a pre-trial hearing on Sept. 23, he looked relaxed and trim in a well-tailored suit. Swartz, too, was tanned and smiling. The question is how they'll look after a winter spent in court.
By Nanette Byrnes in New York