American Greed: Party’s Over – Tyco’s Kozlowski
Assignment 5.1.1 - Video Analysis

1. What was the fraud? According to the video, Tyco’s CEO and CFO were indicted on multiple counts Tax Evasion, Grand Larceny and sentenced to 8 to 25 years in prison. After the original trial ended in a mistrial because of an 11 to 1 deadlocked vote, prosecutors filed again for a second trial which ended in a unanimous vote of Guilty. The CEO – Dennis Kozlowski was indicted on tax evasion for avoiding paying more than $1 million in New York sales taxes on expensive art that he purchased. He was also indicted on grand larceny for paying himself huge bonuses which were not approved by the Board of Directors and for using the company’s Key Loan Program as a revolving line of credit making huge loans to himself. He paid off some of those loans with the huge bonuses that he paid himself. In some cases, he even forgave his own loans. The CFO, Mark Swartz, was also indicted on grand larceny for his knowledge and participation in the bonus and loan schemes. Among the charges listed, “Kozlowski and Swartz we convicted of: grand larceny, conspiracy to commit fraud, tax evasion, unauthorized bonuses, abusing corporate loans programs and falsifying records. Kozlowski was ordered to pay $167 million in restitution and fines along with his prison sentence.”

2. How was the fraud carried out? Tyco was a fairly large company that manufactured fire protection systems, alarms and more. The CEO, Dennis Kozlowski, got carried away with his lavish lifestyle and began a string of criminal activity. Mr. Kozlowski was also on the Board of Director’s for Tyco. It is normal practice that Board members be paid a flat fee for their time and participation on the Board, but not in the manner that Kozlowski was paid. And, CEO’s were not usually a part of that