Kozlowski Faces the Music

Jury selection began today in New York for the criminal trial of former Tyco (NYSE: TYC  ) head Dennis Kozlowski and Mark Swartz, his former chief financial officer. Both men are accused of using the company as their own personal bank accounts, stealing more than $600 million through a combination of unauthorized compensation and stock. They are charged with grand larceny, enterprise corruption, conspiracy, and falsifying business records.

If you didn't know that Kozlowski and Swartz were executives of a public company, reading the indictment in this case might lead you to believe they were mobsters, playing out their own version of Goodfellas. On the fourth page of the 95-page document, for example, prosecutors say, "Defendant Kozlowski was the boss of the criminal enterprise, and set its policies." Tell me that doesn't sound Sopranos-like.

The fact that the prosecution went this route underscores the inherent difficulty in pinning most white-collar crimes to specific individuals. Folks at the top will always claim they didn't know what bad behavior was happening beneath them, while the underlings below will argue that they were instructed to act by upper management. There are often blurring lines of responsibility making it hard to hone in on certain people.

Here, though, Kozlowski and Swartz have been charged with flat-out stealing by granting themselves and others generous loans, and then later magically making them go away by hiding them or forgiving them, all behind the board's back. The defense says the board and the company's auditors were aware of the loans and the extra compensation, and that Kozlowski and Swartz deserved the money and earned it for their hard work.

What also inevitably makes this case juicy is the disclosure from Tyco's internal investigation about how Kozlowski spent all his millions. Even the most understanding and least judgmental among us can't help but be riveted by the money spent on a $17,000 antique toiletry kit, or a $15,000 poodle-shaped umbrella stand, or two sets of bed linens for $5,960.

And let's not forget the lavish $2.1 million 40th birthday party in Sardinia for Kozlowski's wife that Tyco and its shareholders footed half the bill for. The re-creation of Michelangelo's David in ice with vodka streaming from his private parts is perhaps even more shocking than the fact that Kozlowski claimed the shindig was a business affair. (As an aside, whoever said money can't buy taste certainly nailed this one.)

These excesses and more will undoubtedly take center stage at the trial, painting a picture for jurors of corporate plundering and greed at its worst. The outcome, however, will hinge on whether or not Kozlowski and Swartz had approval for the money they "borrowed" and spent, and whether they acted with wrongful intent. You can bet we'll be watching to see how it all plays out.


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