FINANCIAL TIMES ON THE FIRST NON-EXECUTIVE DIRECTOR
TO FACE CRIMINAL PROSECUTION CHARGES.
Ex-Tyco director says he was fraudulent
By Christopher Bowe and Andrew Hill in
New York Financial Times; Dec 18, 2002
A former member of Tyco's board pleaded guilty yesterday to fraud, becoming the first non-executive director to face criminal prosecution in the round of US corporate scandals.
Frank Walsh, who resigned as a director of the US conglomerate in February, failed to disclose a $20m (£13bn) payment he received from the company for helping Dennis Kozlowski, the former chief executive, with the ill-fated takeover of CIT, the finance group.
Half of that payment went to charity. Yesterday Mr. Walsh agreed to repay the whole amount to Tyco, as well as a $2.5m fine.
Mr. Walsh also said he would resign from three boards of non-profit associations, and agreed with the Securities and Exchange Commission never to serve as a director or officer of a public company again.
The criminal prosecution of Mr. Walsh on a felony charge is likely to send another shiver through US boardrooms. The probe was led by Robert Morgenthau, the Manhattan district attorney, using the Martin Act, New York's broadly worded state securities law. The SEC also filed a civil suit against Mr. Walsh. Companies are already having difficulty recruiting independent directors. Insurers have increased the cost of covering directors' defence fees and the cost of settlements.
Mr. Walsh's lawyers argued that the 61-year-old former chairman of Wesray Capital, an investment company, had made only a "small mistake" in not disclosing the $20m payment to fellow Tyco directors after he put Mr. Kozlowski in touch with CIT's chief executive.
But the judge, Michael Obus, dismissed that argument.
Revelations of the payment to Mr. Walsh marked the beginning of the fall of Mr. Kozlowski. He and Mark Swartz, then chief financial officer, were forced to defend the payments in January as the Tyco share price fell. CIT had to be sold and Mr. Kozlowski and Mr. Swartz were charged with corruption by Mr. Morgenthau in September. They have pleaded not guilty.