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US: Tyco Will Pay $50 Million to Settle Case With S.E.C.

by Claudia H. DeutschThe New York Times
April 18th, 2006

After four years of criminal trials and accounting investigations, Tyco International agreed yesterday to pay a $50 million fine to the Securities and Exchange Commission to settle claims that the company inflated profits by more than $1 billion from 1996 through 2002.

The S.E.C. filed the settlement in the United States District Court for the Southern District of New York. It plans to distribute the money to Tyco shareholders.

"Today's enforcement action shows that the commission and its staff will pursue such misconduct and take appropriate action," said Scott W. Friestad, associate director of the agency's enforcement division.

Tyco had long anticipated a resolution to the issue. Last year it took a $50 million charge against second-quarter earnings, citing that amount as its estimate of what it would cost to resolve the matter with the S.E.C.

Shareholders seemed to view the settlement as old news. Tyco shares generally moved with the market yesterday, closing at $25.93, down 8 cents.

"This was pretty much settled last summer, so the only suspense involved when it would officially happen," said Jack L. Kelly, an analyst with Goldman Sachs.

Analysts remain divided in their views of Tyco's prospects. According to Thomson Financial, of the 17 analysts who follow the company, 8 rate it a buy, while 9 rate it a hold.

Nonetheless, the resolution comes as a relief to Tyco, which is incorporated in Bermuda but operates out of Princeton, N.J.

"We have cooperated fully with the S.E.C. and are pleased to be able to close this chapter in Tyco's history," the chairman of Tyco, Edward D. Breen, said in a statement.

Tyco still faces several lawsuits from shareholders, but analysts expect that the company will also settle those cases without much damage to its bottom line.

"Tyco's balance sheet can withstand any further judgments, fines or shareholder suits," Mr. Kelly said.

Two former Tyco executives who were implicated in the fraud — L. Dennis Kozlowski, Mr. Breen's predecessor, and Mark H. Swartz, Tyco's former chief financial officer — were both convicted last year of grand larceny, conspiracy, securities fraud and falsifying business records.

They were sentenced to 8 1/3 to 25 years in prison and ordered to pay close to $240 million in fines and restitution. They are appealing.

The courts had suspended action on a civil lawsuit that the S.E.C. had filed against both men pending their appeal, but Mr. Friestad said yesterday that the suspension had been lifted. He said that the S.E.C. was proceeding with its action against them as well as with a civil action against Mark A. Belnick, the former Tyco general counsel. Mr. Belnick was acquitted last year of charges that he improperly failed to disclose interest-free loans from the company and that he took improper bonuses.



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