NEW YORK (AP) — A state court judge, after sitting through five months of testimony, threw out one of the most serious charges yesterday against the former chief executive and chief financial officers of Tyco International.
State Supreme Court Judge Michael Obus dismissed the enterprise corruption charge against the pair.
Former CEO L. Dennis Kozlowski, 57, and former CFO Mark Swartz, 43, remain on trial in Manhattan’s state Supreme Court. They are accused of stealing $170 million from Tyco by hiding unapproved pay and bonuses and by abusing loan programs.
They also are accused of illegally making another $430 million by pumping up the value of Tyco stock through lies about the company’s finances from 1995 to 2002.
The two are still charged with grand larceny, falsifying business records and violating state business laws.
“The court does have serious reservations about the applicability of the enterprise corruption count,” Judge Obus ruled, because it did not meet statutory requirements.
The enterprise corruption count was modeled after the federal RICO statute, which is often used to bring down organized crime operations or mobsters like John Gotti.
Although the enterprise corruption count was thrown out, it would not affect the amount of jail time awaiting the two executives if they are convicted. The other top count, grand larceny, carries the same 25-year penalty, and the pair could face up to 30 years in prison.
Judge Obus’ ruling came as the jury took a weeklong break before returning on Monday to hear final arguments in the extraordinarily lengthy case.
On Tuesday, defense lawyers had urged the trial judge in a session outside the jury’s presence to dismiss all the charges, offering a variety of arguments. The judge rejected most of them.
Assistant District Attorney John Moscow asserted that Mr. Kozlowski and Mr. Swartz used Tyco’s relocation loans and Key Employee Loan Program (KELP) for purposes other than intended.
“The guys agreed they would take the money and call it a key employee loan,” Mr. Moscow said. “That’s what you call stealing.”
KELP was created to help Tyco executives pay off tax bills from their stocks, rather than forcing the officials to sell off some of their Tyco stock to cover that expense.
But Mr. Swartz tinkered with the program provisions and diverted the money to pay for New York private schools — “and Tyco ends up paying for his kids’ yearbooks,” Mr. Moscow said.
Some of the looted money was used to purchase and decorate an $18 million Fifth Avenue apartment used by Mr. Kozlowski, prosecutors said. The opulent residence was home to amenities that included a $15,000 umbrella stand and a $6,000 shower curtain.
Mr. Kozlowski also is accused of using the money to finance an extravagant 40th birthday party for his wife, held on a Mediterranean island for 75 revelers.
Mr. Swartz’s larceny included an $8 million loan used to finance homes in Florida, New York City and New Hampshire, prosecutors have charged.
Tyco has about 270,000 employees and $36 billion in annual revenue.