AUDITING & TAXATION

Course Code: F-209

Submitted To
Mohammad Salahuddin Chowdhury
Lecturer,
Department of Finance,
University of Dhaka
:

Submitted By
Name

Roll

Khaleda Aziz
Akhter-E_Tamanna

16-24
16-102

Md.Rajib Khan

16-134

Sameya Azad

16-152

Mohammad Rasel Mia

16-156

Date of Submission: 17 November 2011

Auditing & Taxation

Tyco international Scandal

November 17, 2011

Mohammad Salahuddin Chowdhury
Lecturer,
Department of Finance,
University of Dhaka.
Subject: Submission of report.
Dear Sir,
We are pleased to submit the report you have assigned to us. The report paper was to
prepare the term paper on the course named Auditing & Taxation course code: F 209,
as a part of our academic activities. This is a report on Tyco International Ltds scandal
for fulfilling course work of BBA program and it is our pleasure to present such before
you.
We have prepared this report based on the data gathered from Internet and newspapers.
For the preparation of the report, we have focused on the information that was found to
be reliable and valid.
We deeply regret for any inconvenience located in this report and we shall always be
available for any clarification required.
Sincerely yours,
Sameya Azad
On behalf of the group 14
Section: B
B.B.A. 16th Batch
Department of Finance
Faculty of Business Studies
University of Dhaka.
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Tyco international Scandal

This is high time we conveyed our deepest gratitude and sincere submission to the
Almighty ALLAH for giving us the opportunity to accomplish such an enjoyable task of
preparing this report in time.
We express our thanks to our dear course teacher Mohammad Salahuddin Chowdhury
for assigning us a report dealing with the Tyco International Ltds scandal. In this regard,
we would also like to thank ourselves for our good teamwork and successful team spirit.
Without co-operation and the support from each other, it would not be possible to prepare
a resourceful report.
The presentation of this formal study paper is of a great expectation in our BBA program
and we are quite happy to submit it duly applying that we think should have to be
included. Theoretical knowledge should be valued when it is successfully applied in
practical decision-making scenario. In this respect we found this report a great
opportunity to deal with some progressive methods.
So lastly we would again like to express our heartfelt thanks to our course teacher for
providing the theoretical knowledge and valuable guidelines related to management.

Auditing & Taxation

Tyco international Scandal

Dennis Kozlowski worked all his life to get from the bottom to the top of Tyco
International Ltd. However, he picked up a lavish lifestyle that would soon be his
destruction and bring him behind bars.
After purchasing many art pieces in 2002 the SEC started an investigation and accused
him of failing to pay taxes of about $1 million dollars, but as the investigation proceeded
the case became more complicated as it turned out that CEO Dennis Kozlowski and CFO
Mark Swartz have been looting Tyco International of more than $600 million. Examples
of how this was possible are following:
When Tyco found out about the investigation they fired people involved and also
replaced 10 of the top management positions to regain trust to the stockowner.
Nevertheless the stock price has dropped 86% from $59.31 on 12/28/01 to $8.25 on
7/25/02. Three years later in September 2005 Kozlowski and Schwartz found themselves
in court again after a mistrial in 2004 to face their sentence. They are charged for large
larceny, falsifying business documents and securities fraud. Both are convicted to serve a
minimum of 8 and to 25 years in jail.
The biggest crime that happened here was that Kozlowski and Schwartz abused their
power of control to steal from and lie to the stockowners. The journal Business Week
posted Kozlowski as one of their TOP 25 CEOs in 2000. That is how good people
thought he was. The money that was used to buy houses and silly things like $6000
shower curtains should have been used to push the company further or given to the
shareholders. Is that worse than what the executives did in Enron? No, but bottom line is
stealing is stealing. They believed that Kozlowski was sharing the same ideas and goals
that the company represents as he has proven to them many times when he closed up
million dollar deals that made a fortune for them. Instead he used the company funds like
a private bank and spent it like it was his money. The dishonesty of Kozlowski has caused
more distrust to the public, and of course the stock to drop to a price that is worth
virtually nothing compared to what it used to be. Also Tyco as a company had to endure
many million dollar lawsuits and lost a lot of money to that. I think Tyco did the right
thing by replacing top management right away after the issue occurred. They hired
Edward Breen as their new CEO, who invested a lot of time and money to communicate
to the public that Tyco International is operating in many parts of the world and that they
are trustworthy even though their former CEO failed to do so.
It may be very far away from having the trust of investors again, but they took a step in
the right direction.

Auditing & Taxation

C o n t e n t s

Tyco international Scandal

PAGES

Contents
Contents
Introduction...6

o n t e n tLtds
s ................................................................................................................5
TycoCInternational
scandal..........................................................................................9
PAGES.............................................................................................................................5
Overacts in year 2000........................................................................................................11
Tyco International
Ltds scandal..........................................................................................9
Corporate
scandal of 2002.................................................................................................11
Overacts
in
year
2000........................................................................................................11
Tyco International Ltd.......................................................................................................12
Corporate
scandalCondition
of 2002.................................................................................................11
Analysis
of Financial
and Results of operations...............................................12
Tyco International
Ltd.......................................................................................................12
Company
separations................................................................................................16
Analysis of Financial Condition and Results of operations...............................................12
conclusion17
the year ended September 30, 2002 filed on December 30, 2002.12
Bibliography......................................................................................................................19
Bibliography......................................................................................................................19

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Tyco international Scandal

Origin:
This report is written for Course no.F-209(Auditing &Taxation) which is the part of 4 th
semester 2nd year of B.B.A. program of Finance Department. Moreover report writing is
an important lesson of Auditing and Taxation course thus the report will work as a skill
test of us about report writing. This report is based on Tyco International Ltds scandal.

Objective:
The specific objectives aimed for this report are:

Know about one of the biggest scandal of corporate world TYCOs Scandal

How the corporate scandal occurs.

Who are responsible behind the scandals?

How these scandals affected our International market.

Scope of the report:

The proposed report is one of the biggest corporate scandal Tyco International Ltd.
Scandal.

Methodology:
Our report is based on Secondary Data from internet.

Limitations:
There was no authorization letter with us when we went for collecting information to the
companies. At first they were not agreed enough to give information. We had to pursue
them for that time had passed and we could not form our report well. They think some
information is confidential enough to publish in any journal. As a result they did not give
us the information as details as we wanted. So we had to be satisfied by that information.
Those are the limitations we faced during the formation the report.

Auditing & Taxation

Type
Traded as
Industry
Founded
Headquarters

Products
Revenue
Operating
income
Net income
Employees
Website

Tyco international Scandal

Public
NYSE: TYC
Conglomerate
1960, incorporated 1962
Incorporation:
Schaffhausen,
Switzerland
Operational/Corporate: Princeton,
New Jersey
Security Solutions, Fire Protection
and Flow Control
$18.80 billion USD (2007)[1]
$1,715 million USD (2007)[1]
$1,742 million USD (2007)[1]
106,000 (2010)[2]
www.tyco.com

Tyco International Ltd. NYSE: TYC is a highly diversified global manufacturing

company incorporated in Switzerland, with United States operational headquarters in
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Princeton, New Jersey (Tyco International (US) Inc.). Tyco International is composed
of three major business segments: Security Solutions, Fire Protection and Flow Control.
In June 2007, Tyco concluded a corporate separation that split the company into three
publicly independent companies: Covidien Ltd. (formerly Tyco Healthcare), Tyco
Electronics Ltd. (now TE Connectivity Ltd.) and Tyco International Ltd. (formerly Tyco
Fire & Security and Tyco Engineered Products & Services (TFS/TEPS))

Net revenues by year

Year
2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997
Revenue (in US$B) $18.8* $41.0 $39.3 $38.0 $36.8 $35.6 $34.0 $28.9 $22.5 $19.1 $6.6

Tyco International Ltds scandal

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Tyco is a global company, employing over 270,000 people, with $36

billion in annual revenues, that manufactures, distributes and services
products and systems for a broad spectrum of markets, with core
business segments in electronics, telecommunications, healthcare and
specialty products, fire and security services, and flow control. Prior to
July 1997, and a merger with a Bermuda company, a current Tyco
subsidiary, now named Tyco International (US) Inc., was Tycos main
operating company under the name Tyco International Ltd. (Mass.)
(Former Tyco). Tyco has approximately 2,342 subsidiaries, including
non-operating holding companies; the corporate headquarters staff of
Tyco, with fewer than 400 people, is paid through a subsidiary named
TME Management Corp. (TME). Tyco itself, other than in its
subsidiaries, has fewer than 20 employees.
During the period from on or about January 1, 1995, through September 9,
2002, in the County of New York and elsewhere, intentionally engaged in a
scheme constituting a systematic on-going course of conduct with intent
to defraud ten and more persons, to wit, shareholders and regulators, and
to obtain property, to wit money and securities, from ten and more
persons, to wit, Tyco International Ltd. (Bermuda) (Tyco), and its
subsidiaries and predecessors, as well as investors in, prospective
purchasers of, and other acquirers of Tycos securities and debt
instruments by false and fraudulent pretenses, representations, and
promises, and so obtained property from one and more of such persons
while engaged in inducing and promoting the issuance, distribution,
exchange, sale, negotiation and purchase of securities issued by Tyco, as
follows:
Tyco is a publicly-owned corporation, the shares of which are traded on the New York Stock
Exchange. Prior to July 1997, and to a merger with a Bermuda corporation, a Tyco
subsidiary, now named Tyco International (US) Inc., was Tycos main operating company,
and was then a corporation named Tyco International Ltd. (Mass.) (Former Tyco), that
traded on the New York Stock Exchange. For purposes of this count, Tyco hereinafter
includes, unless otherwise indicated, Former Tyco. At all times during the scheme Tyco and
its subsidiaries issued stock and debt instruments whose market value depended on the
"market perception" of how valuable Tyco was. Information material to market perception
includes financial statements issued by the corporation, filings by the corporation with the
United States Securities and Exchange Commission (SEC) and other regulatory bodies,
public statements by corporate officers, press reports, releases, and statements issued by the
corporation, and reports disseminated by ostensibly independent analysts and credit rating
agencies, all of which are required to be accurate and truthful.
Among the matters which Tyco, by its officers, reported to the public, and was required by
law to report publicly were
(1) The compensation paid to Tyco's directors and five highest paid executive officers,

Auditing & Taxation

Tyco international Scandal

(2) The existence of loans outstanding to executive officers and directors, if in amounts
greater than $60,000,
(3) The sales of stock by executive officers and directors, and
(4) Certain related party transactions between Tyco and its directors and officers.

Dennis Kozlowski worked all his life to get from the bottom to the top of Tyco
International Ltd. And when he reached the CEO position he was often compared to other
great CEOs in history like Jack Welch. However, he picked up a lavish lifestyle that
would soon be his destruction and bring him behind bars.
After purchasing many art pieces in 2002 the SEC started an investigation and accused
him of failing to pay taxes of about $1 million dollars, but as the investigation proceeded
the case became more complicated as it turned out that CEO Dennis Kozlowski and CFO
Mark Swartz have been looting Tyco International of more than $600 million. Examples
of how this was possible are following:

Over the years they have been giving themselves interest free loans from the
company and then later on forgave themselves for it through Mark Schwartz
falsifying documents.
Dennis Kozlowski gave himself bonuses to repay the debt.They sold stocks at
inflated prices.

When Tyco found out about the investigation they fired people involved and also
replaced 10 of the top management positions to regain trust to the stockowner.
Nevertheless the stock price has dropped 86% from $59.31 on 12/28/01 to $8.25 on
7/25/02. Three years later in September 2005 Kozlowski and Schwartz found themselves
in court again after a mistrial in 2004 to face their sentence. They are charged for large
larceny, falsifying business documents and securities fraud. Both are convicted to serve a
minimum of 8 and to 25 years in jail.
The biggest crime that happened here was that Kozlowski and Schwartz abused their
power of control to steal from and lie to the stockowners. Given that Tyco was not a case
like Enron where the employees lost everything, it is still very serious. The journal
Business Week posted Kozlowski as one of their TOP 25 CEOs in 2000. That is how
good people thought he was. The money that was used to buy houses and silly things like
$6000 shower curtains should have been used to push the company further or given to the
shareholders. Is that worse than what the executives did in Enron? No, but bottom line is
stealing is stealing. I believe Tyco has only did one thing wrong, trusting their CEO too
much. They believed that Kozlowski was sharing the same ideas and goals that the
company represents as he has proven to them many times when he closed up million
dollar deals that made a fortune for them. Instead he used the company funds like a
private bank and spent it like it was his money. The dishonesty of Kozlowski has caused
more distrust to the public, and of course the stock to drop to a price that is worth
virtually nothing compared to what it used to be. Also Tyco as a company had to endure
many million dollar lawsuits and lost a lot of money to that.

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Overacts in year 2000

On or about May 29, 2000, defendant Kozlowski obtained in excess

of $7,000,000 from Tyco for the purchase of property from Tyco
located at 610 Park Avenue in New York County.

In or about September 11, 2000, defendant Kozlowski caused a

memorandum to issue to forgive the relocation loans for a list of
Tyco employees that included himself and defendant Swartz.

In or about September 2000, defendant Kozlowski told Tycos

Director of Human Resources that the Board of Directors of Tyco had
approved the forgiveness of over $56,000,000 in loans to himself
and other Tyco employees, and the "gross-up" of their income by
more than $39,000,000.

In or about September 2000, defendants Kozlowski and Swartz

authorized a Tyco book entry forgiving loans previously booked as
relocation loans to Tyco employees aggregating in excess of
$56,000,000.

In or about November 2000, defendants Kozlowski and Swartz

caused an illegal special bonus in excess of $8,000,000 to be paid
to defendant Swartz.

Corporate scandal of 2002

Former chairman and chief executive Dennis Kozlowski and former chief financial
officer Mark H. Swartz were accused of the theft of more than $150 million from the
company. During their trial in March 2004, they contended the board of directors
authorized it as compensation.
During jury deliberations, juror Ruth Jordan, while passing through the courtroom,
appeared to make an "okay" sign with her fingers to the defense table. She later denied
she had intended that gesture, but the incident received much publicity (including a
caricature in the Wall Street Journal), and the juror received threats after her name
became public. Judge Michael Obus declared a mistrial on April 2, 2004.

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On June 17, 2005, after a retrial, Kozlowski and Swartz were convicted on all but one of
the more than 30 counts against them. The verdicts carry potential jail terms of up to 25
years in state prison. Kozlowski himself was sentenced to no less than eight years and
four months and no more than 25 years in prison. Swartz received the same sentence.
Then in May 2007, New Hampshire Federal District Court Judge Paul Barbadoro
approved a class action settlement whereby Tyco agreed to pay $2.92 billion to a class of
defrauded shareholders represented by Grant & Eisenhofer P.A., Schiffrin, Barroway,
Topaz & Kessler, and Milberg Weiss & Bershad.

Tyco International Ltd.

Analysis of Financial Condition and Results of
operations
Our results for fiscal 2002 were adversely affected by: decreased
demand, as a result of the overall economic downturn, particularly in
the telecommunications and electronics markets; the termination of
our previously announced plan to separate into four independent
publicly traded companies; rumors and negative publicity; the
resignation of our chief executive officer and chief financial officer; the
replacement of other members of our senior management; the
indictment of former members of our senior management; concern
regarding our ability to maintain compliance with debt covenants and
meet upcoming debt maturities; and the announced investigation
being conducted by the Companys outside counsel. All of these factors
affected employees, customers, vendors and investors. These effects
are continuing. In January 2002, our Board of Directors became aware
of the first of many unauthorized actions that ultimately led to the
resignations of our former chief executive officer and chief financial
officer and the termination of our chief legal officer as well as the
decision not to renominate one of our directors. In September 2002,
our former chief executive officer, chief financial officer and chief legal
officer were each charged with violating New York state criminal law as
a result of their actions. In December 2002, the former director was
charged with, and pleaded guilty to, violating New York state criminal
law as a result of his actions. During the fourth quarter of fiscal 2002,
we announced the hiring of a new chief executive officer, a new chief
financial officer and a new chief legal officer, as well as other key
executives, and also announced the initiation of external and internal
investigations.
The impact on the Consolidated Statements of Operations,
Consolidated Balance Sheets and Consolidated Statements of Cash
Flow, as a result of the above adjustments, is as follows (in millions,
except per share data).
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The amounts previously reported are derived from the original Form
10-K for the year ended September 30, 2002 filed on December 30,
2002.

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Company separations
An announcement was made publicly on January 13, 2006, that the company would
subdivide into three smaller independent companies.
An official "Separation Management Team" was created to deal with all aspects of the
separation and to make it as smooth as possible for customers, employees, and
shareholders. Bob Scott was announced as its leader.[12] Scott had joined Tyco in 2004.
On June 29, 2007, Tyco completed the share distribution separating the company into
three wholly independent, publicly traded companies, [13][14][15] each with its own board of
directors, CEO, management staff, and financial structure.[16]
The three new companies became:

Covidien Ltd., formerly Tyco Healthcare

Tyco Electronics Ltd., now TE Connectivity
Tyco International Ltd., formerly Tyco Fire & Security and Tyco Engineered
Products & Services (TFS/TEPS)

Edward Breen, CEO of Tyco at the time of the split, announced that he would be staying
on as CEO of the newly structured Tyco International, overseeing TFS/TEPS.
Completing the share distribution, on June 29, shareholders received one common share
each of the two new companies, Covidien and Tyco Electronics, for every four common
shares held of the old Tyco International stock. That July 6, the new Tyco International
issued a one-for-four reverse stock split.
On September 19, 2011, Tyco International Ltd. announced once again that the company
would split into three businesses. ADT North America, to be incorporated in the United
States, would deal with residential security. Other companies incorporated in countries
other than the United States would cover flow control and commercial fire and security.

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Tyco international Scandal

Tyco is a global company, employing over 270,000 people, with $36

billion in annual revenues, that manufactures, distributes and services
products and systems for a broad spectrum of markets, with core
business segments in electronics, telecommunications, healthcare and
specialty products, fire and security services, and flow control. Prior to
July 1997, and a merger with a Bermuda company, a current Tyco
subsidiary, now named Tyco International (US) Inc., was Tycos main
operating company under the name Tyco International Ltd. (Mass.)
(Former Tyco). Tyco has approximately 2,342 subsidiaries, including
non-operating holding companies; the corporate headquarters staff of
Tyco, with fewer than 400 people, is paid through a subsidiary named
TME Management Corp. (TME). Tyco itself, other than in its
subsidiaries, has fewer than 20 employees.
Compensation amounting to millions paid to executive officers, loans extended to
executive officers which were later forgiven, related party transactions, certain executives
utilizing Tycos corporate resources to fund personal ventures and property acquisitions,
to increase their own personal wealth. The first trial of Kozlowski and Swartz, who are
accused of looting the company of $600 million, ended in a mis-trial in April 2004.
Prosecutors retrying the men say they'd like to begin proceedings in September 2004.

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Bibliography
http://www.forbes.com
http://news.findlaw.com/hdocs/docs/tyco/nykozlowski91202ind.pdf
http://www.tyco.com

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