The Wall Street Journal today details testimony in the trial of former Tyco CEO Dennis Kozlowski for “looting the conglomerate of $600 million in unauthorized pay and illicit stock sales.” I know it’s impolite to bring up the topic of corporate scandals now that the issue has been cured by some cosmetic changes at the SEC, but I just can’t help but marvel that we’re fixated on the Kobe Bryant and Martha Stewart trials while guys like Kozlowski and Kenneth Lay, with the enormity of their crimes, avoid the spotlight.
The testimony cited is that of Barbara Jacques, who started at Tyco in 1986 as a secretary, and shortly thereafter became “intimate” with Kozlowski.
Ms. Jacques’s testimony is considered important by prosecutors because she and the two defendants were the only people to receive portions of a $38.5 million “bonus” in August 1999. Prosecutors contend the bonus, in the form of forgiveness of loans outstanding from Tyco, was stolen because it wasn’t approved by the board — or reported on the defendants’ tax forms for that year. Mr. Kozlowski allegedly received $25 million of the bonus, Mr. Swartz $12.5 million and Ms. Jacques $1 million.
In contrast, Stewart sold 4,000 shares of stock for something like $60/share based on an insider tip. Yeah, she knew better, and probably did it because she suffers from a similar strain of hubris that the other guys do, and she should be punished the same as any shoplifter would be. But a hundred grand or so of ill-gotten capital gain is nowhere near the scale of piracy that Kozlowski and Lay practiced on their own companies, employees and shareholders. We’re not talking the same class of crime against humanity.
About a year ago, the son of a friend came to the door selling alarm systems. There had been a few breakins with violent results in north Seattle at the time, and I had been considering an alarm system anyway, so I signed up. Besides the door and window alarms, which may or may not actually be able to save you in the event of a breakin, they monitor smoke alarms and reduce your homeowner’s insurance a substantial amount, so there was a rational component to the decision.
It was only after I had agreed to a 3-year contract and had the equipment installed that I discovered that ADT, the alarm company, was one of the companies registered in Bermuda in order to avoid a substantial amount of US income tax. A company needs little more than a post office box in Bermuda to be “headquartered” there and engage in the tax scam. Not only that, but ADT had “acquired” Tyco (a much larger company) in what is called a “reverse merger” engineered by Tyco precisely to avail itself of ADT’s subtropical tax environs, and Tyco was dodging around $400 million a year in US tax as a result. A little connect-the-dots, and you can infer that money was flowing from the US Treasury into Kozlowski’s bank account, apartment decorating and art collection. (Kozlowski was prosecuted by the state of New York for fraudulently dodging sales tax on art he purchased there).
So now I’m paying $32 a month at least in part to fund Kozlowski’s crime, and I’ll be doing it for two more years. I feel kinda dirty.