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Intro
When I first started looking into Tyco and Dennis Kozlowski, I only had a surface-level understanding of the scandal—mainly the headlines that made him infamous around the same time as Enron and WorldCom. Kozlowski was often painted as one of the greediest executives of the era, notorious for his extravagant spending funded by the company’s money.
The image stuck: a CEO who embezzled tens of millions of dollars to buy lavish homes, priceless art, and even a yacht. Then there were the outrageous details—like the now-infamous $6,000 shower curtain in his 5th Avenue apartment and the extravagant, Roman-themed birthday party he threw for his wife’s 40th, allegedly paid for with Tyco’s funds.
Initially, my research brought up more of the same scandalous stories—tales of excess that seemed ripped straight from a Hollywood script. But as I dug deeper, I stumbled across a couple of articles from Forbes, written during Kozlowski’s trials. The first, titled “The Millions Kozlowski Didn’t Steal,” and the second, “Tyco Trial 2: Verdict First, Law Second,” offered a perspective I hadn’t considered. (Yes, there were two trials.)
Here’s where the case starts to get complicated. At the center of it all were four massive bonuses that Kozlowski and Tyco’s CFO, Mark Swartz, received. These payouts were tied to pre-arranged compensation agreements, and no one disputes that the bonuses were technically in line with those agreements. In other words, they didn’t take more than they were owed.
In fact, all the money they reportedly "stole" was properly recorded in Tyco’s financial books. The real question—and the one at the heart of the trial—was whether or not Tyco’s compensation committee had formally approved the payment of these bonuses. It boiled down to a matter of trust: Did you believe Kozlowski and Swartz, or the Tyco board?
Of course, there were other charges, but this was the crux of the case. And unlike Enron and WorldCom, there were no widespread financial irregularities uncovered in Tyco’s accounting. Yes, there was one instance where Tyco’s profits had to be restated, but even that adjustment didn’t break generally accepted accounting principles. It's worth noting that Tyco’s entire business model leaned on pushing the boundaries of acceptable accounting and tax strategies.
But here's the key difference: Tyco didn’t collapse. It didn’t even come close to bankruptcy, unlike its corporate scandal counterparts.
Reflection on Research and Catherine S. Neal's Taking Down the Lion
As part of our deep dive into the Tyco scandal, we relied in part on Catherine S. Neal’s book, Taking Down the Lion. It’s the only book dedicated to this case, and Neal firmly argues that Dennis Kozlowski was wronged. Her account is packed with details supporting this perspective, making it a valuable resource—but one that also raises questions about her objectivity.
As we mentioned in the podcast, Neal’s narrative leaves out certain pieces of information that are less favorable to Kozlowski. That omission raised some red flags during our research, but those doubts were reinforced even further when I learned—after we released the episode—that Neal, a professor of ethics, is professionally connected to Kozlowski’s wife. They’re both involved in the same company, which undeniably casts a shadow over the neutrality of her account.
This discovery gave me pause, and it does complicate how I view the book. That said, our research didn’t rely on Neal’s work alone. We drew from numerous articles from credible outlets, and many of those sources echoed the same arguments Neal makes in her book. This lends some credibility to her position, even if her personal ties suggest a bias.
Our mission in every episode is simple: we aim to tell stories rooted in the facts available to us. Keith and I aren’t lawyers, journalists, or authors; we’re just two people fascinated by compelling business stories. But we take our research seriously. We dig deep into every topic, cross-referencing materials to ensure we present as complete a picture as possible.
This story, however, was uniquely challenging. The case involved 11 months of contradictory testimony, muddied further by media reports and press conferences from the Manhattan DA’s office that often skewed the narrative. Parsing through this mix of fact and spin made it one of the toughest stories we’ve tackled yet.
Even so, I still stand behind the core argument of this episode: Dennis Kozlowski and Mark Swartz were treated unfairly. But learning about Neal’s connection to Kozlowski’s wife does make me wish for a second book—a more balanced and independent take on the Tyco scandal. This case deserves a fresh perspective to fill in the gaps and tackle the lingering questions with impartiality.
Dennis Kozlowski: From Humble Beginnings to Tyco’s Top Spot
Dennis Kozlowski’s journey to corporate power began in 1946 in New Jersey, where he was born into a working-class family. Known for his sharp intellect and insatiable curiosity, he excelled as a student and was an avid reader.
To fund his education, Kozlowski worked 30-40 hours a week while attending Seton Hall University, a local college where he earned a degree in accounting. After graduating, he started his career as an auditor for several companies before joining Tyco in 1975 at the age of 28. By then, he was married with one young daughter, and a second daughter would arrive in 1977.
At the time, Tyco was a modest company, generating just $20 million in annual revenue. Its business was diverse, spanning products like chips for radios and technology that measured stress on helicopter rotary blades. Tyco had recently welcomed a dynamic new CEO, Joe Gaziano, who envisioned transforming the small firm into a billion-dollar powerhouse through strategic acquisitions, many of them hostile takeovers.
Kozlowski quickly made his mark, moving from auditing into operations, where he thrived. He became the go-to person for ensuring Tyco’s acquisitions were smoothly integrated into the company. This required not only a deep understanding of the acquired businesses but also a ruthless ability to cut costs where necessary.
In 1982, Gaziano tragically passed away from cancer at just 47. He was succeeded by John Fort, a more cautious and conservative director. Even under Fort’s more restrained leadership, Kozlowski pushed relentlessly for more—and bigger—acquisitions, helping Tyco grow steadily. By 1992, the company’s annual revenue had reached $3 billion.
Kozlowski’s aggressive vision for expansion had been a driving force throughout the 1980s, so it came as little surprise when, in 1992, at the age of 45, he was named CEO and Chairman of the Board.
By this point, Tyco had developed into a multi-faceted organization with four distinct divisions:
Electrical and electronic components
Specialty products
Fire services
Flow control products (pipes and tubes)
Recognizing the cyclical nature of the construction industry, which accounted for 81% of Tyco’s revenue, Kozlowski sought to reduce the company’s vulnerability by diversifying. He expanded Tyco’s offerings in its four divisions, acquiring companies that provided products and services to more stable sectors like healthcare and security.
When it came to acquisitions, Kozlowski adhered to two strict rules:
Only acquire companies he was familiar with and that aligned with Tyco’s four business sectors.
Avoid hostile takeovers to retain top talent in the newly acquired companies.
During his tenure as CEO, Kozlowski led Tyco through the acquisition and merger of over 1,000 companies. His formula for success rested on three principles:
Hiring the right people.
Motivating employees with pay-for-performance compensation.
Maintaining decentralized control with minimal bureaucracy.
Tyco’s top performers were exceptionally well-compensated, with pay directly tied to performance. This philosophy extended to Kozlowski himself—90% of his earnings were linked to Tyco’s success. As the company continued its meteoric rise, so did his personal earnings:
1997: $26 million
1998: $70 million
1999: $21 million
2000: $137 million
2001: $57 million
By 2001, Kozlowski also held over $600 million in Tyco stock, cementing his status as one of the most powerful and successful CEOs of his time.
Kozlowski's Meteoric Rise and the Beginning of Controversy
Between 1992 and 2001, Dennis Kozlowski catapulted Tyco from $3 billion in revenue to over $30 billion. By 2001, the company boasted a market cap of $130 billion. Kozlowski was celebrated as one of America’s most aggressive and effective CEOs, earning the nickname "Deal-a-Day Dennis." His reputation was well-earned—by 2001, Tyco was completing an average of 200 acquisitions annually.
But success of this magnitude often comes at a personal cost. Kozlowski’s relentless focus on Tyco took a toll on his personal life, leading to the breakdown of his first marriage.
Having been with Tyco for 27 years and the driving force behind its growth for two decades, Kozlowski was an indispensable figure. The board wanted to ensure he remained at the helm and offered him a staggering retention deal to keep him tied to Tyco until 2008.
The deal guaranteed Kozlowski three times his 2000 salary of $137 million, plus 800,000 restricted shares that could potentially be worth $70 million. Regardless of Tyco’s performance, he was guaranteed at least $412 million—and potentially just under half a billion dollars. Even if he were terminated, the payout was secure. The only scenario where Kozlowski would forfeit the retention deal was if he were convicted of a felony.
Put a pin in this retention agreement—it’s a key piece of the scandal that followed.
The General Electric Parallel and the CIT Deal
Kozlowski and Tyco aspired to emulate General Electric, which, under Jack Welch’s leadership, was widely regarded as the gold standard of corporate management. By 2000, GE was generating more than half its profits from GE Capital, its financial services arm.
Buoyed by Tyco’s success and eager to replicate GE’s model, Kozlowski made his boldest move yet in 2001: the $9.2 billion acquisition of CIT, a financial services company. This marked a pivotal moment—Kozlowski broke his own golden rule.
For years, he had adhered to two strict principles for acquisitions:
Only buy companies Tyco understood thoroughly.
Ensure the acquisition fit within Tyco’s four established business sectors.
CIT fit neither criterion. Tyco had limited knowledge of the financial services industry, and CIT didn’t align with its core sectors. Despite these red flags, Kozlowski maintained that the acquisition was strategic. He argued that Tyco’s existing customers could use CIT’s services to finance purchases of Tyco products.
The Walsh Commission Controversy
The CIT acquisition sparked the first major controversy that would lead to Kozlowski’s downfall. Tyco board member Frank Walsh played a key role in facilitating the deal. Walsh had connections with CIT’s CEO and made the initial introductions, helping Kozlowski navigate negotiations.
Ordinarily, this type of work is handled by investment banks, which charge a standard commission of around 1% of the deal’s value. For a $9.2 billion deal, that fee would be approximately $92 million.
In this case, however, Walsh and Kozlowski agreed informally that Walsh would receive compensation for his role. Nothing was documented initially. After the deal closed, the two agreed on a $20 million fee: $10 million for Walsh and $10 million for a charity of Walsh’s choosing. This was a fraction of what an investment bank would have charged.
The payment was processed, recorded in Tyco’s financial books, and invoiced by Walsh. However, because the agreement was made informally and only finalized after the deal closed, the payment wasn’t included in Tyco’s S-4 filing with the SEC. (An S-4 form is a required document for public companies to disclose material information about mergers and acquisitions.)
The omission of this payment from the S-4 form would later become a significant point of contention, fueling the narrative of financial mismanagement and lack of transparency within Tyco. It was one of the first cracks in Kozlowski’s empire—a small detail that would snowball into much larger problems.
The Walsh Payment Controversy: Conflict and Consequences
The $20 million payment to Tyco board member Frank Walsh, stemming from the CIT acquisition, became a pivotal controversy in Dennis Kozlowski’s downfall. Central to the scandal was a conflict in testimony about how the payment was handled.
According to Walsh, Kozlowski explicitly asked him to “keep the deal between themselves,” which Walsh interpreted as a directive not to inform other board members. Kozlowski, however, claimed his request was about something else entirely: asking Walsh not to consult with investment bankers to gauge the appropriate fee. Walsh had suggested he might do this, and Kozlowski wanted to avoid external involvement.
Supporting Kozlowski’s version, the fee was invoiced, accounted for in Tyco’s financial books, and known by other Tyco executives. Crucially, no one testified that Kozlowski had directed them to conceal the payment from the board.
Board Backlash
Despite this, Kozlowski did not formally disclose the $20 million payment to the board in January 2002, a decision that sparked significant anger among some members. The reasons for their outrage, however, remain unclear.
This wasn’t due to any sort of conflict-of-interest violation; such conflicts were routine at Tyco. For instance:
One board member’s law firm handled nearly all of Tyco’s mergers and acquisitions, raking in enormous fees.
Another board member leased helicopters and planes to Tyco while his wife worked as a relocation agent for Tyco employees.
When respected corporate governance expert Roger Monks suggested in 1994 that the board undergo a self-evaluation to address such conflicts, he was promptly removed.
At the time of the Walsh payment, there were no internal rules barring Kozlowski from approving the fee on his own. During Kozlowski’s trial, five board members confirmed that he had the authority to make the payment without board approval.
So why were some members so upset about this particular payment? One plausible explanation is jealousy. A $20 million payout for what appeared to be minimal effort on Walsh’s part likely rankled those who benefited from their own conflicts of interest but didn’t see such eye-popping sums.
The January 2002 Huddle
The issue came to a head during an informal board meeting—or “huddle”—in January 2002. The meeting focused on two major issues:
The struggles Tyco was facing with the CIT acquisition.
Kozlowski’s proposal to break Tyco into four separate entities.
Despite the gravity of these topics, no official minutes were taken—a consistent and troubling oversight in Tyco’s governance practices, which would later play a critical role in Kozlowski’s legal troubles.
When the discussion turned to the Walsh payment, some board members voiced their outrage. They suggested that Walsh should either return the money or resign. Walsh, clearly fed up, stood up, said, "Adios," and left the board.
Recognizing the tension surrounding the payment and the informal way it had been handled, Kozlowski acknowledged his mistakes. He even offered to resign, but the board rejected his resignation. Moreover, they approved the inclusion of the Walsh payment in Tyco’s proxy statement—a move that was supposed to put the issue to rest.
Shareholder Fallout
But the controversy didn’t end there. When Tyco’s proxy statement revealed the $20 million payment to Walsh, shareholders were furious. They viewed the payout as excessive and inappropriate, and their reaction was swift. Tyco’s share price plummeted by 20%, and shareholders filed lawsuits against the board for approving the fee.
What began as an informal agreement to pay a board member for facilitating a deal had now spiraled into a full-blown crisis, further destabilizing Kozlowski’s already tenuous position. The incident was yet another crack in Tyco’s governance structure, setting the stage for the scandal that would follow.
The Corporate Landscape Post-Enron and Kozlowski’s Fall
The corporate world shifted dramatically after Enron’s collapse in December 2001. Companies that had grown rapidly—like Tyco—found themselves under the microscope. With accounting frauds making headlines, rumors swirling, and boards facing mounting pressure, corporate governance was undergoing a seismic change.
This scrutiny extended to Tyco, where the $20 million Frank Walsh payment, the struggling CIT acquisition, and a free-falling share price painted a grim picture. In May 2002, Tyco’s stock traded at $28—a steep decline from $74 just a year earlier.
In response to shareholder pressure, Tyco’s board hired high-profile attorney David Boies to investigate the Walsh payment. While this move addressed shareholder concerns, it also set the stage for greater turmoil. The summer of 2002 would prove disastrous for Dennis Kozlowski.
Art, "Notions," and the Manhattan DA
Like many executives with vast wealth, Kozlowski fell into what the Irish call “getting notions”—a desire to project a certain image. For him, this manifested in becoming a self-styled art collector. By his own admission, he wasn’t genuinely interested in art; he simply wanted the bragging rights that came with being part of the elite art-buying crowd.
While Kozlowski was acquiring expensive paintings, the Manhattan District Attorney’s office was investigating New York art galleries suspected of evading sales tax. Kozlowski inadvertently became ensnared in the investigation.
Under the law, it’s the seller’s responsibility to charge sales tax, not the buyer’s obligation to ensure it’s paid. However, this didn’t stop the Manhattan DA from indicting Kozlowski in June 2002 for allegedly evading sales tax on his art purchases.
In a controversial move, the DA granted immunity to the seller—the party actually responsible for the tax—in exchange for their cooperation. Adding to the controversy, the DA never interviewed Kozlowski before bringing charges. The indictment blindsided him.
Kozlowski’s Dismissal
When news of the indictment broke, Kozlowski personally called each board member to inform them of the charges. Over the following weekend, the board convened a teleconference to decide his fate.
Opinions were split: some members felt Kozlowski should be placed on leave until the charges were resolved, while others insisted he resign immediately. Ultimately, the latter group prevailed. Kozlowski was effectively fired during that weekend call.
After 27 years of service and building Tyco into a corporate giant, Kozlowski wasn’t even given the chance to explain the charges, present his side, or discuss his plans to fight the allegations. The board cut ties without speaking to him again.
The Retention Agreement and Its Role
A revealing detail emerged years later during a 2011 interview with a former board member. The individual admitted that the art sales tax charges weren’t the only concern driving the board’s decision. As the board member put it, “The employment agreements were an impediment since substantial severance payments would have been triggered without an ultimate conviction of guilt.”
This comment highlights a critical factor in Kozlowski’s dismissal: his retention agreement.
Kozlowski’s deal guaranteed him a massive payout unless he was convicted of a felony. The board was already embroiled in lawsuits over the $20 million Walsh payment, and the prospect of paying Kozlowski hundreds of millions on top of that would have been catastrophic.
The board’s only viable escape from the retention agreement was a conviction. From the moment of Kozlowski’s indictment, their focus shifted to protecting themselves financially. His ousting became not just a reaction to public perception but a calculated move to mitigate the financial fallout Tyco’s leadership faced.
What started as a scandal over sales tax had now snowballed into a larger narrative of betrayal, shifting priorities, and the ruthless pragmatism of corporate governance.
The Post-Enron Era and the Manhattan DA’s Pursuit
After Enron’s collapse in December 2001, the corporate world was under intense scrutiny. Prosecutors, eager to make examples of high-profile executives, saw Dennis Kozlowski as an ideal target. The Manhattan District Attorney’s office was especially motivated to secure a big win, and their eagerness showed in Kozlowski’s initial indictment.
On June 3, 2002, Kozlowski was charged with failing to pay sales tax on paintings he had purchased. This marked the first time in New York State’s history that a retail customer was criminally charged for failing to pay sales tax—a responsibility that legally falls on the seller, not the buyer. The DA granted immunity to the seller, who should have been the focus of the charges, in exchange for their cooperation. To make matters worse, the DA never interviewed Kozlowski before indicting him.
Kozlowski was ultimately cleared of these charges in 2004. The judge in the case criticized the Manhattan DA’s office for misinterpreting the law and applying it incorrectly.
Expanding the Investigation
The day after Kozlowski’s indictment, Tyco’s board instructed David Boies—initially hired to investigate the Frank Walsh payment—to broaden his probe to include Kozlowski.
Boies produced a report detailing allegations of extravagant spending, which was subsequently leaked to the press. The report accused Kozlowski of using Tyco funds for personal luxuries, including:
A $17 million Fifth Avenue apartment.
$3 million in renovations and $11 million in furnishings, such as a $15,000 dog umbrella stand, a $6,300 sewing basket, and the infamous $6,000 shower curtain.
A $2 million Roman-themed birthday party for his second wife in Sardinia, complete with toga-clad waitstaff and an ice sculpture of Michelangelo’s David dispensing vodka.
The leaked details caused a media storm, turning Kozlowski into the poster boy for corporate greed. The New York Post captured the public sentiment with a front-page photo of Kozlowski under the headline “Oink Oink.”
Boies also shared his findings with the Manhattan DA, who subsequently filed charges against Kozlowski, Tyco CFO Mark Swartz, and Tyco’s chief counsel Mark Belnick.
The Charges
Kozlowski and Swartz were accused of stealing $132 million. Meanwhile, Belnick was charged with taking a $14 million bonus without board approval. While additional charges were filed, these were the most significant accusations.
The Role of Federal Prosecutors
Unlike other corporate scandals of the era—such as Enron and WorldCom—the Tyco case was not taken on by federal prosecutors. The reasons for this are telling.
Although the allegations in the Boies report were scandalous and sensational, many lacked the necessary legal weight to substantiate criminal charges.
For instance, the $17 million Fifth Avenue apartment was purchased by Tyco, and its furnishings and artwork also belonged to the company. Transactions for three paintings worth $1.9 million were handled by Tyco staff, not Kozlowski. While Kozlowski personally owned five paintings that hung in the apartment, they were purchased using a loan from Tyco, which he later repaid.
Kozlowski had corporate authority to spend up to $200 million annually and explained that the apartment was intended for hosting private meetings with potential acquisition targets. On the stand, he admitted that he should have monitored the apartment’s budget more closely, but he had delegated those responsibilities, as he did with many other aspects of his life at the time.
Kozlowski’s prosecution rested on the perception of corporate excess rather than clear evidence of wrongdoing. These accusations, while damaging to his reputation, were far from straightforward cases of criminality.
The Sardinia Party and Corporate Perceptions
The infamous $2 million Roman-themed party in Sardinia for Dennis Kozlowski’s wife became a defining symbol of his alleged corporate excess. However, the reality of the event was more nuanced than the headlines suggested.
Half of the guests at the party were Tyco employees, and the other half were Kozlowski’s friends and family. The costs were split accordingly, with Tyco covering the expenses for its employees and Kozlowski personally paying for his guests. This arrangement was not unusual for Tyco, whose event planner testified at the trial that the company frequently held luxurious events for its top performers, often costing $2 million or more.
The event planner further stated that Kozlowski’s involvement in the party was minimal—his sole input was to request a themed event, delegating the rest of the planning to her. Kozlowski later admitted he disliked the party, particularly the semi-naked models and the infamous ice sculpture of Michelangelo’s David dispensing vodka. With his daughters and in-laws present, he found the event embarrassing.
Even jurors from Kozlowski’s first trial, who watched footage of the party, noted that his body language suggested discomfort rather than enjoyment.
While the leaked details of the party solidified Kozlowski’s public image as a symbol of corporate greed, the federal government did not find anything criminal in these accusations.
The Bonus Controversy
Another reason the federal government declined to prosecute was the nature of the bonuses Kozlowski and Tyco CFO Mark Swartz were accused of stealing. The bonuses, which totaled $132 million, were fully accounted for in Tyco’s financial records. The payments were based on pre-arranged formulas that were part of Tyco’s publicly disclosed compensation agreements.
The core issue was that these bonuses, though due to Kozlowski and Swartz, allegedly lacked formal approval from Tyco’s compensation committee.
Despite the seriousness of the charges, the Manhattan DA never interviewed Kozlowski about the alleged larceny. This omission raised questions. If someone is accused of major crimes, wouldn’t investigators want to hear their side of the story? Kozlowski could have clarified assumptions, incriminated himself, or chosen to remain silent—but the DA never gave him that opportunity.
Two Key Trials
Before Kozlowski’s trials began, two other cases related to Tyco played out in court.
Frank Walsh’s Trial
Frank Walsh, the Tyco board member who facilitated the CIT acquisition, was swiftly prosecuted. He pleaded guilty to taking the $20 million fee without board approval, despite later testimony from five Tyco directors at Kozlowski’s trial stating that Kozlowski had the authority to authorize the payment without consulting them.
Walsh was ordered to return the $20 million and pay a $2.5 million penalty. The reasons behind his guilty plea remain unclear, especially in light of later evidence suggesting the payment was within Kozlowski’s authority. This inconsistency is one of the many baffling aspects of the Tyco saga.
Mark Belnick’s Trial
In 2004, Tyco’s chief counsel, Mark Belnick, was charged with taking a $17 million bonus and a $14 million relocation loan without approval from the compensation committee.
Belnick argued that Kozlowski had assured him the payments were approved. However, members of the compensation committee testified that this was not the case.
The jury sided with Belnick, concluding that the directors and committees had failed in their oversight. As one juror stated, “All the directors and committees didn’t do their jobs. They can’t have it both ways. They either did their job and knew what was going on or they didn’t.”
Belnick’s acquittal was a significant blow to the Manhattan DA’s case.
The Plea Deal
Following Belnick’s acquittal, the DA offered Kozlowski and Swartz a plea deal. Both men rejected it, setting the stage for their trials and intensifying the drama surrounding the Tyco scandal.
The Trials and the Three Key Elements of the DA’s Case
Before Dennis Kozlowski’s and Mark Swartz’s first trial began, the judge dismissed 80 counts of enterprise corruption that the Manhattan DA had brought against them, citing insufficient evidence. This significantly narrowed the scope of the case.
The first trial itself, which lasted six months, ended in a mistrial under bizarre circumstances. A journalist accused a juror of attempting to communicate with Kozlowski’s team. After publicly naming the juror, that individual reportedly received a threat from a member of the public, prompting the judge to declare a mistrial.
The second trial began in January 2005 and lasted five months. This time, the DA’s case hinged on three vital elements:
Public Perception: The defendants were painted as overpaid executives who epitomized corporate greed, with Kozlowski in particular accused of using Tyco’s money to bankroll a lavish lifestyle.
Board Testimony: Tyco board members testified that the bonuses were not approved, and a lack of meeting minutes to document any discussions about the bonuses bolstered the claim that they had been stolen.
Complex Financial Transactions: The bonuses and the use of Tyco’s executive treasury for personal finances were structured in ways that appeared opaque, creating the impression that something improper had occurred.
The Case Against Kozlowski and Swartz
Public Perception
There was no denying that Kozlowski and Swartz were paid enormous sums. Their compensation packages were undeniably extravagant, and Kozlowski’s image as a corporate fat cat—fueled by stories of lavish spending—became a significant liability.
However, the defense pointed out that all the money Kozlowski and Swartz received was based on pre-arranged formulas approved by Tyco’s compensation committee. The amounts they were accused of stealing matched the bonuses they were due and were fully accounted for in Tyco’s financial records.
Still, the optics were damning. Extravagant spending on items like the infamous $6,000 shower curtain, combined with the Sardinia party and Fifth Avenue apartment, created a perception of unchecked greed that the prosecution successfully leveraged to sway public opinion against them.
Board Testimony and Missing Minutes
A central pillar of the prosecution’s case was the board’s claim that the bonuses were never approved. The absence of meeting minutes documenting discussions about the bonuses strengthened their argument.
Kozlowski countered that he had discussed the bonuses with Philip Hampton, the chair of the compensation committee, who had approved them. Unfortunately, Hampton had passed away in 2001, making it impossible to confirm Kozlowski’s account.
Kozlowski’s defense further argued that there was no intent to steal. All bonuses were not only disclosed to Tyco’s leadership but also documented in the company’s accounts. The fact that they were publicly reported made it implausible that Kozlowski and Swartz had attempted to conceal them.
Complex Financial Transactions
The manner in which bonuses were paid and how executives managed their personal finances through Tyco’s treasury added to the prosecution’s narrative of impropriety. These transactions, while not illegal, were convoluted enough to appear suspicious, allowing the DA to cast doubt on the defendants’ intentions.
The Defense's Position
While acknowledging the image problem created by Kozlowski’s spending, the defense emphasized key points:
All compensation received by Kozlowski and Swartz was based on pre-approved formulas.
The bonuses were documented in Tyco’s financial records, making it clear that there was no effort to hide them.
Even if Philip Hampton hadn’t discussed the bonuses with the full board, the lack of board-wide approval didn’t equate to theft.
Kozlowski’s team argued that the case boiled down to mismanagement and poor optics rather than criminal intent. However, the absence of a living witness to confirm Hampton’s alleged approval and the overwhelming public perception of corporate excess created significant hurdles for the defense.
Record-Keeping at Tyco and the Lack of Minutes
The prosecution emphasized the absence of minutes from the compensation committee approving the bonuses as evidence against Dennis Kozlowski and Mark Swartz. However, a closer look at Tyco’s lax record-keeping practices shows that this argument doesn’t hold much weight.
For instance, the head of HR testified that compensation committee minutes were often prepared before meetings even took place and weren’t ratified by the board members until weeks or months later. Similarly, Tyco’s audit committee never recorded meeting minutes during Kozlowski’s entire tenure as CEO; it only began doing so in 2002, after the company came under intense scrutiny.
This lack of documentation extended to critical board decisions. There were no minutes for:
Hiring David Boies to investigate Frank Walsh.
The January 2002 meeting where the board discussed selling CIT, breaking up Tyco, and the Walsh fee.
The board’s agreement to sell $2 billion worth of Tyco shares to Lehman Brothers.
The absence of minutes was not unusual for Tyco, and it didn’t prove wrongdoing in the case of the disputed bonuses.
That said, the responsibility for this shoddy record-keeping ultimately fell to Kozlowski. As both CEO and Chairman, he set the tone for corporate governance. His aversion to bureaucracy and preference for nimbleness over paperwork allowed poor practices to persist.
The Complexities of Executive Bonuses
The third element of the prosecution’s case revolved around how Tyco executives received their bonuses and managed their personal finances. The systems involved were undeniably complicated, but they weren’t inherently criminal.
KELP and Relocation Programs
One key mechanism was Tyco’s Key Employee Loan Program (KELP), designed to help employees borrow funds to cover tax liabilities related to the vesting of restricted Tyco stock.
Both Kozlowski and Swartz were found to have overused KELP and the company’s relocation program, taking out more loans than they should have. However, this behavior was not unique to them—these systems had been misused by Tyco executives long before Kozlowski became CEO. While this reflected poor corporate practices, it wasn’t illegal.
Critically, Kozlowski and Swartz always repaid their loans with their bonuses, and all transactions were documented.
The DA framed these loans as having been forgiven, arguing that the bonuses used to repay them were stolen. This framing added to the perception of impropriety but overlooked the fact that the loans were repaid according to documented procedures.
At the time of Kozlowski’s firing, he still owed $16 million to KELP. However, he was also owed $80-$85 million in deferred compensation by Tyco. This raised an important question: If Kozlowski was stealing money from Tyco, why would he leave such a significant amount of money with the company?
Blurred Lines in the Executive Treasury
Another issue that muddied the waters was the use of Tyco’s executive treasury to manage Kozlowski’s personal finances.
Evidence presented at trial revealed that a single employee in Tyco’s treasury department handled all of Kozlowski’s personal financial matters. This included paying his bills, managing his banking, and applying for and repaying loans through the KELP program.
This arrangement was unquestionably poor practice, as it blurred the lines between Kozlowski’s personal funds and company resources. However, while unorthodox and problematic, this setup wasn’t illegal.
The Impact on Kozlowski’s Case
The DA leveraged Tyco’s poor governance and the convoluted financial arrangements to paint a picture of impropriety, but much of it boiled down to optics rather than substance. While the practices were messy and gave the appearance of wrongdoing, they didn’t meet the threshold for criminal behavior. Unfortunately for Kozlowski, the blurred lines and public perception worked against him, undermining his defense and further tarnishing his image.
The $25 Million Tax Omission
One of the most damaging pieces of evidence against Dennis Kozlowski was his failure to report a $25 million payment on his 1999 tax return. This payment had been used to forgive a loan from Tyco, and the prosecution spent two days grilling Kozlowski about the omission.
Kozlowski testified that neither he nor his accountant noticed the missing $25 million. To the jury—and likely much of the public—this explanation seemed implausible. How could the CEO of a $130 billion company, who started his career as an auditor, fail to catch such a glaring error in his tax filings?
For me, though, this story rings true. Throughout this case, Kozlowski demonstrated a pattern of extreme delegation. He delegated the planning of his wife’s birthday party, the decoration of the Fifth Avenue apartment, and even the management of his personal finances to Tyco’s executive treasury.
The extent of this delegation became evident when the treasury employee who managed Kozlowski’s finances testified that after his firing, he called her to ask for his bank account details and his Social Security number.
This reliance on others resonates with my own experience. When Keith and I ran our small company, I trusted my accountant implicitly. Whatever he handed me to sign at tax time, I signed without scrutinizing it, despite his advice to double-check the figures and fully understand the documents. I was busy, I trusted him, and I didn’t want to deal with it. Looking back, it was foolish, but it also makes Kozlowski’s oversight feel believable to me.
The Board’s Credibility Issues
The two trials, which spanned a combined 11 months, were packed with testimony that undermined both the prosecution’s and the defense’s cases. Kozlowski and Swartz faced significant credibility challenges, particularly since the entire Tyco board testified against them.
However, the board itself was far from credible. One of the most damning examples of this came from a board member’s testimony about how the company treated Swartz after learning he had allegedly stolen bonuses. Instead of removing him, Tyco kept Swartz on as CFO, had him certify the company’s accounts, and then paid him a $50 million severance package.
If the board truly believed that Swartz had stolen from the company, why would they allow him to continue in his role, certify the financials, and reward him with such a massive payout? It defies logic and casts serious doubt on the board’s motives and testimony.
The Verdict
Despite the board’s questionable credibility, the jury ultimately sided with the prosecution. They believed the narrative that Kozlowski and Swartz had stolen millions from Tyco, and they trusted the board’s testimony over that of the defendants.
For Kozlowski and Swartz, their credibility issues—compounded by the public perception of greed, the damning tax omission, and the sensational media portrayal—proved insurmountable. The jury’s decision reflected not just the evidence but the broader narrative crafted by the prosecution and supported by the board.
Sentencing, Appeals, and Lingering Questions
Dennis Kozlowski received a sentence of 8 1/3 to 25 years in prison, along with restitution and fines totaling $167 million. Mark Swartz faced a similar sentence, with fines and restitution totaling $72 million.
Kozlowski served just over eight years before being released in 2014, while Swartz was released a few months earlier, in October 2013.
The Appeals
Kozlowski and Swartz appealed their convictions but lost both attempts.
First Appeal
The first appeal hinged on the credibility of the Tyco board. The appellate judges sided with the board, whose testimony formed the backbone of the prosecution’s case. The judges also gave significant weight to the $12.75 million Kozlowski spent on artwork that hung in the Tyco apartment.
This ruling ignored an important distinction: the paintings Kozlowski purchased personally were in his name and bought with loans he repaid, while the three paintings worth $1.9 million that hung in the same apartment were purchased by Tyco and recorded as company property.
Second Appeal
The second appeal focused on notes taken by David Boies during his interviews with board members. These notes were never requested by the prosecution, so they were not required to be disclosed to the defense. The appellate court upheld this procedural argument, and the appeal was denied.
Parole and Kozlowski’s Guilty Admission
At his second parole hearing, Kozlowski admitted guilt—a moment often cited as proof of his wrongdoing. However, given the damage to his reputation and the potential of spending another decade in prison, it’s not hard to understand why he made this admission. In similar circumstances, many would likely do the same to regain their freedom.
Lingering Questions About the Convictions
I have significant reservations about the convictions of Kozlowski and Swartz. While their testimonies had flaws, so did the credibility of the Tyco board.
Where Was the Criminal Intent?
The core issue in criminal cases is intent, and I find it difficult to identify where criminal intent existed here:
The bonuses they were accused of stealing matched exactly the amounts they were due.
The bonuses were publicly disclosed and derived from formulas agreed upon in advance.
All transactions were properly documented in Tyco’s financial records.
Red Flags Were Absent
In most corporate scandals, there are clear signs of deceit—red flags like employees being directed to lie, conceal information, or manipulate numbers. None of that appeared here.
Not a single employee testified that Kozlowski or Swartz asked them to hide or falsify anything.
Board members admitted they were never denied information they requested.
Even the prosecution couldn’t show any irregularities in how the disputed bonuses were processed; they were handled in the same manner as all other bonuses.
A Perfect Storm of Circumstances
Kozlowski and Swartz lost their case due to a confluence of factors:
A post-Enron environment where high-paid CEOs were viewed with suspicion and hostility.
Kozlowski’s tarnished image as a poster boy for corporate greed.
Tyco’s sloppy governance, poor record-keeping, and blurred lines between personal and corporate finances—all of which gave the appearance of impropriety, even when nothing illegal occurred.
Kozlowski’s role as both CEO and Chairman meant he bore ultimate responsibility for these governance failures.
David Boies and the Role of the Board
David Boies, hired by Tyco’s board, played a pivotal role in the case. His job was to protect the board’s interests, and he succeeded. For $45 million over three years, Boies helped the board avoid catastrophic financial liability. If Kozlowski had not been convicted, the board would likely have been forced to honor the $412 million retention deal, which could have spelled financial disaster.
By cooperating with the Manhattan DA to convict Kozlowski, Boies ensured the board was shielded. From their perspective, the $45 million they spent on Boies was well worth it.
Final Thoughts
Based on everything we uncovered while researching this case, it seems clear that Dennis Kozlowski and Mark Swartz were treated unfairly. The evidence of criminal intent was weak, and many aspects of the case—like the bonuses they were accused of stealing—were fully consistent with Tyco’s established practices and documented in the company’s records. While Tyco’s poor governance and Kozlowski’s larger-than-life image contributed to their convictions, the red flags typically seen in corporate fraud cases simply weren’t there.
That said, one of our main sources was Taking Down the Lion by Catherine Neal, who argued strongly for Kozlowski’s innocence. After we recorded the episode, we discovered that Neal is on the board of a company owned by Kozlowski’s wife. This revelation calls her objectivity into question and adds an important layer of context to her arguments.
Ultimately, this case is as much about optics and public perception as it is about the facts. While Kozlowski and Swartz’s actions may not have been perfect, the evidence doesn’t convincingly point to criminal intent, making their convictions feel like a product of the post-Enron era rather than clear wrongdoing.
Disclaimer
Each article is grounded in extensive research from a range of reputable sources, which can include written articles, books, videos, and podcasts. The specific types of sources may vary depending on the topic. I compile this information into a detailed document, typically around 6,000-9,000 words, to serve as a rehearsal script for my podcast episodes. My goal is not to produce a polished article but to create a working script that structures my thoughts for the episode.
To refine this script, I use ChatGPT with carefully crafted prompts, ensuring all facts and figures are accurate while preserving my opinions and voice. This process helps transform my research into a script mainly, but also an article, that reflects the depth of my preparation while staying true to my perspective.
Sources
https://docs.google.com/document/d/1Ns8zvhlH2-DVR2G9hSTlTOAaEyhhIyDKm2bgDdF7rP0/edit?usp=sharing