New York (Feb. 26, 2004) -- Troubles are mounting for former Tyco International chief financial officer Mark Swartz, who recently testified in a U.S. District Court in Manhattan that he borrowed money from the company's New York City relocation loan program, and accepted a ''tax gross-up'' to cover expenses, even though he was never a New York resident, according to published reports.
Swartz and his former boss, Dennis Kozlowski, are on trial for allegedly stealing $170 million by hiding unauthorized pay and secretly forgiving loans. They also allegedly earned another $430 million from Tyco stock by lying about the company's finances from 1995 to 2002.
At the trial this week, Swartz said that he did not file New York State income tax returns in 1995, 1996 and 1997, even though his family lived in New York City and he worked there for part of the time, news reports indicated. Swartz said he spent less than 30 percent of his working time in Tyco's New York office. Problems emerged for the ex-CFO, however, when he admitted borrowing money from Tyco's New York City relocation loan program -- and accepting a cost-of-living and salary increase called a "tax gross-up" -- to cover the higher living expenses and taxes in New York, news reports indicated.
"You took benefits under the relocation program, but you did not relocate your residence?" Manhattan Assistant District Attorney Marc Scholl asked, according to a Bloomberg News report. "That is correct," Swartz replied.
In addition, Swartz reportedly said he never noticed that $12.5 million in compensation was missing from his W-2 tax form for 1999. According to Bloomberg, the W-2 shows that the former finance chief earned $10.6 million but omitted a $12.5 million loan forgiveness that Swartz accepted as part of a bonus he earned.
Scholl reportedly asked Swartz if he knew early in 2000 that more than half of his income from 1999 was missing from the tax form, to which Swartz replied, "I do not recall ever looking at my W-2 until 2002."
According to the report, Swartz said the objection of PricewaterhouseCoopers' (Tyco’s auditor at the time) lead partner, Richard Scalzo, was the primary reason he went to Tyco's compensation committee in October 2001 to request approval of $25 million in bonuses that were part of Tyco's equity investment in Flag Telecom Group Ltd.
-- WebCPA staff
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