Tyco International Ltd. will pay $50 million to settle allegations by the Securities and Exchange Commission that the company inflated its earnings by more than $1 billion between 1996 and 2002.
The improper accounting occurred during the tenure of infamous former chief executive Dennis Kozlowski, who is serving jail time for looting Tyco's Bermuda-based conglomerate. Kozlowski was removed from the company in June 2002.
"We have cooperated fully with the SEC and are pleased to be able to close this chapter in Tyco's history," said Tyco chairman and chief executive Ed Breen, in a statement. Tyco, the world's largest manufacturer of electronic connectors, security systems and industrial valves, had already set aside reserves of $50 million in May 2005 to cover the cost of the anticipated settlement.
Breen also noted that over the past nearly four years, Tyco's new management team has made a variety of changes to improve the company's accountability structure and to enhance its transparency. Among the changes:
- The entire former senior management team and board of directors has been replaced;
- The size of the company's audit staff has doubled;
- Tyco met the internal controls provisions laid out under the Sarbanes-Oxley Act;
- The company's methods for determining executive pay, as well as the actual compensation figures detailed in proxy reports, was disclosed; and,
- All of Tyco's 250,000 employees are required to be trained annually under the company's "Guide to Ethical Conduct."
The SEC's suit alleged that Tyco inflated operating income by $567 million through its ADT security unit and improperly tacked on another $500 million through improper accounting for acquisitions.Tyco was also cited for disclosure violations involving executive compensation, as well as for violating anti-bribery provisions of the Foreign Corrupt Practices Act by making payments to Brazilian officials through a subsidiary to obtain business for Tyco.
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