Former Tyco International Ltd. finance chief Mark Swartz conceded during a 2002 conversation it was a "mistake" to accept a $12.5 million bonus that prosecutors accuse him of stealing, a lawyer for Tyco testified on Monday.
But Swartz quickly denied the recollection of lawyer David Boies during a day of tense, back-and-forth testimony. Manhattan prosecutors called Boies as a rebuttal witness to wrap up a case that accuses Swartz and former Tyco Chairman Dennis Kozlowski of looting Tyco of $600 million.
Boies' testimony centered on a July 2002 conversation he said he had about a $12.5 million bonus Swartz received in 1999 as Tyco's chief financial officer.
Hired by Tyco in 2002 to investigate company leaders, Boies and his law firm uncovered a 1999 accounting entry that showed a $12.5 million reduction to Swartz's outstanding loan balance to the company. Kozlowski's loan balance had been reduced by $25 million.
Swartz has said the reductions were made properly in lieu of bonuses he and Kozlowski had received from Tyco's board. Former directors have testified they never approved the bonuses.
"I told Mr. Swartz that I could not see any justification for the credit of $12.5 million," Boies testified. "That it had not been approved by the board of directors, had not been approved by the compensation committee, it had not been revealed in the company's proxy statements, and that it had not been reported to the Internal Revenue Service."
Boies said he did not keep any notes to record the conversation he had with Swartz in a vacant Tyco office. Through the end of 2003, his law firm has received about $30 million in legal fees from Tyco, he said.
"I told Mr. Swartz that unless there was something I was missing, this was a very serious problem, and he said it was a mistake, it should not have happened," Boies said.
Swartz agreed to repay the money immediately with interest, though he maintains the bonuses were legitimate. When called back to the witness stand, Swartz said Boies' recollection was inaccurate.
For one, he said he told Boies that he learned through Kozlowski that the $12.5 million bonus had been approved. As he often has said during several days of testimony, Swartz learned through Kozlowski that then-Tyco director Phil Hampton had approved the bonuses.
Hampton died of cancer in 2001. Swartz has relied in part on what is termed "a dead-man defense" to counter claims tens of millions of dollars in bonuses were not approved by Tyco's board.
"I told (Boies) that there had been a mistake (that the bonus) was not included on my (income disclosure form) and believed it had slipped through the cracks," Swartz said.
