99992/21 

09/24/2007 2232010.02 

Marc B. Kramer, Esq. (MK-8473) 

LAW OFFICES OF MARC B. KRAMER 

A Professional Corporation 

150 JFK Parkway, Suite 100 

Short Hills, New Jersey 07078 

973.847.5924 

Attorneys for Plaintiffs 

UNITED STATES DISTRICT COURT 

FOR THE DISTRICT OF NEW JERSEY 

FRANKLIN MUTUAL ADVISERS, LLC; 

MUTUAL BEACON FUND, A SERIES OF 

FRANKLIN MUTUAL SERIES FUND INC.; 

MUTUAL DISCOVERY FUND, A SERIES OF 

FRANKLIN MUTUAL SERIES FUND INC.; 

MUTUAL QUALIFIED FUND, A SERIES OF 

FRANKLIN MUTUAL SERIES FUND INC.; 

MUTUAL SHARES FUND, A SERIES OF 

FRANKLIN MUTUAL SERIES FUND INC.; 

MUTUAL FINANCIAL SERVICES FUND, A 

SERIES OF FRANKLIN MUTUAL SERIES 

FUND INC.; MUTUAL BEACON FUND; 

FRANKLIN MUTUAL BEACON FUND, A 

SUB-FUND OF FRANKLIN TEMPLETON 

INVESTMENT FUNDS; MUTUAL 

DISCOVERY SECURITIES FUND, A SERIES 

OF FRANKLIN TEMPLETON VARIABLE 

INSURANCE PRODUCTS TRUST; and 

MUTUAL SHARES SECURITIES FUND, A 

SERIES OF FRANKLIN TEMPLETON 

VARIABLE INSURANCE PRODUCTS TRUST, 

Civil Action No. 

PLAINTIFFS’ COMPLAINT AND 

JURY DEMAND

Plaintiffs, 

-vTYCO INTERNATIONAL, LTD., 

Defendant. 

Plaintiffs, by their attorneys, for their Complaint (the “Complaint”), make the 

following allegations against defendant Tyco International, Ltd. (“Tyco” or the “Company”), 

upon information and belief (except as to allegations specifically pertaining to plaintiffs and 

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their counsel, which are based on personal knowledge) based upon the thorough investigation 

conducted by and under the supervision of plaintiffs’ counsel, which included reviewing and 

analyzing information and financial data relating to the relevant time period concerning Tyco 

and obtained from numerous public and proprietary sources (such as LEXIS-NEXIS, Dow 

Jones and Bloomberg), including, among other things, filings with the Securities and Exchange 

Commission (the “SEC”), publicly available annual reports, press releases, published 

interviews, news articles and other media reports (whether disseminated in print or by electronic 

media), and reports of securities analysts and investor advisory services, in order to obtain the 

information necessary to plead plaintiffs’ claims with particularity. Except as alleged herein, 

the underlying information relating to defendant’s misconduct and the particulars thereof are not 

available to plaintiffs and the public and lie exclusively within the possession and control of 

defendant and insiders, thus preventing plaintiffs from further detailing defendant’s misconduct. 

Plaintiffs believe that further substantial evidentiary support will exist for the allegations set 

forth below after a reasonable opportunity for discovery. 

JURISDICTION AND VENUE 

1. This Court has jurisdiction over the subject matter of this action pursuant to 28 

U.S.C. Sections 1331 and 1337, Section 22 of the Securities Act of 1933 (“Securities Act”) [15 

U.S.C. ¶ 77v], and Section 27 of the Securities Exchange Act of 1934 (“Exchange Act”) [15 

U.S.C. ¶ 78aa]. 

2. The claims asserted herein arise under Sections 11 of the Securities Act [15 

U.S.C. ¶¶ 77k], Sections 10(b) of the Exchange Act [15 U.S.C. ¶ 78j(b)], Rule 10b-5 

promulgated thereunder by the SEC [17 C.F.R. ¶ 240.10b-5], and Section 18 of the Exchange 

Act [15 U.S.C. ¶78r]. 

3. Venue is proper in this District pursuant to Section 22 of the Securities Act and 

Section 27 of the Exchange Act. Many of the acts or transactions constituting violations of the 

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Securities Act and Exchange Act alleged herein occurred in this District. In addition, Tyco 

transacts business in this district. 

4. In connection with the acts, conduct and other wrongs alleged in this complaint, 

Tyco, directly or indirectly, used the means and instrumentalities of interstate commerce 

including the mail, the internet, telephone communications and the facilities of national securities 

exchanges. 

PARTIES 

A. PLAINTIFFS 

5. Plaintiffs Mutual Beacon Fund, Mutual Discovery Fund, Mutual Qualified Fund 

and Mutual Shares Fund and Mutual Financial Services Fund are five of the six mutual funds 

comprising the Franklin Mutual Series Fund Inc., a Maryland corporation registered with the 

United States Securities and Exchange Commission as an investment company under the 

Investment Company Act of 1940. The principal place of business for each fund is 51 John F. 

Kennedy Parkway, Short Hills, NJ 07078. 

6. Plaintiffs Mutual Discovery Securities Fund and Mutual Shares Securities Fund 

are two of the twenty three investment portfolios comprising Franklin Templeton Variable 

Insurance Products Trust, a Massachusetts business trust. The principal place of business for 

each fund is One Franklin Parkway, San Mateo, CA 94403. 

7. Plaintiff Mutual Beacon Fund (Canada) is an Ontario (Canada) mutual fund trust, 

with its principal place of business at 1 Adelaide Street East, Suite 2101, Toronto, Ontario, M5C 

3B8, Canada. 

8. Plaintiff Franklin Mutual Beacon Fund is one of more than twenty sub-funds 

comprising Franklin Templeton Investment Funds, a Grand-Duchy of Luxembourg investment 

company. Its principal place of business is 26, boulevard Royal, L-2449 Luxembourg, Grand 

Duchy of Luxembourg. 

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9. Each of the Plaintiff funds identified in paragraphs 5-8 above are managed by 

Plaintiff Franklin Mutual Advisers, LLC, (“FMA” and, collectively with the other plaintiffs, 

“Franklin” or “Plaintiffs”) which pursuant to advisory contracts with each Plaintiff, has 

discretionary investment and voting power over the securities beneficially owned by the Plaintiff 

funds. In its capacity as investment adviser, FMA made the decision to purchase the Tyco 

securities at issue in this action on behalf of these funds, which own the securities that were 

purchased. FMA’s principal place of business is 51 John F. Kennedy Parkway, Short Hills, NJ 

07079. 

10. Franklin held shares of the CIT Group, Inc., which were exchanged for securities 

of Tyco at an artificially inflated price as a result of a merger between CIT Group and Tyco in 

June 2001. As a result of this merger transaction, Franklin exchanged its CIT Group shares for 

shares of Tyco and thereby purchased shares of Tyco at an artificially inflated price. In addition, 

Franklin purchased shares of Tyco on the open market at artificially inflated prices in reliance on 

false statements by Tyco. Plaintiffs’ purchases and sales of Tyco securities between June 4, 

2001 and April 30, 2002 are set forth in Exhibit A attached hereto. 

B. DEFENDANT 

11. Defendant Tyco is a Bermuda corporation and holds itself out as a diversified 

manufacturing and services company. 

TYCO’S WRONGFUL COURSE OF CONDUCT 

12. Throughout the relevant period, Tyco failed to disclose and falsely denied the 

falsification of its financial reporting, reported acquisition costs, and the purported success of its

acquisition strategy. Tyco also failed to disclose the looting of the Company by its senior 

executives who were conducting Tyco as a criminal enterprise. Tyco has admitted that it, among 

other things: 

(1) failed to disclose that it was engaged in “a pattern of 

aggressive accounting which . . . was intended to increase reported 

earnings above what they would have been if more conservative 

accounting had been employed” (Section A below); 

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(2) misrepresented that growth was “organic,” and 

failed to disclose that it engineered financial results through a wide 

variety of improper accounting procedures, including the 

widespread use of undocumented journal entries (Section A.1 

below); 

(3) failed to disclose that senior management “exerted 

pressure” on and “provided incentives” to employees to artificially 

inflate reported earnings (Sections A.1.b, B.1, B.2, B.3 and B.4 

below); 

(4) failed to disclose that it paid off executives at 

companies to be acquired by Tyco to incentivize them to 

manipulate their financial reporting before the acquisition to create 

the false appearance of superior earnings for Tyco after the 

acquisition (Sections A.1.b, below); 

(5) failed to disclose “a number of accounting entries 

that were incorrect and required correction” (Section A.1.a below); 

(6) failed to disclose a number of material related party 

transactions, including 1. “abuse of [Tyco’s] employee relocation 

loan program”; 2. “unapproved bonuses”; 3. “compensation 

arrangements”; 4. “perquisites”; and 5. “self-dealing transactions” 

(Sections A.1.b, below); 

(7) failed to disclose that it artificially inflated the 

Company’s earnings by engaging in “Financial Engineering” and 

the improper manipulation of accounting reserves (Section A.1.d 

below); 

(8) failed to disclose that Tyco’s earnings were inflated 

as a result of the failure to timely recognize expenses, including an 

impairment in the value of reported goodwill (Section A.1.e 

below); 

(9) failed to disclose that it improperly included excess 

“reimbursements” received by its home security business (ADT) in 

the Company’s earnings rather than recognizing such payments 

over the life of the contract; Tyco has now admitted that the 

cumulative effect of the “reimbursements” recorded in years prior 

to fiscal 2002 in excess of costs incurred, net of the effect of the 

appropriate recognition of such payments, totaled approximately 

$186 million (Section A.1.f below); 

(10) failed to disclose contingent liabilities and 

significant risks and uncertainties (Section A.1.g below); 

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(11) failed to disclose the effects of Tyco’s numerous 

(approximately 700) undisclosed acquisitions (Section A.2 below); 

and 

1. failed to disclose that it improperly withheld 

incriminating responsive documents from the SEC during that 

agency’s 1999-2000 inquiry into Tyco’s accounting practices 

(Section A.1.3 below). 

A. Material Omitted Information Concerning the Falsification of Tyco’s Financial 

Reporting, Reported Acquisition Costs, and the Purported Success of its Acquisition 

Strategy 

13. Tyco touted its financial success, falsely stating that it arose “organically” out of 

“synergies” created by the management strategies that Tyco applied to the companies it acquired. 

In fact, Tyco’s financial reporting was falsified in myriad ways to create the appearance of 

financial success through an intentional and undisclosed scheme to inflate financial results, as 

Tyco has now admitted. The nature of this scheme was never disclosed to investors. To the 

contrary, Tyco falsely and repeatedly represented that there was no accounting manipulation at 

Tyco. As a result, throughout the relevant period, all of Tyco’s periodic reports of earnings and 

revenues and its financial projections given to investors and securities analysts were materially 

false and misleading and omitted material information. 

14. As the Company has recently admitted in its Form 8-K filed on December 30, 

2002 (the “December Report”), during at least the five years preceding the resignation of Tyco’s 

President, Chief Executive Officer and Chairman, L. Dennis Kozlowski (“Kozlowski”) in June 

2002, Tyco pursued a “pattern of aggressive accounting” that was “intended” to “increase current 

earnings above what they would have been if a more conservative accounting approach had been 

followed.” The Company has also admitted that there were instances when senior management 

“exerted pressure and provided incentives which had the purpose and effect of encouraging unit 

and segment officers to achieve higher earnings, including in some cases by their choice of 

accounting treatments.” 

15. The admissions in the December Report were largely based on the findings of 

Boies Schiller & Flexner (the “Boies firm”), a law firm retained by Tyco to conduct an internal 

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investigation. As described in the December Report, the investigation by the Boies firm was 

limited. Thus, the material admissions that Tyco made in the wake of the investigation 

represented the proverbial “tip of the iceberg.” The December Report stated that the 

investigation was principally restricted to “the integrity of the company’s financials and the 

possible existence of systemic or significant fraud, or other improper accounting that would 

materially adversely affect the Company’s reported earnings or cash flow from operations in 

2003 or thereafter” (emphasis added). Thus, the Company’s past financial statements were not 

examined to see whether they were false, and indeed the adjustments that did result from the 

investigation were largely recorded in fiscal year 2002, which ended on September 30, 2002. As 

Tyco admits: “the Company has not sought to go back and identify every accounting decision 

and every corporate act over a multi-year period that was wrong or questionable, or whether 

there was a preferable accounting treatment among the alternative accounting treatments 

available under generally accepted accounting principles (GAAP).” Such an examination was 

deemed “impossible” in the December Report, which stresses that “documentation was not 

always available; the documentation that was available was often dispersed.” 

16. The investigation was also limited because of the “Company’s past failure to 

document many decisions contemporaneously.” Journal entries1 were apparently used to 

engineer desired financial results and in many cases to lack any documentation, without any 

description of the entry, who made it, prepared it, or approved it. 

17. In addition, according to the December Report: 

the accounting for fifteen large transactions, the selection of which 

was made after consultation with the SEC staff, has been reviewed 

in detail. Of the fifteen, three of the transactions (AMP, Surgical, 

and Keystone) were accounted for under the pooling of interests 

method. The remaining twelve (Sherwood, Mallinckrodt, Carlisle 

 

1

 Journal entries are records made to change numerical account balances in a company’s 

accounting system. Standard internal control practices and procedures require that journal 

entries include: (1) an explanation as to why account balances are being changed; (2) the 

date of the journal entry; (3) the identification the preparer of the journal entry; and (4) the 

identification of management who approved the recording of the journal entry. 

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Plastics, Thomas & Betts, SSI, Raychem, Central Sprinkler, AFC 

Cable, Scott Tech, Simplex, Sensormatic, and Wells Fargo) were 

accounted for under the purchase accounting method.

Although it states that “[d]uring the period 1999-2002, Tyco completed more than 700 

acquisitions,” the December Report considered only 15 of those deals “where there was 

sufficient documentation on the nature of the reserve to reach a conclusion.” 

18. Moreover, at least with respect to the Company’s purchase accounting, the 

December Report concludes that there was “a notable lack of documentation supporting the 

establishment and utilization of reserves and a pattern of aggressive purchase accounting.” 

19. Even as to this circumscribed subset of transactions for which “sufficient 

documentation” was available to permit examination, virtually all of the conclusions in the 

December Report are phrased as follows: “On the basis of information currently available, the 

Company with the concurrence of its auditors has concluded that the accounting treatment . . . 

should not be revised.” Or: “there is not now sufficient evidence to warrant changing” the 

accounting treatment previously given (emphasis added). 

20. Indeed, the December Report acknowledged that “the Company in general 

suffered from poor documentation; inadequate policies and procedures to prevent the misconduct 

of senior executives that occurred; inadequate procedures for proper corporate authorizations; 

inadequate approval procedures and documentation; a lack of oversight by senior management at 

the corporate level; a pattern of using aggressive accounting that, even when not erroneous, was 

undertaken with the purpose and effect of increasing reported results above what they would 

have been if more conservative accounting were used; pressure on, and inducements to, segment 

and unit managers to increase current earnings, including by decisions as to what accounting 

treatment to employ.” The December Report also acknowledged that Tyco’s Form 8-K filed on 

September 17, 2002 (the “September Report”) contained admissions of “evidence of intentional 

fraud.” 

21. The December Report admits the existence of pay-offs to executives at companies 

to be acquired by Tyco, and that the financial reporting of the to-be-acquired companies was 

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manipulated by Tyco in advance of the acquisitions to create the false appearance of superior 

earnings and management by Tyco after the acquisitions. Moreover, the December Report 

concludes that there were “instances” where Tyco’s prior management paid off executives at 

acquired companies “to influence the management of an acquisition target into adopting 

accounting treatments that ‘over-accrued’ expenses prior to an acquisition’s consummation or 

otherwise exceeded what was permitted by GAAP.” 

22. Despite their limitations, the September and December Reports amply document 

numerous instances of a previously undisclosed pattern of company-wide accounting fraud. For 

example, the December Report states that: 

in 1999 a controller for one of [Tyco’s] Fire & Security business 

units prepared and gave a presentation to the subsidiary’s operating 

managers relating to what was entitled “Acquisition Balance Sheet 

Opportunities.” [The controller] urged [the managers] to “be 

aggressive in determining exposures; determine reserves with 

worst case scenario; have a strong story to tell regarding each 

reserve; book the reserves on the acquired company’s financial 

system; use the owner for ideas; improve on your estimates.” 

[The controller] also told [the] audience to “be aggressive in 

determining the reductions of the asset,” and “create stories to 

back the reductions.” [Emphasis added.] 

23. The December Report also states that one version of the presentation (which has 

not yet been made available to the public) has a marginal notation adjacent to this comment as 

follows: “Be Careful!! - I wouldn’t want this to get out.” (emphasis added). In addition, 

opposite the comment “Severance - if immaterial, our existing business - include fringe at high 

rate,” there is a handwritten notation that states, “I would strongly recommend Never to put 

this in writing!!” (Emphasis added). 

24. With respect to “transitioning the acquired company” by creating reserves to 

cover one-time costs, the presentation stated, “being aggressive in our estimates will allow us 

to be aggressive in the cost we apply.” (Emphasis added). It also stated, “keep the reserve 

descriptions within the accounting rules but stretch the expenditures that go in.” (Emphasis 

added). 

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25. A similar document cited in the December Report summarizes a September 18, 

1998 Tyco presentation on the US Surgical merger (which document has not yet been made 

available to the public) that closed on October 1, 1998. In a section called “Synergies 

Summary,” the presentation indicated that with “Financial Engineering,” Tyco could recognize 

$72 million in 1999, $52 million in 2001 and $52 million in 2002. 

26. An August 17, 1998 memorandum cited in the December Report (which 

document has not yet been made available to the public) identified similar means to achieve 

EBIT (“Earnings Before Interest and Taxes”) goals for US Surgical in the first year after the 

merger. The memo lists numerous cost-savings measures, and reaches a “total savings before 

financial engineering” of $145.4 million. The memo also suggests $64.6 million in “financial 

engineering” categories, including plans to “over-accrue expenses in Q3 before closing,” and to 

“accrue in advance rebates.” 

27. Another document, dated September 10, 1996, discusses “Carlisle Plastics - 

Financial Engineering and Purchase Accounting.” The memo and attachments define “financial 

engineering” as “pre-merger entries” and “purchase accounting” items as “post-merger entries.” 

A “Discussion Items” attachment states, “we’ll book additional ‘Financial Engineering’ reserves 

in July with the objective of having a break even month. This way we won’t raise any flags with 

the Lender reporting. The balance of the reserves will be booked in August.” According to the 

December Report, the equity balance sheet attachment for the Carlisle acquisition contemplates 

$26,440,000 in “financial engineering,” thereby reducing pre-merger earnings by that amount. 

The detailed schedule demonstrates that the overwhelming portion of the financial engineering 

was to be in the month just before the consummation of the merger. 

28. The December Report also admits: 

Tyco’s aggressive accounting in the past was not neutral as to the 

timing of the recognition of revenues and expenses. The 

Company, for example, devoted considerably less attention to 

identifying appropriate accounting adjustments that would reduce 

reported earnings in the period immediately after an acquisition 

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than it devoted to identifying appropriate accounting adjustments 

that would increase reported earnings after an acquisition. 

29. Moreover, the December Report admits that: 

there were instances where prior management appeared to 

influence the management of an acquisition target into adopting 

accounting treatments that “over-accrued” expenses prior to an 

acquisition’s consummation or otherwise exceeded what was 

permitted by GAAP. For example, in the month before the merger, 

US Surgical accrued $18.7 million for potential legal fees related 

to on-going patent defenses and other items. The Company later 

reduced this amount by $18.2 million, in the same period, as a 

result of discussions with the Company’s external auditors, 

because it concluded that the initial accrual did not represent a 

reasonable estimate of legal fees. As set forth below, in a number 

of instances the accounting treatment applied to certain 

transactions in the Company’s reported financials was erroneous. 

30. Tyco continued to manipulate its income statement even after the release of the 

December Report. According to a January 21, 2003 article in THE WALL STREET JOURNAL, 

Tyco “delayed paying many annual bonuses that were due to be awarded in its fiscal first quarter 

ended Dec. 31, a move that likely boosted its cash flow in the quarter by a significant sum.” In 

fact, Tyco confirmed that $200 million in employee bonuses typically paid in the first quarter 

were in fact delayed, such that they were not recorded in the first fiscal quarter. 

1. Tyco’s Materially False And Misleading Financial Statements and 

Financial Disclosures 

31. During the relevant period, Tyco represented that each of the financial statements 

it issued to investors was prepared in accordance with GAAP and the rules and regulations of the 

SEC. These representations were materially false and misleading because, as Tyco has now 

admitted, the Company knowingly or recklessly employed numerous deceptive accounting 

practices over an extended period of time that were intended to artificially increase reported 

current earnings. 

32. Despite this admission, Tyco baselessly contends that the Company’s deliberate 

and long-standing attempts to inflate its operating results did not result in a “significant or 

systematic fraud affecting Tyco’s prior financial statements.” This conclusion is flatly 

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inconsistent with Tyco’s recognition of the following in the December Report and the 

Company’s fiscal 2002 Form 10K: (1) “a number of accounting entries that were incorrect and 

required”; (2) the “aggressive accounting pursued by prior senior management”; (3) 

“breakdowns of internal control which occurred during fiscal 2002”; (4) “abuse of our 

employee relocation loan programs”; (5) “unapproved bonuses”; (6) “undisclosed 

compensation arrangements”; (7) “unreported perquisites”; (8) “self-dealing transactions”; 

(9) “a lack of a stated and demonstrable commitment by former senior management to set 

appropriate standards of ethics, integrity, accounting, and corporate governance”; and (10) 

“other misuses of corporate trust.” (Emphasis added). 

33. In addition to the foregoing, Tyco has also admitted: (1) instances in which senior 

management “exerted pressure” and “provided incentives” to report higher earnings; (2) the 

recording and manipulation of “Financial Engineering” reserves; (3) instances in which Tyco’s 

management pressured the management of an acquisition target into adopting accounting 

treatments that violated GAAP; and (4) a “pattern” of “aggressive” accounting over a period of 

years. [Emphasis added]. 

34. Securities litigation against Tyco, as well as media coverage of the Tyco scandal, 

have in turn prompted: (1) investigations by the U.S. Attorney, the SEC, the District Attorney 

for New York County, and the State of New Hampshire Bureau of Securities Regulation; (2) 

the replacement of Tyco’s entire Board of Directors; (3) the termination and criminal indictment 

of Tyco’s former Chief Executive Officer, Chief Financial Officer, and Chief Corporate 

Counsel; and (4) the guilty plea of one of Tyco’s former outside directors in New York County 

in connection with accepting an improper $20 million payment. See December Report; 2002 

Form 10-K. 

35. The undisputed facts that constitute a pattern of acts of corporate misconduct at 

the Company belie Tyco’s representation that there “was no significant or systemic fraud 

affecting Tyco’s prior financial statements.” 

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a. Tyco’s Admission That It Issued Materially False and Misleading 

Financial Statements 

36. At all relevant times during the relevant period, each of Tyco’s financial 

statements was represented to have been prepared in accordance with GAAP.2 These 

representations were materially false and misleading because Tyco’s financial statements 

artificially and improperly inflated the Company’s operating results and failed to disclose 

numerous acts of self-dealing, which are currently being prosecuted as violations of U.S. and 

state criminal laws. 

37. By failing to file financial statements with the SEC that conformed to GAAP (and 

the rules and regulations of the SEC), Tyco repeatedly disseminated financial statements that are 

“presumed to be misleading or inaccurate.”3 In fact, Tyco’s actual financial performance was 

materially distorted and its financial statements were materially false and misleading, as Tyco 

knew or recklessly ignored. 

38. In an apparent attempt to shield itself from liability, Tyco has alleged that: 

[t]he incorrect accounting entries and treatments are not 

individually or in the aggregate material to the overall financial 

statements of Tyco. [Emphasis added.] 

39. Contrary to this assertion, the “incorrect accounting entries and treatment” are 

indeed material. First, Tyco’s restatements have been limited by a lack of documentation and by 

an internal investigation into the Company’s accounting matters that was “selected” in scope. 

By the Company’s own admission, these factors “limited the conclusions that could be drawn 

concerning individual accounting treatments in any event.” Second, Tyco’s restatements of its 

interim 2002 financial statements are admissions, in and of themselves, that those financial 

statements were materially misstated. GAAP provides that the retroactive restatement of 

 

2

 GAAP are those principles recognized by the accounting profession as the conventions, 

rules and procedures necessary to define accepted accounting practice at a particular time. 

3

 Regulation S-X (17 C.F.R. ¶ 210.4-01(a)(1)) states that financial statements filed with the 

SEC that are not prepared in conformity with GAAP are presumed to be misleading and 

inaccurate. 

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previously-issued financial statements is appropriate only when those statements were materially 

misstated when issued.4

40. In fact, Tyco has admitted that during the quarter ended December 31, 2001, 

Tyco’s pre-tax income was overstated by more than 21%. During the quarter ended March 31, 

2002, Tyco understated its reported loss by more 71%, and for the quarter ended June 30, 

2002, Tyco’s reported pre-tax income of $150.6 million was restated to a loss of $236.1 

million.

41. For example, Tyco’s actual net loss for the quarter ended March 31, 2002 was 

$3.22 per diluted common share, not $0.96 as originally reported. Accordingly, Tyco’s March 

31, 2002 Form 10-Q filed with the SEC, which represented that “in the opinion of management, 

such financial statements include all adjustments, consisting only of normal recurring 

adjustments, necessary to summarize fairly the Company’s financial position and results of 

operations,” was materially false and misleading. 

42. Concerning the false financial statements that Tyco issued before fiscal 2002, 

Tyco’s 2002 Form 10-K disclosed: 

As a result of the Phase 2 Review, the Company identified certain 

adjustments relating to years preceding fiscal 2002. Such 

adjustments were recorded in the first quarter of fiscal 2002, and 

are discussed further below. 

CHARGES RELATING TO PRIOR YEARS RECORDED IN 

FISCAL 2002-- 

During the fourth quarter of fiscal 2002, the Company identified 

various adjustments relating to prior year financial statements. 

Management concluded the effects of these adjustments, as well 

as any unrecorded proposed audit adjustments, were not material 

individually or in the aggregate to the current year or any prior 

year. Accordingly, prior year financial statements have not been 

restated. Instead, these adjustments, which aggregate $261.6 

million on a pre-tax income basis or $199.7 million on an after-tax 

income basis, have been recorded effective October 1, 2001. The 

nature and amounts of these adjustments are principally as follows: 

 

4

See generally Accounting Principles Board (“APB”) Opinion No. 20, §§ 13, 38. 

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The Company determined the amounts reimbursed from dealers 

under ADT’s authorized dealer program exceeded the costs 

actually incurred. The cumulative effect of reimbursements 

recorded in years prior to fiscal 2002 in excess of costs incurred, 

net of the effect of the deferred credit, which would have been 

amortized as described further in Note 1, is $185.9 million. 

[Emphasis added.] 

43. Tyco’s conclusion - that the effects of the adjustments in question were not 

material individually or in the aggregate - is untrue. For example, $98.8 million of the $185.9 

million “adjustment” for ADT reimbursements related to fiscal 2001.5

 During fiscal 2001, Tyco 

reported that the operating income of its Fire and Security Services segment, after restructuring 

and other charges, totaled $1,207.7 million.6 Accordingly, the operating income of Tyco’s Fire 

and Security Services segment for fiscal 2001 was overstated by approximately 9%.7

44. An approximately nine percent overstatement of a company’s reported segment’s 

operating income is, at least individually, a material overstatement. Nonetheless, Tyco, in 

violation of GAAP, failed to restate its fiscal 2001 financial statements because its management 

concluded such overstatement is “not material individually or in the aggregate to the current 

year or any prior year” (emphasis added). 

45. As the SEC’s Staff Accounting Bulletin (“SAB”) No. 998 provides: 

Evaluation of materiality requires a registrant and its auditor to 

consider all the relevant circumstances, and the staff believes that 

there are numerous circumstances in which misstatements below 

5% could well be material. Qualitative factors may cause 

misstatements of quantitatively small amounts to be material; as 

stated in the auditing literature: 

 

5

 Tyco’s Fire and Security Services segment includes the results of ADT. 

6

 Tyco’s 2002 Form 10-K indicates the reported $1,289.2 million in operating income for its 

Fire and Security Services Segment excludes restructuring, other unusual, and impairment 

charges of $81.5 million. Reducing Tyco’s reported $1,289.2 million in operating income 

for its Fire and Security Services Segment by the excluded charges yields $1,207.7 million. 

7

 The Fire and Security Services segment’s purported operating income for 2001 of $1,207.7 

million less the admitted overstatement of $98.8 million totals $1,108.9 million. $98.8 

million divided by $1,108.9 million equals an overstatement of approximately 9%. 

8

 17 C.F.R. Part 211. 

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As a result of the interaction of quantitative and qualitative 

considerations in materiality judgments, misstatements of 

relatively small amounts that come to the auditor’s attention could 

have a material effect on the financial statements. Among the 

considerations that may well render material a quantitatively small 

misstatement of a financial statement item are - 

• Whether the misstatement arises from an item capable of precise measurement or 

whether it arises from an estimate and, if so, the degree of imprecision inherent in 

the estimate. 

• Whether the misstatement masks a change in earnings or other trends. 

• Whether the misstatement hides a failure to meet analysts’ consensus 

expectations for the enterprise.

• Whether the misstatement changes a loss into income or vice versa. 

• Whether the misstatement concerns a segment or other portion of the 

registrant’s business that has been identified as playing a significant role in the 

registrant’s operations or profitability.

• Whether the misstatement affects the registrant’s compliance with regulatory 

requirements. 

• Whether the misstatement affects the registrant’s compliance with loan covenants 

or other contractual requirements. 

• Whether the misstatement has the effect of increasing management’s 

compensation - for example, by satisfying requirements for the award of bonuses 

or other forms of incentive compensation. 

• Whether the misstatement involves concealment of an unlawful transaction. 

This is not an exhaustive list of the circumstances that may affect 

the materiality of a quantitatively small misstatement. 

[Footnotes deleted, bolded italics added.] 

46. If management’s conduct demonstrates a lack of integrity or candor, that lack of 

integrity or candor is relevant to an investor and thus material, even if the conduct itself was not 

financially significant to the company.9

 Accordingly, the nine percent overstatement of operating 

income for Tyco’s Fire and Security Services segment is material. 

47. Indeed, Tyco has admitted that it engaged in numerous “financial engineering” 

practices that were “undertaken with the purpose and effect of increasing reported results.” 

 

9

See, e.g., SEC v. Jos. Schlitz Brewing Co., 452 F. Supp. 824, 830 (E.D. Wis. 1978). 

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In addition, the December Report concluded that “‘[d]uring at least the five years preceding 

Kozlowski’s resignation, Tyco pursued a pattern of aggressive accounting that was intended, 

within the range of accounting permitted by GAAP, to increase current earnings above what they 

would have been if a more conservative accounting approach had been followed” (emphasis 

added). 

48. All these facts belie Tyco’s denials that it engaged in fraud or materially misstated 

its financial statements. Tyco’s position in the December Report that “aggressive accounting is 

not necessarily improper accounting” - that certain of its accounting practices may have been 

“aggressive” but not improper - is untrue. 

49. Because it urgently needed financing in the face of an imminent cash crunch, 

Tyco was strongly motivated to minimize reporting of its improper accounting practices. 

According to a November 15, 2002 report on The Street.com: 

Tyco (TYC:NYSE) will be glad to bid farewell to this year. But 

believe it or not, 2003 could be even worse for the troubled 

conglomerate. 

Next year, Ed Breen, the ex-Motorola (MOT:NYSE) executive 

who recently replaced the disgraced Dennis Kozlowski as CEO, 

must find a way to pay back nearly $12 billion in debt and other 

obligations that fall due. If the size of the debt mountain weren’t 

problem enough, Breen’s task is made more arduous by a strict 

legal provision that could complicate any efforts by Tyco to 

pledge assets to secure loans from risk-averse lenders. This 

potential legal thicket is important, because it’s no exaggeration to 

say that Tyco’s future now lies in the hands of its banks and bond 

creditors. Tyco’s cash crunch was eased after it sold its 

commercial lender CIT (CIT:NYSE) for $4.4 billion in July, and 

the company has $6.5 billion of cash on its balance sheet. Yet 

even with that cash on hand, the company’s maturity schedule 

looks daunting. 

* * * 

But a look at the company’s demanding debt-repayment schedule 

suggests Tyco’s next bout of trouble may come quite a bit sooner. 

The company must repay nearly $3.9 billion of bank debt that 

comes due in February [2003], the same month that investors 

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have the right to demand that Tyco repay $2.3 billion of 

convertible bonds - an obligation Tyco can meet in stock or cash. 

There could be as much as $1.85 billion of bond debt coming due 

in the second and third quarters of 2003, though the actual sum 

may have been reduced by debt repurchases. Then, in the fourth 

quarter, holders of another convertible issue have the right to 

redeem their securities for $3.6 billion in cash. 

At the same time, cash from operations looks anemic. All those 

obligations add up to $11.7 billion. In fiscal 2003 ending next 

September, Tyco expects $2.5 billion to $3 billion of free cash 

flow, which is a company-devised measure of cash flow that 

factors in capital spending but excludes other types of cash 

outflows. The company hasn’t updated its guidance for the last 

quarter of calendar 2003, though in an August regulatory filing 

Tyco indicated it expected to bring in cash flow of around $700 

million for that period. Previous cash flow guidance provided by 

Tyco has proved to be generous, however. 

If Tyco were to pay its February convertible back in stock, its cash 

obligations would be $9.4 billion, which more or less matches cash 

flow plus cash in hand. 

Lemon Fresh 

Clearly, that’s too close for comfort. No surprise, then, that Tyco 

is talking to its banks to gain some financial breathing room. On 

a third-quarter earnings conference call in October, Tyco’s 

Breen said that dealing with the financing issue “continues to be 

our top priority,” and added that he hopes to have a deal with the 

banks “well in advance of our February maturities.”

The market is eager to see details of a bank deal. “The clock is 

ticking, as far as I am concerned,” says Cynthia Werneth, the 

analyst at the Standard & Poor’s rating agency who covers Tyco. 

“I would hope we see something soon.” 

* * * 

The other important factors in the bank negotiations are the 

status and findings of the SEC and Manhattan DA investigations 

of Tyco. These may not be completed before February. If they’re 

not, the threat that the probes will turn up evidence of accounting 

fraud after February is one more argument for why the banks 

will be ultracautious when deciding whether to roll over their 

loans.

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The company has itself appointed experts and lawyers to conduct 

its own internal accounting investigation, and it is probably 

hoping that if it finds no serious fraud, the banks will be 

placated. However, the banks might doubt the thoroughness of the 

probe after the third-quarter conference call, when David Boies, 

the outside lawyer overseeing the probe, said “we’re obviously not 

reauditing the company and going through every single accounting 

issue.” 

[Emphasis added]. 

50. Tyco’s pattern of “aggressive” accounting violated GAAP. For example, the 

Company’s December Report disclosed that “Tyco’s aggressive accounting in the past was not 

neutral as to the timing of the recognition of revenues and expenses.” Indeed, as set forth above, 

the December Report acknowledges that “the Company in general suffered from poor 

documentation; inadequate policies and procedures to prevent the misconduct of senior 

executives that occurred; inadequate procedures for proper corporate authorizations; inadequate 

approval procedures and documentation; a lack of oversight by senior management at the 

corporate level; a pattern of using aggressive accounting that, even when not erroneous, was 

undertaken with the purpose and effect of increasing reported results above what they would 

have been if more conservative accounting were used; pressure on, and inducements to, segment 

and unit managers to increase current earnings, including by decisions as to what accounting 

treatment to employ.” 

51. Tyco has also admitted (in the December Report) that it is unable to make 

judgments about the appropriateness of accounting treatments because of “the Company’s past 

failure to document many decisions contemporaneously,” and because documentation supporting 

its transactions is “not always available” and is “often dispersed.” These failures of 

documentation violate the mandate of Section 13 of the Securities Exchange Act of 1934.10

52. Moreover, the December Report admits the existence of pay-offs to executives at 

companies to be acquired by Tyco, and that the financial reporting of the to-be-acquired 

 

10 Section 13 of the Securities Exchange Act of 1934 and the rules thereunder require SEC 

registrants to make and keep books, records and accounts that accurately and fairly reflect its 

transactions. 

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companies was manipulated by Tyco in advance of the acquisition to create the false 

appearance of superior earnings and management by Tyco after the acquisition.

53. Indeed, in Concepts Statement No. 2, GAAP provides that accounting information 

is not useful if it is unreliable, and that reliable accounting information must be verifiable and 

neutral. In addition, in Concepts Statement No. 2, GAAP provides that the convention of 

conservatism - meaning prudence - is to be applied in financial accounting and reporting. 

Similarly, FASB’s Concepts Statement No. 1 states that the role of “financial reporting requires 

it to provide evenhanded, neutral, or unbiased information.” 

54. In addition, GAAP provides that: 

a. financial reporting should provide information that is useful to present and 

potential investors and creditors and other users in making rational investment, credit and similar 

decisions (Concepts Statement No. 1, § 34); 

b. financial reporting should provide information about the economic 

resources of an enterprise, the claims to those resources, and the effects of transactions, events 

and circumstances that change resources and claims to those resources (Concepts Statement No. 

1, § 40); 

c. financial reporting should provide information about how management of 

an enterprise has discharged its stewardship responsibility to owners (stockholders) for the use of 

enterprise resources entrusted to it. To the extent that management offers securities of the 

enterprise to the public, it voluntarily accepts wider responsibilities for accountability to 

prospective investors and to the public in general (Concepts Statement No. 1, § 50); 

d. financial reporting should provide information about an enterprise’s 

financial performance during a period. Investors and creditors often use information about the 

past to help in assessing the prospects of an enterprise. Thus, although investment and credit 

decisions reflect investors’ expectations about future enterprise performance, those expectations 

are commonly based at least partly on evaluations of past enterprise performance (Concepts 

Statement No. 1, § 42); 

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e. financial reporting should be reliable in that it represents what it purports 

to represent. That information should be reliable as well as relevant is a notion that is central to 

accounting (Concepts Statement No. 2, §§ 58-59); 

f. financial reporting should be complete, so that nothing is left out of the 

information that may be necessary to ensure that it validly represents underlying events and 

conditions (Concepts Statement No. 2, § 79); and 

g. financial reporting should be conservative and ensure that uncertainties 

and risks inherent in business situations are adequately considered. The best way to avoid injury 

to investors is to try to ensure that what is reported represents what it purports to represent 

(Concepts Statement No. 2, §§ 95, 97). 

55. Accordingly, Tyco’s “pattern” of “aggressive” accounting and its employment of 

numerous “financial engineering” practices “undertaken with the purpose and effect of 

increasing reported results” caused Tyco to issue financial statements that were neither useful, 

complete, neutral, conservative, nor unbiased. Accordingly, Tyco has admitted, albeit 

backhandedly, that it violated fundamental precepts of GAAP,11 and that its “aggressive” 

accounting practices rendered its financial statements materially false and misleading. 

b. Tyco’s Improper Failure To Disclose Material Related Party 

Transactions 

56. In FASB’s SFAS No. 57, GAAP provides guidance on disclosures of transactions 

between related parties.12 SFAS No. 57 states that an “enterprise’s financial statements may not 

be complete without additional explanations of and information about related party transactions 

and thus may not be reliable.” Accordingly, SFAS No. 57 requires that financial statements 

 

11 In Concepts Statement No. 2, GAAP defines neutrality as the “absence in reported 

information of bias intended to attain a predetermined result or to induce a particular mode 

of behavior. Neutrality is a necessary and important characteristic of accounting 

information. FASB’s Statement of Financial Accounting Standards (“SFAS”) No. 141. 

12 Pursuant to SFAS No. 57, related party transactions include transactions between an 

enterprise and its Directors of the Board, CEO, COO, Vice Presidents in charge of principal 

business functions, and other persons who perform similar policy-making functions. 

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identify material related party transactions and disclose (a) the nature of the relationship(s), 

(b) a description of the transaction, (c) the dollar amount of transactions for each period for 

which an income statement is presented, and (d) the amounts due from or to the related parties 

as of the date of each balance sheet13.

(Emphasis added). 

57. In addition, as noted in the SEC’s SAB Topic 4E, GAAP provides that 

in some cases, the significance of an amount may be independent 

of the amount involved. For example, amounts due to and from 

officers and directors, because of their special nature and origin, 

ought generally to be set forth separately [in financial 

statements] even though the dollar amounts involved are 

relatively small.

58. As Tyco has now admitted, it engaged in numerous material related party and 

self-dealing transactions that were not disclosed in its financial statements in violation of GAAP, 

including at least the following: 

i. Undisclosed Extraordinary Related Party 

Compensation 

59. On June 17, 2002, Tyco filed a complaint in the United States District Court for 

the Southern District of New York alleging that Kozlowski approved a $20 million “fee” that 

was paid to Frank Walsh, who served as a member of Tyco’s Board of Directors from 1997 

through February 2002. This fee, $10 million of which went to Walsh with the balance to a 

charity of which he was a trustee, purportedly compensated Walsh in connection with Tyco’s 

acquisition of CIT. 

60. In September 2000, Kozlowski caused Tyco to pay “special” bonuses purportedly 

related to the successful completion of the TyCom initial public offering. These bonuses 

approximated $96 million, of which Kozlowski and Swartz received approximately $33 million 

 

13 Pursuant to SFAS No. 57, disclosure of compensation arrangements that are not in the 

ordinary course is necessary for users to understand financial statements. 

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and $17 million respectively. In addition, Belnick received $1 million as a special bonus, 

purportedly relating to the TyCom deal. 

61. In connection with the above arrangement, a Tyco Vice President of Finance 

prepared a memorandum signed by Swartz that explained: 

The sale of 14% of TyCom generated a one-time gain of 

approximately $1.76 billion on the books of Tyco. We have 

decided to award special bonuses to various Tyco employees for 

their efforts over the past few years in enhancing the value of 

TyCom and thereby contributing to this gain. Selected employees 

will receive their bonus in the form of cash, forgiveness of 

relocation loans, and/or Tyco Common shares under Tyco’s 

restricted stock program. 

62. As a result of this accounting treatment, Tyco’s September Report admitted: 

“[T]his extraordinary $100 million charge was allocated to several different accounts and 

appears in the general ledger and financial statements” (emphasis added). 

63. In addition, according to the September Report, Tyco purchased a cooperative 

apartment in New York City in 1998 for approximately $5.5 million and thereafter made 

improvements to the apartment. In May 2000, Kozlowski purchased the property from Tyco at 

its depreciated book value of approximately $7 million, rather than its then current market 

value. 

64. In July 2000, Tyco purchased a Rye, New Hampshire property worth $1.5 

million from Kozlowski for approximately $4.5 million. In addition, Kozlowski also used 

millions of dollars of Company funds to pay for, among other things: (1) a $700,000 

investment; (2) an “extravagant” $1 million birthday celebration for his wife in Sardinia; (3) over 

$1 million in undocumented business expenses; and (4) at least $43 million in personal 

donations or for his personal benefit.

ii. Undisclosed Related Party Loans 

65. Tyco also violated GAAP by failing to disclose in the Company’s financial 

statements a number of related party loans. As set forth below in Sections B.1 and B.4, these 

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loans were either repaid by various insiders without interest, repaid through unauthorized 

“forgiveness,” or simply reclassified to other loan accounts that the insiders had with the 

Company. 

66. For example, in violation of the terms of Tyco’s relocation loan program, 

Kozlowski “borrowed” approximately $29.7 million from the Company to purchase land and 

construct a home in Boca Raton, Florida during the years 1997 to 2000. In addition, Kozlowski 

improperly “borrowed” approximately $7 million to purchase a cooperative apartment in New 

York City in 2000. 

67. Similarly, Mark H. Swartz (“Swartz”), Tyco’s Executive Vice President and 

Chief Financial Officer, “borrowed” approximately $20.1 million from Tyco in violation of the 

Company’s relocation loan program purportedly to purchase property in Boca Raton, Florida 

during the period 1997-2000. 

68. Mark Belnick, Tyco’s Executive Vice President and General Counsel (“Belnick”),

“borrowed” approximately $4.2 million from Tyco during the period September 1998 through 

May 2001 for the purchase and improvement of a cooperative apartment in New York City. 

From 2001 through March 2002, Belnick “borrowed” an additional $10.4 million from Tyco to 

purchase land and build a home in Park City, Utah. Belnick then charged Tyco $1,600 per 

month for his home office located in that house. 

69. In 1997, the President of Tyco’s Fire and Security Services division “borrowed” 

a total of $5 million from Tyco to purchase property in Boca Raton, Florida. The former 

President of Tyco Engineered Products and Services and, later, the Plastics division, 

“borrowed” $1,750,000 from Tyco, and a former President and Chief Executive Officer of 

TyCom borrowed $5,000,000 from Tyco in 2000.

70. In apparent violation of the terms of Tyco’s Key Employee Loan (“KEL”) 

Program, Kozlowski “borrowed” over $55.9 million from Tyco in 1999. As of June 30, 2002, 

Kozlowski owed Tyco approximately $43.8 million, plus accrued interest, for amounts borrowed 

under Tyco’s KEL Program. 

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71. Similarly, Swartz’s total principal outstanding balance under the KEL program 

as of July 18, 2002 was approximately $2.8 million, plus accrued interest. In addition, Belnick 

“borrowed” a total of $8.6 million under the KEL program, and other Tyco Executive Officers 

“borrowed” more than $6 million under the KEL program. 

72. Tyco knew that, in gross violation of GAAP, these material related party 

transactions (to which the Company has now admitted) were not disclosed in Tyco’s financial 

statements. Tyco also knew that, by failing to do so, the Company’s financial statements 

violated GAAP and were materially false and misleading. 

c. Tyco’s False and Misleading Accounting for Acquired Companies and 

Improper Manipulation of Accounting Reserves 

73. As noted above, Tyco knew or recklessly ignored that it caused certain of the 

companies it acquired to engage in deceptive accounting practices before the closing of an 

acquisition so that the financial performance of these companies would compare favorably after 

the acquisition. Among other things, these acquired entities overstated accounting reserves to 

show more favorable financial metrics in quarters after Tyco’s acquisition. 

74. For example, on March 13, 2001, Tyco announced that it had entered into a 

definitive agreement to acquire CIT. At or around that time, the Company sent Brad McGee, 

who was Executive Vice President and Chief Strategy Officer at Tyco, as well as Kozlowski’s 

“right hand man,” to CIT’s offices in Livingston, New Jersey to, according to Kozlowski, 

“develop synergies” and help “boost business.” In reality, McGee was there to “prepare for the 

acquisition.” 

75. Although Mr. McGee (with the assistance of another Tyco employee) was 

supposed to assist with the transition and report to Al Gumper (CIT’s CEO), McGee began 

dictating important business decisions for CIT. In fact, what had previously been a mildtempered and quiet executive staff, quickly changed upon McGee’s arrival. Screaming matches 

between McGee and CIT’s executives were common. McGee was de facto dictating and running 

the company. 

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76. On January 7, 2002, THE WALL STREET JOURNAL’s “Heard On The Street” 

column reported that some investors were critical of “a series of charges by” CIT immediately 

before the acquisition that “depressed CIT’s earnings but didn’t show up on Tyco’s books.” As a 

result, the JOURNAL reported, “CIT’s results surged in the first month after Tyco took control.” 

Specifically, THE WALL STREET JOURNAL reported that during April and May of 2001 CIT 

posted a $148 million provision for credit loss resulting in a net loss of $78.8 million. In June 

2001, after being absorbed by Tyco, CIT posted net profits of $71.2 million, which added 1.5 

cents per share to Tyco’s third quarter results, and substantially contributed to Tyco’s beating 

analysts’ expectations by $0.03 per share. 

77. Albert J. Meyer, an analyst working for David W. Tice & Associates, explained 

the highly suspicious nature of Tyco’s accounting treatment with respect to CIT in an interview 

on February 25, 2002 with BusinessWeek Online (“Behind Tyco’s Accounting Alchemy: The 

CIT acquisition offers new insight into how the company produced huge pop up profits”): 

“This is one of the most startling examples of financial 

engineering you can hope to find”. . . . Several things look fishy 

about that $150 million turnabout, Tice’s Meyer maintains. To 

start with, in that April-May [2001] period, CIT took a massive 

$148.1 million “provision for credit losses.” That was well over 

twice the $68.3 million provision CIT took in the entire first 

quarter.

[Emphasis added]. 

78. The same article reported that: 

At the same time [that CIT appeared to achieve a $150 million 

swing in profit after the merger], CIT booked a $54 million charge 

for acquisition-related costs. . . . Jack Ciesielski, publisher of the 

Accounting Observer, notes that CIT also adopted “a new basis of 

accounting” on June 2 [2001], allowing Tyco to “push down” deal 

costs to CIT. “That [shifts] some of Tyco’s closing transactions 

into the CIT financials, making them appear as if they were CIT’s 

own,” he says. 

* * * 

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[T]he bottom-line impact is indisputable: The huge surge in 

charges taken by CIT just before the deal closed - combined with 

the drop in “other revenue” - helped produce a noticeable jump 

in CIT earnings just after the deal closed. Indeed, CIT was the 

major reason Tyco reported a 34% increase in per-share 

earnings for the quarter ending September 30 [2001] . . . . 

[Emphasis added]. 

79. The February 25, 2002 BusinessWeek Online article quoted Mr. McGee’s 

admission that “CIT made downward adjustments to income totaling $221.6 million last May, 

just before the [CIT] deal closed.” The article also stated that “McGee concedes [that] the 

provision for credit losses and the acquisition charge caused a $143.5 million spike in CIT’s 

costs in April and May [2001].” 

80. Furthermore, the BusinessWeek Online article reported that Tyco’s financial 

statements for fiscal 2001 revealed that, in CIT’s first four months under Tyco’s umbrella - from 

June 2 to September 30, 2001 - CIT generated $252.5 million in net income, more than triple the 

$81.3 million CIT earned in the last four months as an independent public company (from 

January 1, 2002 to June 1, 2002). 

81. Similarly, on June 12, 2002 THE NEW YORK DAILY NEWS reported that the 

SEC was again looking into Tyco’s accounting for acquisitions: 

82. The original inquiry got its start in 1999 after a Dallas investment manager began 

warning clients that cash flow from Tyco acquisitions appeared inflated. 

83. One theory was that Tyco was aggressively undervaluing the assets of acquisition 

targets before the new companies joined Tyco’s balance sheet. 

84. The practice, detractors said, allowed Tyco to build a pool of assets from which it 

could then unlock value at a later point. 

Though the SEC gave Tyco a clean bill of health two years ago, at 

least one New York businessman with close ties to Simplex Time 

Recorder, a December 2000 Tyco acquisition, told the Daily 

News he witnessed such dealings first-hand.

“I think it’s fair and accurate to say they made [Simplex] 

writedowns on the value of their receivables to a level that, if it 

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didn’t break the law, certainly bordered on breaking the law,” 

the businessman said. 

[Emphasis added]. 

85. Tyco has now admitted that it engaged in the above-noted accounting 

manipulations so that the Company could report favorable pre- to post-acquisition comparisons 

and mislead investors about Tyco management’s ability to generate better returns from acquired 

entities than the previous management of such entities. 

86. For example, Tyco has now admitted in its December Report: 

1) [A] June 19, 1998 letter from the Sigma Chief Financial Officer 

was identified in which the Sigma CFO indicated that he was 

“prepared to delay shipment of certain product until early July” 

as requested by Tyco and, as a result of which, Sigma would not 

achieve its anticipated revenue minimum established in the June 

1, 1998 Merger Agreement. The Sigma CFO asked Tyco to 

confirm that the resulting failure of Sigma to meet the quarterly 

revenue minimum established in the Merger Agreement was 

“acceptable to Tyco and within the spirit of the Definitive 

Agreement.” The Sigma CFO’s June 19 letter was faxed to Tyco 

the same day and, later that day, faxed from the recipient to others 

within Tyco. [Emphasis added.] 

2) Similarly, Tyco’s acquisition of Raychem was announced May 19, 

1999 and consummated August 12, 1999. Internal Tyco 

documents raise issues whether actions taken by Raychem, even 

if consistent with GAAP, artificially reduced revenue or 

increased expenses in the quarter immediately prior to the 

consummation of the acquisition, and artificially inflated 

earnings and cash flow in subsequent quarters. These actions 

included directions from Raychem management to hold back 

shipments and pay all bills received whether due or not, prior to 

the consummation of the acquisition. These documents fit the 

pattern discussed above of the Company’s aggressive use of 

numerous accounting opportunities where available to enhance 

earnings in the first few quarters after companies were acquired, 

compared to the period just before acquisition. [Emphasis 

added.] 

87. Indeed, on September 30, 2002, THE WALL STREET JOURNAL reported that 

the SEC and the Manhattan District Attorney’s Office were investigating whether a secret $40 

million payment made by Tyco to settle a 2000 lawsuit represented a pay-off to hide 

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incriminating documents that detailed the ways Tyco would help U.S. Surgical slow its growth 

after Tyco agreed to acquire that company in the months before the purchase was completed. 

88. Moreover, Tyco has also admitted in the December Report that “there were 

instances where prior management appeared to influence the management of an acquisition 

target into adopting accounting treatments that ‘over-accrued’ expenses prior to an 

acquisition’s consummation or otherwise exceeded what was permitted by GAAP.” In fact, 

among other things, Tyco caused acquired entities to record significant accounting reserves for: 

(1) litigation and other accruals recorded in purchase accounting, some of which were 

subsequently reversed; (2) exit costs, which included amounts that did not qualify as exit costs; 

and (3) matters not reserved previously by the acquired entity (including warranty, 

environmental accruals). 

89. For example, Tyco has admitted in its December Report: 

1) “With respect to the purchase accounting and pooling transactions 

examined, there were instances in which the pre-acquisition 

earnings of an acquired entity for the period immediately 

preceding the consummation of its acquisition by Tyco were 

significantly lower than the entity’s earnings in prior periods. 

The decrease in reported earnings in the period immediately 

preceding the consummation of an acquisition, which decreases 

were for the most part due to non-recurring charges, raise the issue 

as to whether the acquired entity’s pre-merger financials had 

been improperly manipulated in order to increase reported 

earnings subsequent to the consummation of the acquisition.” 

[Emphasis added.] 

2) “For example, in the month before the merger, US Surgical 

accrued $18.7 million for potential legal fees related to on-going 

patent defenses and other items. The Company later reduced this 

amount by $18.2 million, in the same period, as a result of 

discussions with the Company’s external auditors, because it 

concluded that the initial accrual did not represent a reasonable 

estimate of legal fees.” [Emphasis added.] 

3) “Another document dated September 10, 1996 discusses ‘Carlisle 

Plastics - Financial Engineering and Purchase Accounting.’ The 

memo and attachments define ‘financial engineering’ as ‘premerger entries’” and ‘purchase accounting’ items as ‘post-merger 

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entries.’ A ‘Discussion Items’ attachment states ‘we’ll’ book 

additional ‘Financial Engineering’ reserves in July with the 

objective of having a break even month. This way we won’t raise 

any flags with the Lender reporting. The balance of the reserves 

will be booked in August.’ The equity balance sheet attachment 

for the Carlisle acquisition contemplates $26,440,000 in financial 

engineering, thereby reducing pre-merger earnings by that 

amount. The detailed schedule demonstrates that the 

overwhelming portion of the financial engineering will be in the 

month just prior to the consummation of the merger.” [Emphasis 

added]. 

4) “A September 9, 1998 memo stated that a manager ‘started 

putting pressure’ on Surgical’s former CFO and presented a 

‘plan’ for increasing earnings. [Emphasis added]. 

5) “A similar document summarizes a September 18, 1998 Tyco 

presentation on the US Surgical (‘Surgical’) merger which closed 

October 1, 1998. The presentation in its ‘Synergies Summary,’ 

indicated that Tyco could recognize $72 million from ‘Financial 

Engineering’ in 1999 and $52 million in the each of the 

following two years.” [Emphasis added]. 

6) “An August 17, 1998 memorandum similarly identified means to 

achieve EBIT goals for Surgical in the first year after the merger. 

The memo lists numerous cost-savings measures, and reaches a 

‘total savings before financial engineering’ of $145.4 million. The 

memo also suggests $64.6 million in ‘financial engineering’ 

categories, including plans to ‘over-accrue expenses in Q3 before 

closing’ and ‘accrue in advance rebates.’” [Emphasis added]. 

90. The manipulation of accounting reserves employed by Tyco in accounting for 

acquisitions is one that the SEC specifically has identified as improper. For example, the SEC’s 

SAB No. 100, issued in 1999, addresses asset reserves and liabilities associated with 

acquisitions. SAB No. 100 provides: 

. . . the staff believes that purchase price adjustments necessary to 

record liabilities and loss accruals at fair value typically are 

required, while merely adding an additional “cushion” of 10 or 

20 or 30 percent to such account balances is not appropriate. 

[Emphasis added.] 

91. In fact, Tyco has now admitted in its Form 10-K for fiscal 2002 that it has 

“identified several adjustments” that its auditor, PricewaterhouseCoopers (“PwC”) proposed to 

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make during its year-end audits but which Tyco never recorded. For example, prior to fiscal 

2000, PwC identified and proposed adjustments to Tyco’s financial statements for improper 

“adjustments” to Tyco’s acquisition reserves that overstated Tyco’s reported income by a net 

amount of $22.7 million. In fiscal 2001, PwC identified and proposed adjustments to Tyco’s 

financial statements for improper “adjustments” to Tyco’s acquisition reserves that overstated 

Tyco’s reported income by a net amount of $26.4 million. 

92. In addition to Tyco’s improper manipulation of reserves when accounting for 

acquired entities, Tyco otherwise manipulated accounting reserves in order to inflate its reported 

operating results. 

93. For example, on September 30, 2002, THE WALL STREET JOURNAL reported: 

Typically, accounting experts say, employee bonuses are 

accounted for as part of general and administrative expenses. But 

Tyco’s [report on its internal investigation filed with the SEC] says 

the TyCom bonus was booked in three different accounts totaling 

$97.4 million - a slightly larger figure than the bonus payments, 

which Tyco didn’t explain. About $44.6 million of the total was 

booked as part of the TyCom offering expense, which some 

accounting experts said was incorrect but at least resulted in a 

similar bottom-line effect as the proper accounting treatment. 

The other $52.8 million, however, doesn’t appear to have been 

counted as an expense at all, according to three accounting experts 

who reviewed Tyco’s filing. Instead, Tyco seems to have hidden 

the sum in two different reserve accounts that had been 

previously established on the balance sheet for unrelated 

purposes. The majority of the money, $41 million, was booked 

against “Accrued Federal Income Tax,” the filing says, in effect 

reducing sums that Tyco had put aside to pay its federal corporate 

taxes. 

“This looks like blatant misstatement of both the income 

statement and the balance sheet,” said Charles Mulford, an 

accounting professor at Georgia Institute of Technology in 

Atlanta, who reviewed the Tyco report but isn’t involved in the 

case. Based on the filing, Mr. Mulford said the maneuver 

appears to have improperly inflated Tyco’s pretax income by 

$52.8 million in the period, the fourth quarter of fiscal 2000. For 

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that quarter, Tyco reported net income of $1.1 billion before the 

TyCom gain. 

Mr. Mulford called dipping into the income-tax kitty particularly 

“egregious,” and said “it would be very surprising if it wasn’t

picked up by the auditors.” 

[Emphasis added]. 

94. Indeed, GAAP expressly prohibits the manipulation of accounting reserves 

described herein. Tyco has admitted in the December Report the existence of accounting reserve 

reversals that were “timed on a number of occasions for the purpose of making EBIT targets.” 

95. In SFAS No. 5, GAAP provides that companies may establish reserves for 

identifiable, probable and estimable risks, and precludes the use of reserves for general or 

unknown business risks, including excess reserves, because they do not meet the accrual 

requirements of SFAS No. 5. Any reserves that do not meet the accrual requirements of SFAS 

No. 5, when identified, should be immediately released into income. A systematic or timed 

release of excess reserves into income violates GAAP. See e.g., In re Rush, SEC Exchange Act 

of 1934 Release No. 44501 (July 2, 2001); SEC v Dunlap, No. 01-8437-Civ, SEC Litig. Release 

No. 17710 (Sept. 4, 2002); Xerox Settles SEC Enforcement Action, SEC Press Release No. 2002-

52 (Apr. 11, 2002). 

96. Moreover, Tyco has stated in the December Report that the above-noted 

admissions have been circumscribed by a lack of documentation. 

97. Tyco also falsely stated that the Company had and would continue to acquire 

other companies that would be immediately accretive to the Company’s free cash flow (the net 

amount of cash generated from operating activities, less capital expenditures, less dividends 

paid) and earnings and, consequently, that the Company’s healthy cash flow position would not 

require it to tap into its high-interest emergency credit facilities. This disclosure was materially 

false and misleading as Tyco failed to disclose that its reported cash flow was manipulated 

because it required companies about to be acquired to accelerate payments on outstanding 

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obligations prior to the acquisition, as noted herein in detail. This undisclosed practice had the 

effect of increasing Tyco’s reported cash flow after the acquisition. 

98. In fact, Tyco has now admitted that it “encouraged” companies it was acquiring to 

accelerate vendor payments, which increased Tyco’s operating cash flow after the acquisition. 

For example, on February 28, 2002, THE NEW YORK TIMES reported: 

Tyco International said yesterday that it had encouraged

Raychem, an electronic components maker that it bought in 

1999, to prepay some expenses before the acquisition was 

completed. 

The disclosure about Raychem came in response to questions 

about a letter sent by a former Raychem employee to the Securities 

and Exchange Commission. The letter outlined payments that 

Raychem made at Tyco’s behest before the acquisition closed. 

[Emphasis added]. 

99. In furtherance of its scheme to mislead investors, Tyco actually told investors to 

focus on its misleading reporting of cash flow in measuring the Company’s financial 

performance. For example, on March 5, 2002, THE WALL STREET JOURNAL reported that: 

Tyco repeatedly has pointed to what it characterizes as its strong 

“free cash flow”. . . . Tyco considers the [free cash flow] measure 

so critical that its chief financial officer, Mark Swartz, told 

investors last month to “forget reported earnings” and instead 

focus on cash-flow generation as a percentage of net income, to 

“show that our quality of earnings is good.” [Emphasis added]. 

d. Tyco’s Improper Failure To Timely Record Impaired Goodwill 

100. Tyco’s financial statements were also materially false and misleading because the 

Company failed to timely record a loss due to an impairment in the value of its CIT subsidiary, 

as it has now admitted. Thus, in yet another way, Tyco’s financial statements were not presented 

in conformity with GAAP, the rules and regulations of the SEC, and deceived investors about the 

Company’s true financial condition and operating performance. 

101. As noted in Tyco’s financial statements for the year ended September 30, 2002: 

During the quarter ended March 31, 2002, Tyco experienced 

disruptions to its business surrounding its announced break-up 

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plan, a downgrade in its credit ratings, and a significant decline in 

its market capitalization. During this same time period, CIT also 

experienced credit downgrades and a disruption to its historical 

funding base. Further, market-based information used in 

connection with the Company’s preliminary consideration of the 

proposed IPO of CIT indicated that CIT’s book value exceeded its 

estimated fair value as of March 31, 2002. As a result, the 

Company performed a SFAS 142 first step impairment analysis 

as of March 31, 2002 and concluded that an impairment charge 

was warranted at that time. [Emphasis added.] 

102. In furtherance of its on-going scheme to inflate it operating results, Tyco 

improperly failed to record such impairment in conformity with GAAP. In fact, when Tyco 

filed its financial statements for the quarter ended March 31, 2002 with the SEC on Form 10-

Q on or about May 15, 2002, such financial statements did not recognize an impairment in the 

value of CIT’s goodwill. To the contrary, Tyco’s March 31, 2002 Form 10-Q disclosed: 

The Company periodically reviews and evaluates its goodwill and 

other intangible assets for potential impairment. Effective October 

1, 2001, the beginning of Tyco’s fiscal year 2002, the Company 

adopted SFAS No. 142, “Goodwill and Other Intangible Assets,” 

under which goodwill is no longer amortized but instead is 

assessed for impairment at least annually. Under the transition 

provisions of SFAS No. 142, there was no goodwill impairment at 

October 1, 2001. Updated valuations were completed as of 

March 31, 2002 for our Tyco Telecommunications (formerly 

TyCom) reporting unit and Tyco Capital,14 which resulted in no 

impairment of goodwill at that date. 

[Emphasis and footnote added]. 

103. Tyco’s March 31, 2002 financial statements further disclosed: 

However, during the quarter ended March 31, 2002, circumstances 

developed that could potentially impair the value of goodwill with 

respect to our Tyco Telecommunications reporting unit and Tyco 

Capital. Updated valuations were completed as of March 31, 

2002, which resulted in no impairment of goodwill at that date. 

 

14 Tyco Capital includes CIT and all of its subsidiaries. 

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104. Shortly after Kozlowski resigned, however, Tyco filed an amendment to its 

March 31, 2002 Form 10-Q that included its restated financial statements for the quarter then 

ended. 

105. Tyco’s restated March 31, 2002 financial statements filed with the SEC on or 

about June 12, 2002 reported a $4.5 BILLION impairment in the value of CIT’s goodwill. The 

effect of this charge eliminated almost 40% of the retained earnings Tyco accumulated since 

its inception. In its originally filed financial statements for the quarter ended March 31, 2002, 

Tyco reported accumulated earnings of $11.8 billion. This amount, which generally represents 

the total net income, less dividends, over the life of a corporation was inflated, as Tyco has 

admitted, by $4.5 billion, or approximately 38%. 

106. In addition, Tyco has now admitted that it improperly failed to timely record an 

impairment in the value of goodwill at Tyco Telecommunications and Tyco Infrastructure 

Services during the quarter ended June 30, 2002. As a result, Tyco’s reported pre-tax earnings 

of approximately $151 million during the quarter ended June 30, 2002 were overstated by 

approximately $387 million.

107. Here again, Tyco has admitted that its previously issued financial statements were 

materially false and misleading to the detriment of unsuspecting investors when they were 

issued. 

e. Tyco’s Improper Recognition Of Excess Reimbursements From 

Independent Dealers 

108. Tyco’s ADT subsidiary routinely purchases residential security monitoring 

contracts from external independent dealers who operate under the umbrella of ADT’s 

authorized dealer network. ADT incurs costs for performing due diligence associated with the 

purchase of such contracts and for maintaining and operating the authorized dealer network. 

109. The independent dealers operating within the network reimburse ADT for certain 

of the costs noted above. Tyco has now disclosed that the amounts reimbursed to ADT by the 

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independent dealers materially exceed the actual costs incurred by ADT.15 Prior to fiscal 2002, 

Tyco improperly recognized into earnings the amount by which the independent dealer 

reimbursements exceeded the amount actually incurred by ADT. 

110. In 1999, the SEC issued SAB No. 101, which includes a series of hypothetical 

questions and interpretive responses intended to provide guidance to SEC registrants associated 

with the recognition of revenue. Question 6 of SAB No. 101 provides: 

Facts: Company A provides its customers with activity tracking or 

similar services (e.g., tracking of property tax payment activity, 

sending delinquency letters on overdue accounts, etc.) for a tenyear period. Company A requires customers to prepay for all the 

services for the term specified in the arrangement. The on-going 

services to be provided are generally automated after the initial 

customer set-up. At the outset of the arrangement, Company A 

performs set-up procedures to facilitate delivery of its on-going 

services to the customers. Such procedures consist primarily of 

establishing the necessary records and files in Company A’s preexisting computer systems in order to provide the services. Once 

the initial customer set-up activities are complete, Company A 

provides its services in accordance with the arrangement. 

Company A is not required to refund any portion of the fee if the 

customer terminates the services or does not utilize all of the 

services to which it is entitled. However, Company A is required 

to provide a refund if Company A terminates the arrangement 

early. Assume Company A’s activities are not within the scope of 

SFAS No. 91. 

Question: When should Company A recognize the service 

revenue? 

Interpretive Response: The staff believes that, provided all other 

revenue recognition criteria are met, service revenue should be 

recognized on a straight-line basis, unless evidence suggests that 

the revenue is earned or obligations are fulfilled in a different 

pattern, over the contractual term of the arrangement or the

expected period during which those specified services will be 

performed, whichever is longer. In this case, the customer 

contracted for the on-going activity tracking service, not for the 

set-up activities. The staff notes that the customer could not, and 

 

15 It is uncertain why costs “reimbursed” to ADT should exceed the actual amount of costs 

incurred. 

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would not, separately purchase the set-up services without the 

on-going services. The services specified in the arrangement are 

performed continuously over the contractual term of the 

arrangement (and any subsequent renewals). Therefore, the staff 

believes that Company A should recognize revenue on a straightline basis, unless evidence suggests that the revenue is earned or 

obligations are fulfilled in a different pattern, over the contractual 

term of the arrangement or the expected period during which those 

specified services will be performed, whichever is longer. 

In this situation, the staff would object to Company A recognizing 

revenue in proportion to the costs incurred because the set-up costs 

incurred bear no direct relationship to the performance of services 

specified in the arrangement. The staff also believes that it is 

inappropriate to recognize the entire amount of the prepayment as 

revenue at the outset of the arrangement by accruing the remaining 

costs because the services required by the contract have not been 

performed. 

[Emphasis added]. 

111. In violation of the requirements of SAB No. 101, Tyco improperly included the 

excess “reimbursements” received by ADT in the Company’s earnings rather than recognizing 

such payments over the life of the contract, as Tyco knew or recklessly ignored. 

112. Tyco has now admitted that the cumulative effect of the “reimbursements” 

recorded in years prior to fiscal 2002 in excess of costs incurred, net of the effect of the 

appropriate recognition of such payments, totaled approximately $186 million and materially 

inflated, at least, the reported operating results of Tyco Fire and Security Services segments, as 

noted above. 

113. Tyco knew or recklessly ignored that GAAP, in SAB No. 101, required Tyco to 

recognize such fee income over the life of the dealer contract. In order to accelerate the 

recognition of such fee income, Tyco improperly accounted for the fees charged to dealers as an 

immediate reduction in its reported expenses. In so doing, Tyco improperly inflated its reported 

financial performance. 

114. Moreover, GAAP, in Accounting Principles Board (“APB”) Opinion No. 22, § 7, 

provides that the usefulness of financial statements in making economic decisions depends 

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significantly upon the user’s understanding of the accounting policies followed by a company. 

In fact, GAAP states that information about the accounting policies adopted by a reporting 

company is “essential” for financial statement users. (APB Opinion No. 22, § 8). Accordingly, 

GAAP, in § 12 of APB Opinion No. 22 provides: 

In general, the disclosure should encompass important judgments 

as to appropriateness of principles relating to recognition of 

revenue and allocation of asset costs to current and future periods; 

in particular, it should encompass those accounting principles and 

methods that involve any of the following: 

a. A selection from existing acceptable alternatives; 

b. Principles and methods peculiar to the industry in which 

the reporting entity operates, even if such principles and 

methods are predominantly followed in that industry; 

c. Unusual or innovative applications of generally accepted 

accounting principles (and, as applicable, of principles and 

methods peculiar to the industry in which the reporting 

entity operates). 

115. Tyco’s financial statements were thus also false and misleading and failed to 

comply with GAAP because they improperly failed to identify and describe important judgments 

associated with its recognition of excess “reimbursements” received by ADT. Accordingly, 

investors were unable to assess the appropriateness of, or the risks associated with, Tyco’s 

accounting of excess payments received by ADT or even, for that matter, the bona-fides of such 

“reimbursements” that Tyco has admitted materially exceeded the actual cost it incurred. 

f. Tyco’s Improper Failure To Disclose Contingent Liabilities And 

Significant Risks And Uncertainties 

116. Tyco’s attempt to deceive investors is also evidenced by the failure of Tyco’s 

financial statement to disclose its contingent liabilities in conformity with GAAP. 

117. GAAP requires that financial statements disclose contingencies when it is at least 

reasonably possible (i.e., a greater than slight chance) that a loss may have been incurred. SFAS 

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No. 5, § 10. The disclosure shall indicate the nature of the contingency and shall give an 

estimate of the possible loss, a range of loss, or state that such an estimate cannot be made. Id. 

118. The SEC considers the disclosure of loss contingencies to be so important to an 

informed investment decision that it issued Article 10-01 of Regulation S-X [17 C.F.R. ‘ 

210.10-01], which provides that disclosures in interim period financial statements may be 

abbreviated and need not duplicate the disclosure contained in the most recent audited financial 

statements, except that “where material contingencies exist, disclosure of such matters shall be 

provided even though a significant change since year end may not have occurred.” 

119. In addition, GAAP requires that financial statements disclose significant risks and 

uncertainties associated with an entity’s business. American Institute of Certified Public 

Accountant’s Statement of Position No. 94-6. 

120. In violation of GAAP, Tyco’s financial statements improperly failed to disclose 

that it engaged in certain practices that violated U.S. income tax laws. For example, certain of 

the businesses that provide services to Tyco’s customers are contractually required to rebate 

monies to Tyco upon the attainment of certain milestones - that is, companies are obligated to 

give Tyco volume discounts based on the level of business Tyco may give to a particular 

company. 

121. In an apparent attempt to evade U.S. income tax on such rebates, Tyco directed 

companies to remit periodic rebate checks to Tyco entities domiciled outside the U.S. even 

though the companies billed and transacted with U.S. Tyco entities domiciled in the U.S. In this 

way, U.S. Tyco entities were able to realize the benefits of the tax deductions without offsetting 

such deductions by the amount of volume rebates due them. 

122. For example, one witness associated with a provider of transportation services to 

Tyco told plaintiffs’ counsel that his employer and other companies in the transportation industry 

with whom Tyco does business were instructed by Steve Huntley - Tyco’s Director of Global 

Transportation - that his transportation company should send refund checks for volume discounts 

to a different company, called World Services Inc. In addition, the witness stated that, even 

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though his company provided transportation services for only a small fraction of Tyco’s overall 

business, his company paid rebates in the millions of dollars to non U.S. Tyco entities, including 

World Services, Inc. 

123. Nonetheless, Tyco’s financial statements, in violation of GAAP, failed to disclose 

the existence of this practice or the potential adverse consequences ensuing from such practice. 

In fact, the Company recently conceded in its Form 10-K for fiscal 2002 that: 

Tyco and its subsidiaries’ income tax returns are routinely 

examined by various regulatory tax authorities. In connection with 

such examinations, tax authorities, including the Internal Revenue 

Service, have raised issues and proposed tax deficiencies. We are 

reviewing the issues raised by the tax authorities and are contesting 

such proposed deficiencies. Amounts related to these tax 

deficiencies and other tax contingencies that management has 

assessed as probable and estimable have been accrued through the 

income tax provision. We believe but cannot assure you that 

ultimate resolution of these tax deficiencies and contingencies will 

not have a material adverse effect on our results of operations, 

financial position or cash flows. 

Thus, the Company has admitted in the December Report that it is under investigation by the 

Internal Revenue Service for tax evasion and has refused to quantify its resulting liabilities. 

124. Moreover, according to a December 23, 2002 article in BusinessWeek, entitled 

“The Rise and Fall of Dennis Kozlowski,” Tyco was saving “over $600 million a year in income 

taxes thanks to one of the most aggressive efforts ever by a multinational to avoid paying U.S. 

taxes.” The BusinessWeek article explains “How Kozlowski Did It”: 

- MOVED OFFSHORE to the tax haven of Bermuda through a 

reverse merger with ADT Ltd. in 1997. This put all non-U.S. 

income beyond the reach of the Internal Revenue Service. 

- SET UP A FINANCE SUBSIDIARY in Luxembourg known as 

Tyco International Group (TIG). TIG helped finance Tyco’s debt 

by borrowing billions and reloaning the money to Tyco units in the 

U.S. and other high-tax jurisdictions. The interest that Tyco’s U.S. 

units pay on these loans is not taxed in Luxembourg and is taxdeductible in the U.S. - thus cutting Tyco’s U.S. tax liabilities. By 

2001, Tyco had $16.7 billion in such intracompany loans 

outstanding. 

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- SET UP OVER 100 SUBSIDIARIES with names like 

“Driftwood” and “Bunga Berabu” in such tax havens as the 

Cayman Islands, Barbados, and Jersey. They are perfect vehicles 

for shielding interest, dividends, royalties, and other forms of 

passive income from tax, says Samuel C. Thompson Jr., a 

professor at the University of Miami School of Law. The subs 

may be part of the reason Tyco was able to report in 2001 that 

while 65% of its revenues came from the U.S., only 29% of its 

income did. 

Now that Kozlowski is gone, Tyco is scaling back its use of these 

tax tricks. On Sept. 25, Kozlowski’s replacement as CEO, Edward 

Breen, said a reexamination of its financials had caused him to 

raise Tyco’s estimate of its effective tax rate for the year ending 

September, 2002, to 22%, from 18.5%. Later, he said it would 

climb into the high 20s in 2003. Some observers believe Tyco 

may be forced to move back to the U.S. as part of the drive to 

leave its problems behind. 

125. In addition, Tyco’s financial statements failed to disclose the significant risks and 

contingent liability ensuing from its improper withholding of documents from the SEC during its 

1999-2000 inquiry as noted below. In this way, Tyco’s financial statements also fail to comply 

with GAAP. 

g. Violations of SEC Regulations 

126. Item 7 of Form 10-K and Item 2 of Form 10-Q, Management’s Discussion and 

Analysis of Financial Condition and Results of Operations (“MD&A”) require the issuer to 

furnish information required by Item 303 of Regulation S-K [17 C.F.R. 229.303]. In discussing 

results of operations, Item 303 of Regulation S-K requires the registrant to: 

[d]escribe any known trends or uncertainties that have had or that 

the registrant reasonably expects will have a material favorable or 

unfavorable impact on net sales or revenues or income from 

continuing operations. 

The Instructions to Paragraph 303(a) further state:

The discussion and analysis shall focus specifically on material 

events and uncertainties known to management that would cause 

reported financial information not to be necessarily indicative of 

future operating results. . . 

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127. In addition, the SEC, in its May 18, 1989 Interpretive Release No. 34-26831, has 

indicated that registrants should employ the following two-step analysis in determining when a 

known trend or uncertainty is required to be included in the MD&A disclosure pursuant to Item 

303 of Regulation S-K: 

A disclosure duty exists where a trend, demand, commitment, 

event or uncertainty is both presently known to management and is 

reasonably likely to have a material effect on the registrant’s 

financial condition or results of operations. 

128. Nonetheless, Tyco’s Forms 10-K and 10-Q failed to disclose that the Company’s 

internal control system deficiencies, “pattern” of aggressive accounting for the purpose of 

inflating Tyco’s operating results, related party transactions, accounting reserves manipulation, 

including the employment of “financial engineering” reserves, each of which were all reasonably 

likely to have a material adverse effect on Tyco’s operating results, which was necessary for a 

proper understanding and evaluation of the Company’s operating performance and an informed 

investment decision. 

2. Tyco’s Failure to Disclose Numerous Acquisitions

129. In addition to engaging in manipulative accounting, Tyco failed to disclose the 

sheer number of companies it was acquiring, and the amount it was paying for each. According 

to a February 4, 2002 report in THE WALL STREET JOURNAL (“Tyco Made $8 Billion of 

Acquisitions Over 3 Years but Didn’t Disclose Them”), Swartz admitted that Tyco had spent 

about $8 billion over the three previous fiscal years on more than 700 acquisitions that were 

never announced to the public. In fiscal 2001 alone, “Tyco paid $4.19 billion in cash for [350] 

unannounced deals . . . , or about 37% of the $11.3 billion in cash it spent on all deals.” 

Moreover, according to the report, Swartz admitted that it would be impossible for an investor to 

discern the amounts it spent on the unannounced deals because Tyco failed to disclose the 

amount of cash on the balance sheets of the companies it acquired. Tyco subtracted that amount 

from its total acquisition spending to get the “net” figure, according to the report, but calculating 

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the unannounced deals requires it to be added back. “You could fault me for that,” Mr. Swartz is 

quoted as saying. 

3. Tyco’s Withholding of Documents From The SEC During Its 1999-

2000 Inquiry 

130. Tyco also withheld a substantial number of documents from the SEC, causing the 

SEC to reach a false conclusion in its investigation. Moreover, as set forth below, Tyco made 

false statements to investors concerning the merits of the SEC investigation and the Company’s 

purported “cooperation.” 

131. In 1999 and 2000, the SEC conducted a Matter Under Inquiry (MUI) concerning 

the Company’s acquisition accounting. At the beginning of the inquiry, the SEC requested that 

Tyco produce various categories of documents. 

132. In July 2000, the SEC closed its informal inquiry. However, the Company has 

recently admitted in its December Report that “[a] large quantity of documents collected by Tyco 

and its counsel in connection with the SEC’s document request had not been produced to the 

SEC at the time the SEC closed its inquiry.” 

133. An article in the December 27, 2002 edition of THE WALL STREET JOURNAL 

also shows that Tyco’s outside counsel knew in early 2000 that the Company had serious 

accounting problems and that corporate funds were being misused by the Company’s senior 

executives. The article states: 

Newly discovered e-mails written by attorneys at Tyco 

International Ltd.’s former outside law firm reveal that they knew 

about personal use of corporate funds by former Tyco Chairman L. 

Dennis Kozlowski and a host of accounting problems at the 

company in early 2000. 

The e-mails - written by Wilmer, Cutler & Pickering partners 

Lewis Liman and William McLucas - have been obtained by the 

Manhattan district attorney’s office and the Securities and 

Exchange Commission in their continuing investigation into Tyco 

and some of its former top executives, according to people familiar 

with the matter. Part of the SEC’s probe involves whether the 

conglomerate and Wilmer Cutler withheld relevant information 

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that would have helped the SEC in an informal inquiry it launched 

in 1999 into Tyco’s accounting practices . . . . 

134. The December 27th article in THE WALL STREET JOURNAL quotes two of the 

emails: 

March 23, 2000 e-mail from Lewis Liman (Wilmer Cutler partner) 

to Mark Belnick, former Tyco General Counsel: “There are 

payments to a woman whom the folks in finance describe to be 

Dennis’s girlfriend. I do not know Dennis’s situation, but this is an 

embarrassing fact.” (This refers to payments from the key 

Employee Loan Account in 1997 to Karen Mayo, now Karen 

Kozlowski.) 

May 25, 2000 e-mail from William McLucas of Wilmer Cutler to 

Belnick: “We have found issues that will likely interest the SEC. . . 

creativeness is employed in hitting the forecasts. . .” “There is also 

a bad letter from the Sigma people just before the acquisition 

confirming that they were asked to hold product shipment just 

before the closing...” The same e-mail also said that the 

company’s financial reports suggest “something funny which is 

likely apparent if any decent accountant looks at this.” 

135. As a result of the Company’s failure to cooperate with the investigation, the SEC 

reached a false conclusion concerning Tyco’s accounting practices and investors remained in the 

dark concerning Tyco’s fraudulent scheme. 

4. Breakdown of Internal Controls 

136. Although Tyco claimed throughout the relevant period that there was no 

accounting fraud at Tyco and that it had been vindicated by the conclusion of an investigation 

commenced by the SEC, in fact, however, the Company was suffering from a chronic and 

systematic breakdown of its internal controls and procedures such that its internal financial 

reporting was inherently corrupted, subject to manipulation, and unreliable, resulting in 

materially false and misleading financial statements. Indeed, according to the December Report: 

(found in 10-K) 

We learned of instances of breakdowns of certain internal controls 

during fiscal 2002. This began in January 2002 when our Board of 

Directors learned of an unauthorized payment to our former Lead 

Director, Frank E. Walsh, and eventually led to the Board 

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replacing our senior management team. These instances included 

abuse of our employee relocation loan programs, unapproved 

bonuses, attempted unauthorized credits to employee loans, 

undisclosed compensation arrangements, unreported perquisites, 

self-dealing transactions and other misuses of corporate trust, and 

have been widely reported in the press. We believe the publicity 

resulting from such instances negatively impacted our results of 

operations and cash flow in fiscal 2002. In addition, such publicity 

contributed to a deterioration in our financial condition as we lost 

access to the commercial paper market and credit ratings on our 

term debt declined during fiscal 2002 from ratings as of the end of 

fiscal 2001. 

137. In addition, the December Report concluded that: 

the company in general suffered from poor documentation; 

inadequate policies and procedures to prevent the misconduct of 

senior executives that occurred; inadequate procedures for proper 

corporate authorizations; inadequate approval procedures and 

documentation; a lack of oversight by senior management at the 

corporate level; a pattern of using aggressive accounting that even 

when not erroneous, was undertaken with the purpose and effect of 

increasing reported results above what they would have been if 

more conservative accounting were used; pressure on, and 

inducements to, segment and unit managers to increase current 

earnings, including by decisions as to what accounting treatment to 

employ. 

138. Moreover, Tyco’s former Chief Executive Officer (Kozlowski) resigned on June 

3, 2002, its former Chief Corporate Counsel (Belnick) was dismissed on June 10, 2002 and its 

former Chief Financial Officer (Swartz) resigned on August 1, 2002. In addition, these members 

of former senior management were each indicted by the State of New York for violations of 

criminal law. On September 12, 2002, Kozlowski and Swartz were charged with 39 violations of 

New York state criminal law, including enterprise corruption and obtaining monies by theft and 

fraud, and Belnick was charged with falsifying business records in violation of New York state 

criminal law. Kozlowski was subsequently convicted of numerous counts and sentenced to 

prison. 

139. Despite its stated limitations, the December Report nevertheless concluded, 

among other things, that: (found in 10-K) 

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• “There were a number of accounting entries and treatments 

that were incorrect and required correction”; and 

• Tyco’s “prior senior management engaged in a pattern of 

aggressive accounting which . . . was intended to increase 

reported earnings above what they would have been if more 

conservative accounting had been employed.” 

140. In addition, the Company’s Form 10-K for fiscal 2002 (dated December 30, 2002) 

stated that the Company’s new senior management team (in conjunction with its Board of 

Directors) reviewed overall company policies and procedures in areas that were viewed as 

important. Specific areas of focus included acquisition accounting, restructuring, financial and 

legal controls, reserve utilization, incentive compensation and a number of other areas relevant to 

Tyco’s financial statements. The Company’s new senior management determined that Tyco’s 

existing policies and standards of approval needed “substantial improvement” and found that 

there were instances in which documentation of important financial reporting matters was 

substandard; there had been limited review of bonuses and incentive compensation across Tyco; 

and the manner in which former senior management managed Tyco reflected neither a 

commitment to sound corporate governance nor the processes required to ensure the highest 

standards of financial integrity and accounting rigor. 

141. According to Tyco’s fiscal 2002 Form 10-K, prior senior management’s “primary 

focus” was on earnings-per-share accretive acquisitions that resulted in Tyco’s growing 

considerably over the past several years, including the acquisition of approximately 700 

companies of varying size and in varying businesses around the world, “but which also strained 

the internal control environment and limited [the Company’s] investment in these areas.” 

142. In addition, the fiscal 2002 Form 10-K states that Tyco now believes that prior 

senior management during the past three years placed “undue reliance on non-recurring charges 

and pro forma financial information.” According to Tyco’s new senior management, “the rapid 

pace of acquisitions and attendant restructurings made it difficult to ascertain the level of [the 

Company’s] organic growth.” 

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143. PwC placed a full page advertisement in the LOS ANGELES TIMES (January 

15, 2003) stating its view concerning the importance of effective internal controls:16

Today’s topic for conversation: Internal control, i.e., the ability of 

a company to monitor itself 

It is sobering to see how many of last year’s corporate scandals 

were apparently a result of lax controls or management’s override 

of internal control processes. A better system of internal checks 

and balances would have caught many of these problems before 

they became headlines, before they hurt investors. 

The Sarbanes-Oxley Act has responded to this situation by putting 

the accountability of internal financial control squarely on the 

shoulders of both company management and, ultimately, in our 

opinion, its board of directors. 

Sarbanes-Oxley is also requiring external auditors to attest to 

management’s assertions regarding the effectiveness of the 

company’s internal control and procedures for financial reporting. 

These changes are good, but no one should think the goal here is 

just a good report card. The opportunity exists to create a higher 

level of monitoring and control, which, coupled with a spirit of 

transparency, will create better communications to the marketplace 

and, ultimately, rebuild investor confidence. 

But that is going to require looking at internal control not as a 

checklist, as many do, but as a dynamic process. 

The daily challenges a business faces new staff, less staff, more 

demands and an even greater opportunity for conflict should not be 

allowed to create opportunities for fraud, confusion or even 

innocent human error. 

144. Tyco’s lack of adequate internal controls increased the opportunity for it to 

commit the fraud alleged above, and rendered the Company’s financial statements inherently 

 

16 A January 1, 2003 article in THE NEW YORK TIMES concerning PwC’s recent 

advertisements, entitled “Pricewaterhouse Taking a Stand, And a Big Risk,” states that PwC 

“faces a significant challenge from continuing public scrutiny of its past work. For instance, 

it approved of financial disclosures at Tyco International despite the company’s use of 

“aggressive accounting that, even when not erroneous, was undertaken with the purpose and 

effect of increasing reported results above what they would have been if more conservative 

accounting were used.” 

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unreliable and non-compliant with GAAP. Nonetheless, throughout the relevant period, the 

Company consistently issued materially false and misleading financial statements without ever 

disclosing the existence of the significant and material deficiencies in its internal accounting 

controls. 

145. Although these materially adverse factors, trends and facts were apparent, at all 

material times Tyco failed to timely and adequately disclose them. 

B. Material Omitted Information Concerning Looting of the Company by its Senior 

Executives Who Were Conducting Tyco as a Criminal Enterprise 

146. Executives at Tyco were motivated to engage in the financial misreporting and 

manipulation of Tyco’s financial results by engaging in wide-scale looting of Tyco. Similarly, 

the previously undisclosed abuse and improper accounting of Tyco’s executive compensation 

and loan programs for the benefit of other Tyco executives and employees was intended to 

incentivize Tyco’s management to participate in the scheme, including the falsification of Tyco’s 

financial reporting. 

147. Tyco did not disclose its executives’ looting to investors. Rather, Tyco and its 

executives vehemently denied what they falsely described as unfounded “rumors” and falsely 

represented that Tyco’s management and its practices were of the highest integrity. Accordingly, 

Tyco’s statements concerning the integrity of its executives and management team, Tyco’s 

financial reporting, and the compensation received by its executives were materially false and 

misleading and omitted to state this material information. 

148. According to the Company’s September Report,” during at least the five years 

prior to June 3, 2002, Tyco’s three top corporate officers its CEO [Kozlowski], its CFO [Swartz], 

and its Chief Corporate Counsel [Belnick] engaged in a pattern of improper and illegal conduct” 

by which they looted hundreds of millions of dollars from Tyco. In fact, the Company has 

admitted in its December Report that senior management’s stewardship of Tyco “was 

characterized by serious abuses of trust and self-dealing by the highest officers of Tyco.” 

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149. Tyco was obligated to disclose this information to investors. For example, 

Regulation S-K sets forth instructions for filing forms under the 1933 and 1934 Acts. One of 

these rules, Item 402, relates to the disclosure of information concerning” Executive 

Compensation.” Item 402 provides: 

(2) All compensation covered. This item requires clear, concise and 

understandable disclosure of all plan and non-plan compensation 

awarded to, earned by, or paid to the named executive officers 

designated under paragraph (a)(3) of this item, and directors 

covered by paragraph (g) of this item by any person for all services 

rendered in all capacities to the registrant and its subsidiaries, 

unless otherwise specified in this item. 

(3) Persons covered. Disclosure shall be provided pursuant to this 

item for each of the following (the “named executive officers”): 

(i) All individuals serving as the registrant’s chief executive 

officer or acting in a similar capacity during the last completed 

fiscal year (“CEO”), regardless of compensation level; 

(ii) The registrant’s four most highly compensated executive 

officers other than the CEO who were serving as executive officers 

at the end of the last completed fiscal year; 

(iii) Up to two additional individuals for whom disclosure 

would have been provided pursuant to paragraph (a)(3)(ii) of this 

item but for the fact that the individual was not serving as an 

executive officer of the registrant at the end of the last completed 

fiscal year. 

Instructions to Item 402(a)(3). 1. Determination of Most Highly 

Compensated Executive Officers. The determination as to which 

executive officers are most highly compensated shall be made by 

reference to total annual salary and bonus for the last completed 

fiscal year . . . . 

150. Similarly, Item 404 requires disclosure of “Certain Relationships and Related 

Transactions”: 

(a) Transactions With Management and Others. Describe 

briefly any transaction, or series of similar transactions, since the 

beginning of the registrant’s last fiscal year, or any currently 

proposed transaction, or series of similar transactions, to which the 

registrant or any of its subsidiaries was or is to be a party, in which 

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the amount involved exceeds $60,000, and in which any of the 

following persons had, or will have, a direct or indirect material 

interest, naming such person and indicating the person’s 

relationship to the registrant, the nature of such person’s interest in 

the transaction(s), the amount of such transaction(s) and, where 

practicable, the amount of such person’s interest in the 

transaction(s): 

(1) Any director or executive officer of the registrant; 

(2) Any nominee for election as a director; 

(3) Any security holder who is known to the registrant 

to own of record or beneficially more than five percent of any class 

of the registrant’s voting securities; and 

(4) Any member of the immediate family of any of the 

foregoing persons. 

Instructions to Paragraph (a) of Item 404. 

1. The materiality of any interest is to be determined 

on the basis of the significance of the information to investors in 

light of all the circumstances of the particular case. The importance 

of the interest to the person having the interest, the relationship of 

the parties to the transaction with each other and the amount 

involved in the transactions are among the factors to be considered 

in determining the significance of the information to investors. 

* * * 

(c) Indebtedness of Management. If any of the following 

persons has been indebted to the registrant or its subsidiaries at any 

time since the beginning of the registrant’s last fiscal year in an 

amount in excess of $60,000, indicate the name of such person, the 

nature of the person’s relationship by reason of which such 

person’s indebtedness is required to be described, the largest 

aggregate amount of indebtedness outstanding at any time during 

such period, the nature of the indebtedness and of the transaction in 

which it was incurred, the amount thereof outstanding as of the 

latest practicable date and the rate of interest paid or charged 

thereon: 

(1) Any director or executive officer of the registrant; 

(2) Any nominee for election as a director; 

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(3) Any member of the immediate family of the persons 

specified in paragraph (c)(1) or (2); 

(4) Any corporation or organization (other than the

registrant or a majority-owned subsidiary of the registrant) of 

which any of the persons specified in paragraph (c)(1) or (2) is an 

executive officer or partner or is, directly or indirectly, the 

beneficial owner of ten percent or more of any class of equity 

securities; and 

(5) Any trust or other estate in which any of the persons 

specified in paragraphs (c)(1) or (2) has a substantial beneficial 

interest or as to which such person serves as a trustee or in a 

similar capacity. 

151. As set forth below, Tyco failed to comply with these disclosure requirements. 

1. Relocation Programs 

152. The September Report admits that various Tyco executives “used the relocation 

program to receive non-qualifying loans and unauthorized benefits that were not generally 

available to all salaried employees affected by relocations, or were not related to any Tyco 

relocation.” This provided these executives with an additional method to steal from the 

Company. 

a. L. Dennis Kozlowski 

153. According to the September Report, Kozlowski “improperly borrowed 

approximately $29,756,000 in non-qualifying relocation loans to purchase land and construct a 

home in Boca Raton, Florida during the years 1997 to 2000, and improperly borrowed 

approximately $7,012,000 in non-qualifying relocation loans to purchase a cooperative 

apartment in New York City in 2000.” 

154. In sum, the September Report concludes that: 

• “$7,011,669 in interest free loans was charged by Mr. Kozlowski for 

purported New York relocations that did not qualify under the New York 

Relocation Program.” 

• “$29,756,110 in interest free loans was charged by Mr. Kozlowski for the 

acquisition of property under an unauthorized Florida relocation program 

and” 

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• “$24,922,849 in interest free loans was borrowed by Mr. Kozlowski for 

the acquisitions of other properties that were not authorized by any 

relocation program.” 

155. Of Kozlowski’s $61,690,628 of unauthorized interest free relocation loans, the 

September Report concludes that: 

• “$21,697,303 were actually repaid by him, but without interest”; 

• “$19,439,392 were repaid through unauthorized forgiveness, discussed in 

the next section, that he bestowed upon himself and” 

• “$20,553,933 were reclassified to other Mr. Kozlowski loan accounts that 

he maintained with the Company.” 

b. Mark H. Swartz 

156. As set forth above, Swartz was Tyco’s CFO from 1995 through August 2002, and 

a Tyco director from February 2001 through August 2002. Swartz has improperly taken 

numerous undisclosed interest-free “relocation loans” since the inception of his relocation 

program account, including loans and charges reflected in the Company’s records for Swartz’s 

relocation account. 

157. In sum, the September Report concludes that: 

• “$7,668,750 in interest free loans were taken by Mr. Swartz for property 

acquisitions in New York and New Hampshire under the unauthorized 

New York Relocation Program”; 

• “$20,992,000 in interest free loans were taken by Mr. Swartz under an 

unauthorized Florida relocation program and” 

• “$4,437,175 was borrowed, interest-free, for the acquisition of other 

properties that were not authorized by any relocation program and” 

158. Of Swartz’s $33,097,925 of unauthorized interest-free relocation loans, the 

September Report concludes that: 

• “$10,786,977 was repaid by him, but without interest”; 

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• “$9,792,000 was repaid through forgiveness that Mr. Kozlowski was not 

authorized to bestow and” 

• “$12,518,948 was reclassified to other Mr. Swartz loan accounts that he 

maintained with the Company.” 

c. Mark A. Belnick 

159. As set forth above, Belnick served as Tyco’s Executive Vice President and Chief 

Corporate Counsel from September 1998 until June 10, 2002. According to the September 

Report, Belnick improperly “used the unauthorized version of the New York relocation program 

to borrow approximately $4,217,000 from September 1998 through May 2001 for the purchase 

and improvement of a cooperative apartment in New York City.” The September Report also 

admits that Belnick improperly “used the relocation program to pay his rent for several months 

while his new apartment was being renovated.” 

160. From 2001 through March 2002, the September Report also states that Belnick 

wrongly “borrowed an additional $10,418,599 to purchase land and build a home” in Park City, 

Utah. The report states that Belnick “then charged Tyco $1600 per month for his home office 

located in that house,” even though the Company “maintains no corporate offices in Utah, and 

Mr. Belnick was not requested to relocate to Utah.”

161. In sum, the September Report concludes that Belnick’s indebtedness “was not 

incurred through an authorized employee relocation plan available generally to all salaried 

employees, and as such was not exempt from disclosure in the Company’s proxies.” 

d. Other Executive Officers 

162. The September Report also describes the relocation loan activity of Tyco’s 

executive officers as defined by Section 16 of the Securities Exchange Act of 1934 and identified 

in Tyco’s proxy statements. Many (if not all) of these loans were given as pay-offs for 

participating in Tyco’s fraudulent scheme to manipulate the Company’s financial results. For 

example, almost $12 million was loaned to senior executives to incentivize them to participate in 

Tyco’s fraudulent scheme to manipulate its financial results: 

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• Jerry R. Boggess. Mr. Boggess is currently President of Tyco’s Fire and 

Security Services division. Mr. Boggess borrowed a total of $5,000,000 in 

relocation loans to purchase property in Boca Raton in 1997. This loan 

was forgiven and grossed-up as part of the TyCom Bonus in September 

2000 discussed in the next section, which also had not been approved by 

the Compensation Committee. Mr. Boggess also borrowed an additional 

amount which was purportedly forgiven by Kozlowski in January 2002. 

• Neil R. Garvey. Mr. Garvey served as President and Chief Executive 

Officer of TyCom Ltd., a Tyco subsidiary, until July 19, 2002. Mr. 

Garvey borrowed$5,000,000 in relocation loans related to his relocation to 

New Hampshire in2000. Mr. Garvey’s loan exceeded approved program 

guidelines by $472,703. As of September 2002, Mr. Garvey’s entire 

$5,000,000 loan was outstanding, and the Company was seeking 

repayment of the balance. 

163. In addition, and as set forth in the December Report, “relocation loans outstanding 

at the segment level units [rather than the corporate level] reviewed as of June 30, 2002, totaled 

$3.8 million,” and “of the total $3.8 million loans outstanding, about $3.2 million appear not to 

have conformed to applicable policies and guidelines, although some had legitimate business 

justification.” 

2. The “TyCom Bonus” Misappropriation 

164. The September Report also admits that in September 2000, Kozlowski “caused 

Tyco to pay a special, unapproved bonus to 51 employees who had relocation loans with the 

Company.” (The list is set forth as an exhibit to Tyco’s civil complaint against Kozlowski.) 

According to the report, “[t]he bonus was calculated to forgive the relocation loans of all 51 

employees, at a total cost of $56,415,037, and to pay compensation sufficient to discharge all of 

the tax liability due as a result of the forgiveness of those loans.” The September Report 

explains that “[t]his action was purportedly related to the successful completion of the TyCom 

Initial Public Offering.” The September Report concludes that the “total gross wages paid by the 

Company in this loan forgiveness program were $95,962,000, of which amount Mr. Kozlowski 

received $32,976,000 and Mr. Swartz $16,611,000.” 

165. Listed below are key managers of Tyco other than Kozlowski and Swartz who 

received unauthorized loan forgiveness and “gross-up” bonuses pursuant to the September 2000 

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program that, according to the September Report, was “conceived and implemented by Mr. 

Kozlowski”: 

NAME

LOAN BALANCES 

FORGIVEN GROSSED UP

Jerry Boggess $ 5,000,000 $ 8,481,764 

Irving Gutin $ 3,109,971 $ 5,275,608 

Jeffrey Mattfolk $ 825,000 $ 1,399,491 

Brad McGee $ 1,942,026 $ 3,294,361 

Patricia Prue $ 748,309 $ 1,269,396 

Michael Robinson $ 1,063,355 $ 1,803,826 

Scott Stevenson $ 845,869 $ 1,434,893 

TOTAL $ 13,534,523 $ 22,959,338 

166. In sum, the September Report concludes that: 

the program was discriminatory in scope, terms or operation in 

favor of executive officers. First, forgiveness was offered to some 

people who never moved, some people at the operating division 

level who were never part of the corporate relocation to Florida 

and people who did not even have a Tyco mortgage. Second, 

forgiveness was never offered to those who were originally eligible 

for relocation, yet declined to move. In short, forgiveness was 

never part of the Florida relocation program, but rather was an 

extra-program benefit. Regardless of advice that may have been 

offered relating to the disclosure requirements for

nondiscriminatory relocation benefits, the forgiveness benefit was 

not applied in a nondiscriminatory fashion as part of a 

nondiscriminatory program and, therefore, should not have 

qualified for nondisclosure. 

167. All of the forgiveness benefits were individually reported on separate W-2s, yet 

Tyco admits in its September Report that “none of the income associated with the forgiveness 

benefits was reported in the Company’s proxies for [Kozlowski and Swartz] in the year 2000.” 

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3. The “ADT Automotive Bonus” Misappropriations 

168. The September Report also states that Kozlowski introduced a second bonus 

program only a few weeks after the unauthorized forgiveness and gross-up of Florida relocation 

loan liability. According to the September Report, “Mr. Kozlowski sent a letter to 16 of the 

Company’s executive officers and key managers [on November 13, 2000] thanking them for 

their many contributions towards the successful divestiture of Tyco’s ADT Automotive business 

and enclosing bonuses and ‘relocation’ payments.” The report states that “[e]ach of the intended 

recipients of the purported relocation benefits had already recovered all of the grossed-up costs 

associated with their recent relocations as part of the near-$100 million unauthorized forgiveness 

program just completed.” The report also states that “[t]he total of the additional ADT 

Automotive cash bonus and ‘relocation’ benefits were $3,979,000 and $32,009,641, 

respectively.” 

169. According to the September Report, Kozlowski’s letter “noted that information 

regarding the vested shares had already been previously communicated and that the amounts 

listed were reviewed and approved by the Chairman of Tyco’s Compensation Committee.” The 

report states that “[t]he total number of shares awarded was 261,500 with a then market value of 

$14,804,038.” 

170. Thus, the September Report concludes that “the total benefits awarded at the time 

of the ADT Automotive divestiture were, and total cost [to] the Company was, approximately 

$55,954,455.” The distribution of this benefit is summarized in the Company’s September 

Report as follows: 

EMPLOYEES

CASH 

BONUS

VALUE OF 

RESTRICTED 

SHARES

“RELOCATION” 

BENEFITS TOTAL

Kozlowski $700,000.00 $8,378,576.00 $16,488,034.00 $25,566,610.00

Swartz $350,000.00 $4,189,288.00 $8,305,344.00 $12,844,632.00

Foley $100,000.00 $113,224.00 $422,180.00 $635,404.00

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Gutin $500,000.00 $2,637,804.00 $3,137,804.00

Mattfolk $312,500.00 $424,590.00 $699,746.00 $1,436,836.00

McGee $500,000.00 $424,590.00 $1,647,181.00 $2,572,771.00

Prue $312,500.00 $424,590.00 $737,090.00

Robinson $312,500.00 $424,590.00 $901,913.00 $1,639,003.00

Stevenson $312,500.00 $424,590.00 $717,447.00 $1,454,537.00

Other Employees $579,000.00 $424,590.00 $189,992.00 $768,992.00

TOTAL $3,979,000.00 $14,804,038.00 $32,009,641.00 $50,792,679.00

171. In sum, the Company has admitted in its September Report that “in November 

2000, Mr. Kozlowski authorized Tyco to pay cash, award property and restricted shares of Tyco 

common stock, and purportedly forgive the same relocation loans (and make related tax 

payments) to those Tyco officers and employees notwithstanding that the relocation loans of 

each of these persons had already been paid in full as a result of the September 2000 

misappropriation described above.” 

4. Key Employee Loan Program 

172. Tyco’s Key Employee Loan Program (KEL program) was intended to encourage 

ownership of Tyco common shares by executive officers and other key employees. The KEL 

program was intended to provide loans (KEL loans) on favorable terms to these officers to 

enable them to pay taxes due upon the vesting of shares granted under Tyco’s restricted share 

ownership plan without having to sell the shares at the time of vesting to pay the resultant tax 

liability. 

173. According to the September Report, during the fiscal years from 1997 to 2002, 

“certain executive officers used KEL loans for purposes other than the payment of taxes due 

upon the vesting of restricted shares, borrowed more than the limits allowed under the program’s 

terms, or both.” 

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a. L. Dennis Kozlowski 

174. According to the Company’s September Report, Kozlowski improperly 

“borrowed funds for purposes other than those stated in the KEL program and used the KEL 

program like an unlimited line of credit. In addition to taking non-program loans, Kozlowski 

borrowed in excess of the KEL program’s limits.” 

175. According to the September Report, Kozlowski’s “non-program KEL borrowing 

principally occurred in 1999 and afterwards.” The September Report stated: 

As of August 1998, Mr. Kozlowski’s total KEL account balance 

was $132,310. By August 1999, Mr. Kozlowski’s outstanding 

balance had increased to over $55.9 million. By the end of 2001, 

Mr. Kozlowski had taken over 200 KEL loans some for millions of 

dollars, and some as small as $100. Mr. Kozlowski used these 

loans to purchase, develop and speculate in real estate; to fund 

investments in various business ventures and partnerships 

(including private ventures in which both he and Mr. Swartz used 

Tyco KEL loans to invest); and for miscellaneous personal uses 

having nothing to do with any taxes due on the vesting of his 

shares of Tyco stock. 

176. According to Tyco records cited in the September Report, “approximately 90% of 

Mr. Kozlowski’s KEL loans were non-program loans, which he used to fund his personal 

lifestyle, including speculating in real estate, acquisition of antiques and furnishings for his 

properties (including properties purchased with unauthorized ‘relocation loans’), and the 

purchase and maintenance of his yacht.” 

177. The September Report sets forth some of Kozlowski’s KEL loans, including the 

journal entries used to describe the purpose for which the money was used and the resulting total 

loan balance (including both authorized program uses and non-authorized non-program loans). 

Balances after the date of August 31, 1999 reflect the effect of a $25 million unauthorized credit 

that has been reversed by Tyco and all balances thereafter should be adjusted accordingly. 

178. The September Report also concludes that Kozlowski “generally abandoned his 

investment in the Company by selling substantially all of his restricted shares when they vested 

(or shortly thereafter thus violating both the spirit and the letter of the KEL program).” 

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179. Kozlowski was indicted on September 12, 2002 for using the KEL loan program 

as a vehicle for misappropriating millions of dollars from Tyco. The September Report states 

that Kozlowski’s “total principal outstanding balance under the KEL program (including 

adjustments for improperly classified loans), as of June 30, 2002, was approximately 

$43,841,000, plus accrued interest.” 

b. Mark H. Swartz 

180. As Tyco’s Chief Financial Officer, Swartz was responsible for approving and 

monitoring the KEL loans of senior management, including Kozlowski’s KEL loans. As such, 

the September Report admits that “he was aware of the nature and extent of Mr. Kozlowski’s 

loans.” As a Tyco director, the report states that Swartz was also “responsible for reporting any 

issues relating to those loans to the Compensation Committee.” 

181. The Company admitted in its September Report that: 

Mr. Swartz, like Mr. Kozlowski, borrowed millions in nonprogram loans. Like Mr. Kozlowski, Mr. Swartz used those 

unauthorized loans to purchase, develop and speculate in real 

estate; to fund investments in various business ventures and 

partnerships (including private ventures in which both he and Mr. 

Kozlowski used Tyco KEL loans to invest); and for miscellaneous 

personal uses having nothing to do with the ownership of Tyco 

stock. 

182. The Company’s September Report sets forth some of Swartz’s KEL loans, 

including the journal entries used to describe the purpose for which the money was used and the 

resulting total loan balance (including both authorized program uses and non-authorized nonprogram loans). Balances after the date of August 31, 1999, reflect the effect of a $12.5 million 

unauthorized credit that has been reversed by Tyco and all balances thereafter should be adjusted 

accordingly. 

183. The September Report concludes that, like Kozlowski, “Mr. Swartz also generally 

abandoned his investment in the Company by selling substantially all of his restricted shares 

when they vested or shortly thereafter thus violating both the spirit and the letter of the KEL 

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program.” As explained above, Swartz was indicted on September 12, 2002 for conspiring with 

Kozlowski to use the KEL loan program as a vehicle for misappropriating millions of dollars 

from Tyco. The September Report states that Swartz’s “total principal outstanding balance 

under the KEL program (including adjustments for improperly classified loans), as of July 18, 

2002, was approximately $2,853,025, plus accrued interest.” 

c. Other Executive Officers 

184. The September Report also provides a summary of KEL borrowing by other 

executive officers. 

• Mark A. Belnick. Belnick borrowed a total of $8,603,218 under the KEL 

program. 

• Jerry R. Boggess. Mr. Boggess borrowed a total of $4,461,645 under the 

KEL program. 

• Neil R. Garvey. Mr. Garvey borrowed a total of $1,342,572 under the 

KEL program. 

5. Attempted Unauthorized Credits to Key Employee Loan Accounts 

185. The September Report admits that in August 1999, at the direction of Kozlowski 

and Swartz, “entries were made in Tyco’s KEL records that purported to reduce $25,000,000 of 

Mr. Kozlowski’s outstanding KEL indebtedness, $12,500,000 of Mr. Swartz’s KEL 

indebtedness, and $1,000,000 of the KEL indebtedness of another employee.” According to the 

Company, “[t]his was done without the knowledge or approval of the Compensation 

Committee.” 

186. As set forth in the September Report, “Mr. Kozlowski, through his attorneys, has 

acknowledged to Tyco that he sought no approvals for these credits and that, if they were entered 

as a credit to his KEL account, it was done so improperly.” The September Report also states 

that “Mr. Swartz was advised that the credit was unauthorized and has also agreed to repay his 

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forgiven indebtedness with interest.” Thus, Tyco has stated that it has “reversed these 

unauthorized entries, after notice to investigating authorities.” 

6. Other Undisclosed Perquisites to Kozlowski and Swartz 

187. The Company admitted in the September Report that “both Mr. Kozlowski and 

Mr. Swartz each received auto and aircraft perquisites from Tyco that, in the aggregate, exceeded 

$50,000 per year.” In addition, the Company admitted in its September Report that “Mr. 

Kozlowski caused Tyco to make available to him various properties that the Company owned for 

his purported business use,” and that the value of these personal uses “was also not reported.” 

7. Self-Dealing Transactions and Other Misuses of Corporate Trust 

188. The Company has also admitted to numerous other examples of self-dealing and 

flagrant abuses of corporate trust. These include, but are not limited to, the following: 

a. Kozlowski Evidence Tampering 

189. The September Report admits that from at least 1997 through the time of his 

departure in 2002, “Mr. Kozlowski has systematically abused his position and caused Tyco to 

expend funds for his personal benefit.” For example, the September Report states that “after his 

violation of the sales tax rules led to the service of a subpoena on the Company, [Kozlowski] 

caused Tyco not to comply with a subpoena. Concerned only with protecting his wrongdoing 

from discovery, he tampered with evidence subject to a subpoena, and risked exposing the 

Company to an obstruction of justice claim.” 

b. Kozlowski’s Fraudulent New York Home Purchase 

190. According to the Company’s September Report, a Tyco subsidiary purchased a 

cooperative apartment in New York City in November 1998 for $5,547,248 “[u]pon Mr. 

Kozlowski’s instructions,” and made subsequent improvements to it. The September Report 

admits that “Mr. Kozlowski purchased this property from the Tyco subsidiary in May 2000 at the 

depreciated book value of $7,011,669, rather than its then current market value.” 

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c. Concealed, Fraudulent Overpayment to Kozlowski for NH Property 

191. The September Report also admits that Kozlowski and others caused a Tyco 

subsidiary to purchase property in Rye, New Hampshire from Kozlowski on July 6, 2000 for 

approximately $4,500,000. After an appraisal in March 2002 valued the property at $1,500,000, 

the September Report states that “Tyco wrote down the carrying value of the property to the 

appraised value and charged Mr. Kozlowski’s $3,049,576 overpayment to expense.” 

d. Kozlowski Non-Legitimate Business Expenses 

192. The Company’s September Report also admits that Kozlowski “used millions of 

dollars of Company funds to pay for his other personal interests and activities”, “including a 

$700,000 investment in the film ‘Endurance’; more than $1 million for an extravagant birthday 

party celebration for his wife in Sardinia; over $1 million in undocumented business expenses, 

including a private venture (West Indies Management $134,113); jewelry ($72,042); clothing 

($155,067); flowers ($96,943); club membership dues ($60,427); wine ($52,334); and an 

undocumented $110,000 charge for the purported corporate use of Mr. Kozlowski’s personal 

yacht, ‘Endeavour.’” 

e. Kozlowski Charitable Contributions For Personal Benefit 

193. Also, as set forth in the Company’s September Report, Kozlowski: 

caused Tyco to make donations or pledges to charitable 

organizations totaling over $106 million. Of this total, at least $43 

million in donations were represented in transmittal letters or 

otherwise as Mr. Kozlowski’s personal donations, or were made 

using the Company’s funds for Mr. Kozlowski’s personal benefit. 

Mr. Kozlowski’s letters accompanying these donations or pledges 

often indicated that they were made “on behalf of L. Dennis 

Kozlowski,” such as a 1997 pledge to Seton Hall University that 

enclosed a $1 million Tyco check with a letter signed by Mr. 

Kozlowski that referred to “my pledge to Seton Hall University.” 

Mr. Kozlowski made two other million-dollar pledges to schools 

under his own name but using Tyco funds, and made several other 

pledges that were publicly announced as being from Mr. 

Kozlowski, or in which a facility was named after him or his 

family, even though he had used Tyco’s money to make the 

pledge. 

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194. In addition, Kozlowski donated $4 million to Cambridge University to study 

corporate governance, falsely claiming that half the contribution was being made from his 

personal funds, whereas in fact all the money had been appropriated from Tyco. According to 

the November 6, 2002 edition of THE DAILY TELEGRAPH (LONDON): 

Even the producers of The Office [a British television sitcom] 

would be hard-pressed to invent a script quite as whacky as a chair 

of Corporate Governance donated to Cambridge University by 

Tyco International. 

Mr. Kozlowski claimed the glory for endowing the chair with $4m, 

but it seems that half of it came from the Tyco shareholders. In 

practice, it all came from their pockets, since he seemed to have 

some difficulty in distinguishing between what was his, and what 

belonged to the company . . . . 

195. According to the September Report: 

[m]ost egregiously, in 2001 Mr. Kozlowski donated to the 

Nantucket Conservation Foundation, Inc. a total of $1,300,000 in 

Company money. The donation was used partially to purchase 60 

acres of property called “Squam Swamp” adjacent to Mr. 

Kozlowski’s own Nantucket estate on Squam Road. The effect of 

this gift was to preclude future development of the land and 

thereby increase the value of Mr. Kozlowski’s home.

f. Walsh Payment 

196. In early 2001, according to the Company’s September Report, Frank E. Walsh, 

Jr., Tyco’s Lead Director and the former Chairman of its Compensation Committee, 

recommended to the Board that Tyco acquire a financial services company, and later proposed 

that he introduce Kozlowski to the Chairman and CEO of The CIT Group, a large financial 

services company. The report states: 

Subsequent negotiations led to an agreement for Tyco to acquire 

CIT, which closed in June 2001. After the terms of the CIT 

transaction had been agreed to, Mr. Kozlowski caused Tyco to pay 

to and for the benefit of Mr. Walsh a $20 million fee for his role in 

the transaction. 

Mr. Kozlowski told Mr. Walsh, and Mr. Walsh agreed, that they 

should conceal this payment from the Board. 

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197. On June 17, 2002, Tyco filed suit against Walsh for breaching his fiduciary 

obligations by arranging an unauthorized $20 million “finder’s fee” from Tyco for himself in 

connection with the Company’s 2001 acquisition of CIT, hiding it from his fellow directors and, 

when confronted by the Board, refusing to return it. 

198. According to the Walsh Complaint, the day after the fee was disclosed in the 

Company’s proxy statement, Tyco’s stock dropped sharply, resulting in an almost $17 billion 

decline in the Company’s market capitalization in a single day. As stated by Tyco in the Walsh 

Complaint: 

On January 28, 2002, Tyco filed its proxy statement for its 

upcoming annual general meeting with the Securities and 

Exchange Commission, and the contents of that proxy, including 

the disclosure of the payments to Walsh, became public. 

Following this disclosure, which was immediately picked up and 

publicized in the national financial press, the share price of 

Tyco’s stock fell from $42 to $33.65, reducing the Company’s 

market capitalization by $16.7 billion, in one day. [Emphasis 

added]. 

199. Tyco said in a June 17, 2002 press release: 

We are taking this action because Frank Walsh violated his 

fiduciary duties as a Tyco director and put his personal gain ahead 

of the interests of the company and its shareholders. Mr. Walsh 

engaged in a pattern of self-dealing and unethical conduct. He had 

a clear and unambiguous disclosure obligation to the Board that he 

chose not to honor. We will pursue this matter aggressively so that 

Mr. Walsh is held accountable for the damage done to Tyco and its 

shareholders. The company is also continuing its investigation of 

Dennis Kozlowski’s conduct and will pursue whatever remedies 

are appropriate based on the results of that investigation. 

g. Compensation Committee Deceptions 

200. On June 22, 2001, Tyco acquired 15 million shares of Flag, a telecom company 

for $11,421,810 cash and 5,580,647 TyCom shares. The Company reported a $79,364,700 gain 

associated with the swap of TyCom shares for the Flag equity. As a result of the gain, 

purportedly as another bonus, accelerated vestings of restricted shares were made to various key 

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individuals.17 Each of the executives involved in the grant of restricted shares sold the shares 

back to the Company’s Newington subsidiary on June 20, 2001 and received wire transfers to 

their personal accounts in the amounts indicated in the note below, justified on the basis that the 

transaction resulted in a $79 million gain to TyCom. The Compensation Committee approved 

and certified the vesting of 290,000 shares for Kozlowski and Swartz only on October 1, 2001 

“in conjunction with the gain” on the Flag transaction. The total cost to the Company related to 

the award of these shares was $15,378,700. However, by the end of the quarter (September 30, 

2001) and prior to the October 1, 2001 certification by the Compensation Committee, the value 

of the Flag stock decreased substantially, to the point that it was impaired, thus undermining the 

basis on which the special bonus vesting was approved. The Company admitted in its September 

Report that neither Kozlowski nor Swartz, who were both members of the Board of Directors 

during this time period, ever disclosed this impairment or the full circumstances of the Flag 

transaction to the Compensation Committee. Their entitlement to these bonuses was predicated 

upon a failure to disclose relevant facts for their own personal benefit. Other examples of selfdealing and serious breaches of fiduciary duties owed to Tyco by Kozlowski, in particular his 

deceptions to the Compensation Committee resulting in the accelerated vesting of his own and 

other executives’ shares of restricted stock and his entitlement to executive benefits, are the 

subject of litigation in Tyco’s civil suit against Kozlowski and are further detailed in that 

complaint. 

TYCO’S MATERIALLY FALSE AND MISLEADING STATEMENTS 

2000 Materially False and Misleading Statements and Omissions

The 2000 10-K filed on 12/21/00

201. On December 21, 2000, Tyco filed its 10-K for the fiscal year ended September 

30, 2000 (the “2000 10-K”), in which Tyco set out numerous materially false and misleading 

statements on a variety of topics, including the following: 

 

17 For example, Kozlowski received 155,000 shares with a vesting value of $8,219,650 and 

Swartz received 77,500 shares with a vesting value of $4,109,825. 

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Tyco’s “Strategy”

202. The 2000 10-K recites Tyco’s purported strategy: 

Tyco’s strategy is to be the low-cost, high quality producer and 

provider in each of our markets. We promote our leadership 

position by investing in existing businesses, developing new 

markets and acquiring complementary businesses and products. 

Combining the strengths of our existing operations and our 

business acquisitions, we seek to enhance shareholder value 

through increased earnings per share and strong cash flows. 

This statement of strategy when made was materially false and misleading and omitted material 

information for the reasons set forth above in Section(s) A, A.1.a and A.1.d. 

Tyco’s Manipulation of Purchase Accounting Reserves

203. The 2000 10-K sets forth statements that were materially false and misleading 

concerning Tyco’s manipulation of purchase accounting reserves: 

In Fiscal 2000, we made acquisitions that were accounted for 

under the purchase accounting method at an aggregate cost of 

$5,162.0 million. Of this amount, $4,246.5 million was paid in 

cash (net of cash acquired), $671.4 million was paid in the form of 

Tyco common shares, and we assumed $244.1 million in debt. In 

connection with these acquisitions, we established purchase 

accounting reserves of $426.2 million for transaction and 

integration costs. At the beginning of Fiscal 2000, purchase 

accounting reserves were $570.3 million as a result of purchase 

accounting transactions made in prior years. During Fiscal 

2000, we paid out $544.2 million in cash and incurred $52.1 

million in non-cash charges against the reserves established 

during and prior to Fiscal 2000. Also in Fiscal 2000, we 

determined that $117.8 million of purchase accounting reserves 

related to acquisitions made prior to Fiscal 2000 were not 

needed and reversed that amount against goodwill. At 

September 30, 2000, there remained $372.6 million in purchase 

accounting reserves on our Consolidated Balance Sheet, of 

which $349.2 million is included in current liabilities and $23.4 

million is included in long-term liabilities. 

[Emphasis added.] 

These statements when made were materially false and misleading and omitted material 

information for the reasons set forth above in Section(s) A, A.1.a and A.1.d. 

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Tyco’s Operating Results

204. The 2000 10-K also gives favorable, purportedly accurate information concerning 

Tyco’s operating results. For example, Tyco provided the following summary information: 

Fiscal 2000 Fiscal 1999 Fiscal 1998 

 

Income before income taxes, minority 

 Interest and extraordinary items.................................................................. 6,464.8 1,705.2 1,702.8 

Income taxes ................................................................................................. (1,926.0) (637.5) (534.2) 

Minority interest ............................................................................................. (18.7) -- -- 

 

Income before extraordinary items................................................................ 4,520.1 1,067.7 1,168.6 

Extraordinary items, net of taxes................................................................... (0.2) (45.7) (2.4) 

 

Net income..................................................................................................... $4,519.9 $1,022.0 $1,166.2 

 

These statements when made were materially false and misleading and omitted material 

information for the reasons set forth above in Section(s) A, A.1.a and A.1.d 

205. In addition, these statements are materially false and misleading because they fail 

to disclose the aggressive accounting and incentivizing practices described above (and admitted 

by Tyco in the December Report), but instead attribute Tyco’s favorable results to “organic 

growth” and “synergies” resulting from Tyco’s acquisitions. According to the 2000 10-K: 

Operating income improved in all segments in each of Fiscal 2000 

and Fiscal 1999. The operating improvements are the result of 

both increased revenues in all segments and enhanced margins in 

all but one segment in Fiscal 2000. Increased revenues result from 

organic growth and from acquisitions that are accounted for under 

the purchase method of accounting. 

Tyco also stated: “By integrating merged companies with our existing businesses, we expect to 

realize operating synergies and long-term cost savings.” And concerning profits in Tyco’s 

electrical business, Tyco stated: 

The 49.6% increase in operating income, before certain credits 

(charges), in Fiscal 1999 compared with Fiscal 1998 was due to 

improved margins at AMP, the acquisition of Raychem, and higher 

sales volume at the Tyco Printed Circuit Group. The improved 

operating margins, before certain credits (charges), in Fiscal 1999 

compared with Fiscal 1998 were primarily due to the

implementation of AMP’s profit improvement plan, which was 

initiated in the fourth quarter of Fiscal 1998, cost reduction 

programs associated with the AMP merger, a pension 

curtailment/settlement gain and the acquisition of Raychem. 

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These statements when made were materially false and misleading and omitted material 

information for the reasons set forth above in Section(s) A, A.1.a and A.1.d. 

Management Remuneration and Related Transactions

206. The 2000 10-K addresses management remuneration only by reference, stating: 

“Information concerning management remuneration is hereby incorporated by reference to the 

Registrant’s definitive proxy statement which will be filed with the Commission within 120 days 

after the close of the fiscal year.” Because the 2000 10-K incorporates Tyco’s Proxy Statement, 

filed on January 29, 2001, by reference, the 2000 10-K contains the same materially false and 

misleading statements set forth therein, as described below. 

207. Similarly, the 2000 10-K addresses related transactions by reference, stating: 

“Information concerning certain relationships and related transactions is hereby incorporated by 

reference to the Registrant’s definitive proxy statement which will be filed with the Commission 

within 120 days after the close of the fiscal year.” Because the 2000 10-K incorporates Tyco’s 

Proxy Statement, filed on January 29, 2001, by reference, the 2000 10-K contains the same 

materially false and misleading statements set forth therein, as described below. 

208. On January 2, 2001, THE WALL STREET JOURNAL reported that Tyco 

completed its purchase of a Lucent unit for $2.5 billion. The article included a comment from 

Tyco concerning the benefits of the acquisition: 

Tyco said the acquisition, which gives it a strong foothold in the 

fast-growing business of providing power supplies to 

telecommunications concerns, will be “immediately accretive.” 

This statement when made was materially false and misleading and omitted material information 

for the reasons set forth above in Section(s) A, A.1.a and A.1.d. 

2000 Annual Report to Shareholders

209. On or about January 30, 2001, Tyco released its 2000 Annual Report to 

Shareholders (the “2000 Annual Report”). On its very first page, the 2000 Annual Report falsely 

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and misleadingly states that its “exceptional financial results” are the product of its “growth-ongrowth” strategy: 

Tyco has demonstrated the ability to grow each of its businesses 

organically, as well as by the acquisition of complementary 

businesses or product lines. This “growth-on-growth” strategy has 

yielded exceptional financial results for several years, and puts us 

in a position to achieve excellent growth in the future. 

These statements when made were materially false and misleading and omitted material 

information for the reasons set forth above in Section(s) A, A.1.a and A.1.d. 

210. The 2000 Annual Report touts Tyco’s ability to achieve “Organic Growth,” even 

in the absence of any additional acquisitions: 

Based on its performance to date, Tyco would continue growing 

revenues and achieving double-digit earnings gains annually for 

the foreseeable future even without additional acquisitions. This is 

because we have leadership positions in many of the world’s best 

growth industries. Thus, we have the ability to increase sales each 

year through a combination of geographic expansion, the 

introduction of innovative new products and market share gains 

fueled by our status as the low-cost producer in most of our 

markets. 

These statements when made were materially false and misleading and omitted material 

information for the reasons set forth above in Section(s) A, A.1.a and A.1.d. 

211. The 2000 Annual Report included a full page description of the Company’s “free 

cash flow”: 

At Tyco, cash is king. We judge ourselves by the amount of free 

cash flow that we generate each year after we have paid all 

necessary expenses, including capital expenditures, which 

exceeded $1.8 billion last year. In fiscal 2000, Tyco generated 

over $3.3 billion in free cash flow. Cash generation is crucial 

because it is the very best indicator of how a company is really 

performing and it provides the resources for us to continue to grow 

our businesses by acquisition or other types of investment, such as 

through Tyco Ventures, our new venture capital arm.

These statements when made were materially false and misleading and omitted material 

information for the reasons set forth above in Section(s) A, A.1.a and A.1.d. 

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212. The 2000 Annual Report also provided investors with a false and misleading 

explanation of Tyco’s acquisition strategy, including its purported ability to acquire companies 

that “immediately” add to earnings: 

Acquisitions are a definite growth driver at Tyco. The second part 

of the growth-on-growth strategy involves acquisitions that add 

new products and businesses to complement our core groups. We 

seek to acquire companies with superior products that have longterm growth potential but are performing below peak level, or 

companies that fill a gap in our existing product lines. All 

acquisitions must immediately add to earnings, but they must also 

make strategic sense by helping us become a stronger competitor 

in one of our existing business segments. Buying at a good price is 

important; finding a company whose people and products fit well 

in our organization is essential. 

These statements when made were materially false and misleading and omitted material 

information for the reasons set forth above in Section(s) A, A.1.a and A.1.d. 

213. The 2000 Annual Report also included a letter to Tyco shareholders from 

Kozlowski, which states: 

Fiscal 2000 was another very strong year for Tyco. I am pleased to 

report that all our operating units beat their performance targets, 

and they are in a position to achieve excellent growth in 2001 and 

beyond. 

Tyco’s internal revenue growth in fiscal 2000 was 14 percent, a 

remarkable feat for a company of our size. Put another way, our 

business units delivered $3.7 billion in incremental sales last year 

alone -- not counting acquisitions. That is what I call a growth 

company. 

For the seventh consecutive year, we increased revenues and 

earnings substantially. Revenues rose 29 percent to $28.9 billion 

and earnings grew $1.2 billion to $3.7 billion, a 46 percent increase 

over the prior year. Our diluted earnings per share increased 42 

percent to $2.18. These are outstanding numbers, the result of our 

focus on lean, efficient management, continuous production 

improvement and aggressive expansion into new markets. . . . 

I have never been more confident about Tyco’s core businesses 

and our growth opportunities. We generated more than $3.3 billion 

in free cash flow in 2000, an amount that we hope to increase to 

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over $4 billion -- before capital spending on the TyCom Global 

Network -- in 2001. . . . 

Growth on Growth 

At Tyco, we have a two-pronged growth strategy. First, we seek to 

achieve double-digit organic growth every year. This is growth 

without ever doing another acquisition. . . . Strategic acquisitions 

also play a key role in our growth. A good acquisition should not 

only be profitable on its own terms, it should also help existing 

businesses and product lines. . . . 

Tyco’s future looks outstanding and I am confident that our 

“growth-on-growth” strategy will continue to deliver enviable 

results. We are poised for growth because we have the best brand 

names in our industries, names that represent “reliability” and 

“innovation” to purchasers. 

These statements when made were materially false and misleading and omitted material 

information for the reasons set forth above in Section(s) A, A.1.a and A.1.d. 

214. In addition, the 2000 Annual Report provided investors with a false overview of 

the Company’s operations: 

Sales increased 28.6% during Fiscal 2000 to $28,931.9 million 

from $22,496.5 million in Fiscal 1999. Sales in Fiscal 1999 

increased 18.0% compared to Fiscal 1998. Income before 

extraordinary items was $4,520.1 million in Fiscal 2000, as 

compared to $1,067.7 million in Fiscal 1999 and $1,168.6 million 

in Fiscal 1998. Income before extraordinary items for Fiscal 2000 

included an after-tax net credit of $793.7 million ($1,484.7 million 

pre-tax) consisting of restructuring, non-recurring and impairment 

charges of $327.3 million ($424.2 million pre-tax) primarily for 

non-recurring claims related to a merged company and the exiting 

of USSC’s interventional cardiology business, offset by a credit of 

$113.6 million ($148.9 million pre-tax) representing a revision of 

estimates of merger, restructuring and other non-recurring accruals 

and a gain of $1,007.4 million ($1,760.0 million pre-tax) on the 

issuance of common shares in connection with TyCom’s initial 

public offering. Income before extraordinary items for Fiscal 1999 

included an aftertax net charge of $1,304.8 million ($1,542.7 

million pretax) primarily related to the mergers with USSC and 

AMP and costs associated with AMP’s profit improvement plan. 

Income before extraordinary items for Fiscal 1998 included an 

after-tax charge of $192.0 million ($256.9 million pre-tax) 

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primarily related to AMP’s profit improvement plan and costs 

incurred by USSC to exit certain businesses. 

These statements when made were materially false and misleading and omitted material 

information for the reasons set forth above in Section(s) A, A.1.a and A.1.d. 

215. The 2000 Annual Report also provides limited information concerning loans 

taken by senior management under Tyco’s KEL program, which was instituted to encourage 

ownership of the Company’s common stock by executives and other key employees. According 

to the 2000 Annual Report: “During Fiscal 2000, the maximum amount outstanding under is 

program was $26.0 million. Loans receivable under this program were $11.4 million and $18.6 

million at September 30, 2000 and 1999, respectively.” This statement when made was 

materially false and misleading and omitted material information for the reasons set forth above 

in Section(s) A.1.b, B.4 and B.5. 

2001 Materially False and Misleading Statements and Omissions

216. On January 12, 2001, J.P Morgan, reporting materially false and misleading 

information received from Tyco, issued an analyst report entitled, “Strong 1Q Results Could Be 

A Catalyst.” The report stated: 

We expect very solid earnings and revenue results from Tyco when 

they report earnings next week, and believe the news would be 

enough to push the stock beyond its recent $52-58 trading range. 

We think nervousness about the economy has weighed on the stock 

lately, and just making expectations should be worth something. 

Of course, the 2001 outlook is the key ingredient to investor 

interest this time around given the questions on the economy, but 

even here we expect the company to remain bullish. We continue 

to believe the company is in very good shape to deliver on its full 

year expectations in almost any conceivable scenario this year, and 

is actually one of the few on our list where we view meaningful 

EPS upside as a possibility. Weathering a sharp economic 

slowdown, or even a recession, with greater than 20% earnings 

growth should finally deliver the respect (and the multiple) we 

think the stock deserves. We look for TYC to be a strong 

performer both heading into a slowdown given our earnings 

confidence, and coming out because of the enhanced credibility. 

* * * 

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Tyco is our highest conviction Buy rated stock and we have a $95 

per share target. 

217. The price of Tyco stock closed at $59.63 on January 13, 2001. 

1/17/01 Conference Call

218. On January 17, 2001, Tyco held a conference call with analysts. During the call, 

Tyco continued to report “organic growth”: 

KOZLOWSKI: Tyco International today reported a 24% increase in 

first quarter earnings per share. Our earnings per

share increased to 57 cents a share from 46 cents 

last year. Our revenue was up 21% to $8 billion for 

the quarter and we are pleased to report that organic 

growth for Tyco which excluding TyCom which 

has a different business model now where they 

building out their own system. Organic growth was 

up from 16%. 

These statements when made were materially false and misleading and omitted material 

information for the reasons set forth above in Section(s) A, A.1.a and A.1.d. 

2001 Proxy Statement

219. On January 29, 2001, Tyco filed with the SEC its Proxy Statement for the 2001 

annual meeting (the “2001 Proxy Statement”). The 2001 Proxy Statement contains materially 

false and misleading statements on a variety of topics, including management remuneration, the 

Key Employee Loan Program, and allegations of accounting impropriety by the Company. 

Management Remuneration

220. Concerning Tyco’s executive compensation program generally, the 2001 Proxy 

Statement states: 

Tyco’s executive compensation program [offers] significant 

financial rewards when Tyco and the individual achieve excellent 

results; however, significantly lower compensation is tied to lower 

levels of performance. Specifically, if the compensation targets 

are not achieved, Tyco executives are ineligible for either cash 

bonuses or equity-based compensation. In order for Mr. 

Kozlowski and Mr. Swartz to earn a cash bonus in fiscal 2000, a 

minimum of 22.5% growth in pre-tax income and operating cash 

flow growth over fiscal 1999 performance was required. In 

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addition, in order to meet the performance criteria to vest the 

minimum number of restricted shares, growth in earnings per share 

of at least 22.5% over fiscal 1999 was required. 

These statements when made were materially false and misleading and omitted material 

information for the reasons set forth above in Section(s) B. 

221. The 2001 Proxy Statement also contains materially false and misleading 

information regarding the administration of compensation to executive officers and key 

managers: 

The Compensation Committee of the Board of Directors is 

composed solely of independent directors, none of whom has any 

interlocking relationships with Tyco that are subject to disclosure 

under rules of the SEC relating to proxy statements. The 

Compensation Committee approves all of the policies under which 

compensation is paid or awarded to Tyco’s Chief Executive 

Officer, reviews and, as required, approves such policies for 

executive officers and key managers, and oversees the 

administration of executive compensation programs. 

These statements when made were materially false and misleading and omitted material 

information for the reasons set forth above in Section(s) B. 

222. The 2001 Proxy Statement contains the following specific information concerning 

the compensation of Kozlowski and Swartz: 

 

 Annual Compensation (1) Long-Term Compensation 

 Tyco 

Shares 

 Tycom 

Shares 

 

 Restricted Underlying Underlying 

Name & Principal Cash Stock Stock Stock Stock All Other 

Position Year Salary Bonus(3) Bonus (4) Award(s)(5) Options Options Compensation(6) 

 

L. Dennis Kozlowski 2000 $1,350,000 $2,800,000 $21,270,540 5,107,158 800,000 $527,152 

Chairman & CEO, 1999 1,350,000 3,200,000 25,707,178 6,621,834 387,001 

Tyco International Ltd. 1998 1,250,000 2,500,000 20,140,000 3,832,800 901,002 

 

Mark H. Swartz 2000 768,750 1,400,000 10,603,770 2,535,999 500,000 292,487 

EVP & CFO, Tyco 1999 750,000 1,600,000 12,029,641 2,976,480 150,014 

International Ltd. 1998 559,500 1,250,000 10,070,000 2,764,666 256,878 

 

These statements when made were materially false and misleading and omitted material 

information for the reasons set forth above in Section(s) B.1, B.2, B.3, B.4, B.5, B.6, B.7 and 

B.8. 

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223. The 2001 Proxy Statement failed to disclose and misrepresented the actual 

compensation of Kozlowski: 

For fiscal 2000, Mr. Kozlowski received a base salary of $1.35 

million and a cash bonus in the amount of $2.8 million, as shown 

in the SUMMARY COMPENSATION TABLE on page 14. Mr. 

Kozlowski was granted 600,000 shares of restricted stock on 

January 5, 2000. These shares will vest over a period of up to 

three years if the specified performance criteria referred to above 

are met. 

Mr. Kozlowski also received an aggressive performance-based 

option award, which includes significant growth in earnings per 

share and stock price appreciation measures (described in footnote 

3 on page 16). Mr. Kozlowski also received restoration options in 

accordance with the restoration option provision. The restoration 

provision enables executive officers to use certain earned equity 

awards and certain proceeds from the sale of shares acquired upon 

the exercise of options to pay option exercise costs, repay 

indebtedness owed to Tyco International (US) Inc., or for tax 

planning purposes while maintaining their equity position in Tyco. 

At the time of the TyCom initial public offering, Mr. Kozlowski 

received an award of options to purchase 800,000 TyCom common 

shares at the initial public offering price of $32.00 with pro-rata 

vesting over four years. The Committee believes Tyco is best 

served by the continued leadership of Mr. Kozlowski. The 

Committee conferred with a nationally recognized consulting firm 

that analyzed Tyco’s performance, as well as the marketplace for 

executive talent. The firm reviewed the performance option award, 

designed to focus on Mr. Kozlowski’s retention as well as growth 

in shareholder value, and made its recommendations. Another 

consulting firm reviewed and concurred with the 

recommendations. 

The Committee considers Mr. Kozlowski’s level of compensation 

appropriate in view of his performance and continued leadership of 

Tyco during fiscal 2000. As noted above, Tyco experienced 

outstanding growth in earnings per share of 42.5%, operating cash 

flow of 48.6%, and net sales of 29%. 

These statements when made were materially false and misleading and omitted material 

information for the reasons set forth above in Section(s) B.1.a, B.2, B.3, B.4.a, B.5, B.7 and B.8. 

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Key Employee Loan Program

224. The 2001 Proxy Statement provides materially false and misleading statements 

concerning Tyco’s KEL Program. It states, for example: 

The Compensation Committee administers the loan program. The 

Compensation Committee authorizes loans, which may not 

exceed the amount allowable as provided by any regulation of 

the United States Treasury or other state or federal statute. 

Loans may be required to be secured by Tyco common shares 

owned by the employee or may be unsecured. Loans under the 

loan program generally bear interest at Tyco’s incremental shortterm borrowing rate (6.67% for 2000) and are generally repayable 

in ten years or when the participant reaches age 69, whichever 

occurs first, except that earlier payments must be made in the event 

that the participant’s employment with Tyco or its subsidiaries 

terminates. The participant is also required to make loan payments 

upon the sale or other disposition of Tyco common shares (other 

than gifts to certain family members) with respect to which loans 

have been granted. [Emphasis added.] 

These statements when made were materially false and misleading and omitted material 

information for the reasons set forth above in Section(s) B.4 and B.5. 

225. The 2001 Proxy Statement also falsely and misleadingly states: 

At September 30, 2000, the amount of loans outstanding under the 

[Key Employee Loan] program totaled $11,421,655, of which 

nothing was outstanding for any of the Named Officers. The 

largest amount of indebtedness since October 1, 1999 for each of 

these individuals was $12,711,768 for Mr. Kozlowski, $304,363 

for Mr. Garvey, and $1,000,000 for Mr. Swartz. Neither Dr. 

Gromer nor Mr. Meelia had loans under the program during fiscal 

2000. 

These statements when made were materially false and misleading and omitted material 

information for the reasons set forth above in Section(s) B.4 and B.5. 

2/13/01 10-Q for quarter ended 12/31/00

226. On February 13, 2001, Tyco filed Tyco’s Form 10-Q for the quarter ended 

December 31, 2000 (the “2/13/01 10-Q”), in which Tyco set out numerous materially false and 

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misleading statements. These false and misleading statements addressed a variety of topics, 

including the following: 

Tyco’s Operating Results

227. The 2/13/01 10-Q also gives favorable, purportedly accurate information 

concerning Tyco’s operating results. For example, Tyco provided the following summary 

information: 

 (Unaudited) 

For the Quarters 

 Ended December 31, 

 2000 1999 

Income before income taxes, minority interest, extraordinary 

 item and cumulative effect of accounting change................ 1,551.2 1,024.3

Income taxes .......................................................................... (529.5) (263.9)

Minority interest..................................................................... (12.5) (3.2)

Income before extraordinary items and cumulative effect 

 of accounting change ........................................................... 1,009.2 757.2

Extraordinary item, net of tax ................................................ -- (0.2)

Cumulative effect of accounting change, net of tax .............. (29.7) --

Net income............................................................................. $979.5 $757.0

These statements when made were materially false and misleading and omitted material 

information for the reasons set forth above in Section(s) A, A.1.a and A.1.d. 

Tyco’s Reserves

228. The 2/13/01 10-Q also gives materially false and misleading information 

concerning Tyco’s reserves. For example: 

During the quarter ended December 31, 2000, we recorded 

restructuring and other non-recurring charges of $18.1 million 

primarily related to an environmental remediation project and the 

closure of a manufacturing plant. Additionally, we incurred a nonrecurring charge of $25.0 million related to the write-up of 

inventory under purchase accounting. The $25.0 million charge 

has been included in cost of sales. At September 30, 2000, there 

existed merger, restructuring and other non-recurring reserves of 

$365.9 million. During the quarter ended December 31, 2000, we 

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paid out $11.3 million in cash and incurred $1.7 million in noncash charges that were charged against these reserves. At 

December 31, 2000, there remained $371.0 million of merger, 

restructuring and other non-recurring reserves in our Consolidated 

Balance Sheet, of which $341.3 million is included in current 

liabilities and $29.7 million is included in long-term liabilities. 

p25 

These statements when made were materially false and misleading and omitted material 

information for the reasons set forth above in Section(s) A, A.1.a and A.1.d. 

3/13/01 Conference Call

229. On March 13, 2001, Tyco held a conference call to discuss, among other things, 

its proposed acquisition of CIT. On Tyco’s behalf, Kozlowski stated: 

KOZLOWSKI: On the plus side, this transaction is accretive to 

Tyco shareholders delivering .10 cents the first 

full year. If one were to take out the 

amortization on this we’d be delivering some .72 

cents the first full year. 

The new accounting rules allow us to deliver .10 

cents and if we were to pool, to be on an apples 

to apples basis, we would be delivering that .10 

cents. This .10 cents now is based upon putting 

the two companies together at current rent rates 

and a little bit of some cost reductions at CIT . . . 

. This acquisition meets all of our criteria. CIT 

is a market leader. The transaction is 

immediately accretive to earnings before any 

revenue enhancements. [Emphasis added.] 

* * * 

We’re very, very enthused by this acquisition. It’s

certainly going to add to earnings. We feel good 

about our earnings right now. The transaction 

most likely will close in about July. It should 

add a couple of cents this year, that we’re in, and

next year for the full year for the full fiscal year 

now we’re probably talking about some .10 to 

.12 cents before we get into the revenue 

enhancements for the business. 

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These statements when made were materially false and misleading and omitted material 

information for the reasons set forth above in Section(s) A, A.1, A.1.d and A.1.e. 

3/29/01 S-4 (and related S-8)

230. On March 29, 2001, Tyco filed with the SEC a Form S-4 relating to a proposed 

merger between The CIT Group, Inc. and Tyco Acquisition Corp. XIX (NV), a direct whollyowned subsidiary of Tyco (the “3/29/01 S-4”). Because the 3/29/01 S-4 incorporates the 

following documents by reference, it contains the same materially false and misleading 

statements set forth in those documents, as described herein: (i) Tyco’s Annual Report on Form 

10-K for the fiscal year ended September 30, 2000; (ii) Tyco’s Quarterly Report on Form 10-Q 

for the quarter ended December 31, 2000; and (iii) Tyco’s Current Reports on Form 8-K filed on 

November 1, 2000, November 15, 2000, and February 9, 2001. 

231. The 3/29/01 S-4 recites Tyco’s purported strategy, quoted and discussed above. It 

also reiterates its so-called strategy in its discussion of Tyco’s acquisition of CIT: 

The acquisition of CIT would also be consistent with Tyco’s 

corporate strategy of complementing internal growth with 

synergistic acquisitions that are expected to be immediately 

accretive to earnings per share. 

These statements when made were materially false and misleading and omitted material 

information for the reasons set forth above in Section(s) A, A.1.a, A.1.d and A.1.e. 

232. The 3/29/01 S-4 also gives favorable, purportedly accurate information 

concerning Tyco’s operating results, including the following: 

 Quarters Ended Year Ended 

 December 31 September 30 

 2000 (2) 1999 (2) 2000 (3) 1999 (4) 

 (UNAUDITED) 

(IN MILLIONS, EXCEPT PER SHARE DATA) 

CONSOLIDATED STATEMENTS 

 OF OPERATIONS DATA: 

 

Operating income ...................................................................................... 1,308.9 1,189.0 5,474.4 2,190.8 

Income (loss) from continuing operations................................................... 1,009.2 757.2 4,520.1 1,067.7 

Income (loss) from continuing operations per common share 

(10):................................................................................................

 

Basic ................................................................................................ 0.58 0.45 2.68 0.65 

Diluted................................................................................................ 0.57 0.44 2.64 0.64 

 

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These statements when made were materially false and misleading and omitted material 

information for the reasons set forth above in Section(s) A, A.1.a and A.1.d. 

233. On April 13, 2001, Tyco filed with the SEC a Form S-4/A (the “4/13/01 S-4/A”), 

amending the 3/29/01 S-4. Because the 4/13/01 S-4/A incorporates the following documents by 

reference, it contains the same materially false and misleading statements set forth in those 

documents, as described herein: (i) Tyco’s Annual Report on Form 10-K for the fiscal year 

ended September 30, 2000; (ii) Tyco’s Quarterly Reports on Form 10-Q for the quarters ended 

December 31, 2000; and (iii) Tyco’s Current Reports on Form 8-K filed on November 1, 2000, 

November 15, 2000, February 9, 2001, March 15, 2001, March 29, 2001, and April 3, 2001. 

234. The 4/13/01 S-4/A recites Tyco’s purported strategy, quoted and discussed above. 

It also reiterates its so-called strategy in its discussion of Tyco’s acquisition of CIT, using 

precisely the same language quoted from the 3/29/01 S-4, above. These statements of strategy 

when made were materially false and misleading and omitted material information for the 

reasons set forth above in Section(s) A, A.1.a and A.1.d. 

235. On April 24, 2001, Tyco filed with the SEC a prospectus relating to the proposed 

merger between The CIT Group, Inc. and Tyco Acquisition Corp. XIX (NV) (the “4/24/01 

Prospectus”). Because the 4/24/01 Prospectus incorporates the following documents by 

reference, it contains the same materially false and misleading statements set forth in those 

documents, as described herein: (i) Tyco’s Annual Report on Form 10-K for the fiscal year 

ended September 30, 2000; (ii) Tyco’s Quarterly Report on Form 10-Q for the quarter ended 

December 31, 2000; and (iii) Tyco’s Current Reports on Form 8-K filed on November 1, 2000, 

November 15, 2000, February 9, 2001, March 15, 2001, March 29, 2001, and April 3, 2001. 

236. The 4/24/01 Prospectus recites Tyco’s purported strategy, quoted and discussed 

above. It also reiterates its so-called strategy in its discussion of Tyco’s acquisition of CIT, using 

precisely the same language quoted from the 3/29/01 S-4, above. These statements of strategy 

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when made were materially false and misleading and omitted material information for the 

reasons set forth above in Section(s) A, A.1.a and A.1.d. 

237. The 4/24/01 Prospectus also gives favorable, purportedly accurate information 

concerning Tyco’s operating results, including the following: 

 Quarters Ended Year Ended 

 December 31 September 30 

 2000 (2) 1999 (2) 2000 (3) 1999 (4) 

 (UNAUDITED) 

(IN MILLIONS, EXCEPT PER SHARE DATA) 

CONSOLIDATED STATEMENTS 

 OF OPERATIONS DATA: 

 

Operating income ...................................................................................... 1,308.9 1,189.0 5,474.4 2,190.8 

Income (loss) from continuing operations................................................... 1,009.2 757.2 4,520.1 1,067.7 

Income (loss) from continuing operations per common share 

(10):................................................................................................

 

Basic ................................................................................................ 0.58 0.45 2.68 0.65 

Diluted................................................................................................ 0.57 0.44 2.64 0.64 

 

These statements when made were materially false and misleading and omitted material 

information for the reasons set forth above in Section(s) A, A.1.a and A.1.d. 

238. On May 24, 2001, Tyco filed with the SEC a Post-Effective Amendment No. 1 to 

Form S-4 relating to the proposed merger between The CIT Group, Inc. and Tyco Acquisition 

Corp. XIX (NV) (the “5/24/01 Post-Effective Amendment”). Because the 5/24/01 Post-Effective 

Amendment incorporates the following documents by reference, it contains the same materially 

false and misleading statements set forth in those documents, as described herein: (i) Tyco’s 

Annual Report on Form 10-K for the fiscal year ended September 30, 2000; (ii) Tyco’s Quarterly 

Report on Form 10-Q for the quarter ended December 31, 2000 and March 31, 2001; and (iii) 

Tyco’s Current Reports on Form 8-K filed on November 1, 2000, November 15, 2000, February 

9, 2001, March 15, 2001, March 29, 2001, April 3, 2001 and May 24, 2001. 

239. The 5/24/01 Post-Effective Amendment recites Tyco’s purported strategy, quoted 

and discussed above. These statements when made were materially false and misleading and 

omitted material information for the reasons set forth above in Section(s) A, A.1.a and A.1.d. 

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240. On June 5, 2001, Tyco filed with the SEC a prospectus relating to Tyco’s 

proposed offer to exchange up to 7,141,083 common shares of Tyco stock for exchangeable 

shares of Tyco’s direct subsidiary, CIT Exchangeco, Inc. (the “6/5/01 Prospectus”). Because the 

6/5/01 Prospectus incorporates the following documents by reference, it contains the same 

materially false and misleading statements set forth in those documents, as described herein: (i) 

Tyco’s Annual Report on Form 10-K for the fiscal year ended September 30, 2000; (ii) Tyco’s 

Quarterly Reports on Form 10-Q for the quarters ended December 31, 2000 and March 31, 2001; 

and (iii) Tyco’s Current Reports on Form 8-K filed on November 1, 2000, November 15, 2000, 

February 9, 2001, March 15, 2001, March 29, 2001, April 3, 2001, and May 24, 2001. 

241. The 6/5/01 Prospectus recites Tyco’s purported strategy, quoted and discussed 

above. This statement of strategy when made was materially false and misleading and omitted 

material information for the reasons set forth above in Section(s) A, A.1.a and A.1.d. 

242. On June 7, 2001, Tyco filed with the SEC a Form S-8 in connection with the 

issuance of securities to The CIT Group, Inc. Savings Incentive Plan, relating to the proposed 

merger between The CIT Group, Inc. and Tyco (the “6/7/01 S-8”). Because the 6/7/01 S-8 

incorporates the following documents by reference, it contains the same materially false and 

misleading statements set forth in those documents, as described herein: (i) Tyco’s Annual 

Report on Form 10-K for the fiscal year ended September 30, 2000; (ii) Tyco’s Quarterly 

Reports on Form 10-Q for the quarters ended December 31, 2000 and March 31, 2001; and (iii) 

Tyco’s Current Reports on Form 8-K filed on November 1, 2000, November 15, 2000, February 

9, 2001, March 15, 2001, March 29, 2001, April 3, 2001 and May 24, 2001. 

243. The 3/29/01 S-4, 4/13/01 S-4/A, 4/24/01 Prospectus, 5/24/01 Post-Effective 

Amendment, 6/5/01 Prospectus, and 6/7/01 S-8 were also materially false and misleading when 

made in that they failed to disclose the payment to Walsh described in Section B.7.f. above. 

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4/18/01 Conference Call

244. On April 18, 2001, Tyco held a conference call with analysts to discuss the 

Company’s purported earnings growth. During the call, Kozlowski stated, among other things, 

that Tyco’s earnings continued to increase despite the economic downturn: 

KOZLOWSKI: Okay, so to recap here, we’re very pleased with our 

earnings increase of 30% from last year, our 

revenue growth of some 25%, overall Tyco organic 

growth of some 13% and our free cash flow of $1.1 

billion. We had what we feel was a strong quarter. 

We anticipate a strong ending to the second half of

our year and our outlook for next year at this time

continues to be, continues to be good in spite of the 

various economic conditions that are going on 

around the world. 

These statements when made were materially false and misleading and omitted material 

information for the reasons set forth above in Section(s) A, A.1.a and A.1.d. 

5/11/01 10-Q for quarter ended 3/31/01

245. On May 11, 2001, Tyco filed its Form 10-Q for the quarter ended March 31, 2001 

(the “5/11/01 10-Q”), in which Tyco set out numerous materially false and misleading 

statements. These false and misleading statements addressed a variety of topics, including the 

following: 

Tyco’s Operating Results

246. The 5/11/01 10-Q also gives favorable, purportedly accurate information 

concerning Tyco’s operating results. For example, Tyco provided the following summary 

information: 

 For The Quarters For The Six Months 

 Ended March 31, Ended March 31 

 2001 2000 2001 2000 

 (UNAUDITED) 

Income before income taxes, minority interest, extraordinary 

items and cumulative effect of accounting change: ................................

 1,544.9 1,141.6 3,096.1 2,166.0 

Income taxes ............................................................................................. (385.9) (285.0) (915.4) (549.0) 

Minority interest ......................................................................................... (11.7) (1.1) (24.2) (4.3) 

 

Income before extraordinary items and cumulative effect of 

accounting change ....................................................................................

 1,147.3 855.5 2,156.5 1,612.7 

Extraordinary items, net of tax ................................................................ (10.3) -- (10.3) (0.2) 

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Cumulative effect of accounting change, net of tax ................................ -- -- (29.7) -- 

 

Net income ................................................................................................ $1,137.0 $855.5 $2,116.5 $1,612.5 

These statements when made were materially false and misleading and omitted material 

information for the reasons set forth above in Section(s) A, A.1.a and A.1.d. 

247. In addition, these statements are materially false and misleading because they fail 

to disclose the aggressive accounting and incentivizing practices described above (and admitted 

by Tyco in the December Report), but instead attribute Tyco’s favorable results to organic 

growth and synergies resulting from Tyco’s acquisitions: 

Operating income, before certain credits (charges), improved in all 

segments in both the three months and six months ended March 31, 

2001 as compared to the three months and six months ended 

March 31, 2000, with the exception of the Telecommunications 

segment for reasons that are discussed below. The operating 

income improvements are the result of both increased revenues 

and, with the exception of Tyco Healthcare, enhanced margins. 

Increased revenues result from organic growth and from 

acquisitions that are accounted for under the purchase method of 

accounting. We enhance our margins through improved 

productivity and cost reductions in the ordinary course of business, 

unrelated to acquisition or divestiture activities.

These statements when made were materially false and misleading and omitted material 

information for the reasons set forth above in Section(s) A, A.1.a and A.1 d. 

Tyco’s Reserves

248. The 5/11/01 10-Q also gives materially false and misleading information 

regarding the Company’s reserves. For example: 

During the six months ended March 31, 2001, we recorded 

restructuring and other non-recurring charges of $164.5 million, of 

which $32.4 million was included in cost of sales, primarily related 

to the closure of several manufacturing plants, sales offices, 

warehouses and administrative offices and an environmental 

remediation project. In addition, we incurred a non-recurring 

charge of $39.0 million related to the write-up of inventory under 

purchase accounting, which has been included in cost of sales. We 

also determined that $166.8 million of non-recurring charges 

established in the prior year were not needed due to the settlement 

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of litigation. At September 30, 2000, there existed merger, 

restructuring and other non-recurring reserves of $365.9 million. 

During the six months ended March 31, 2001, we paid out $55.6 

million in cash and incurred $35.7 million in non-cash charges that 

were charged against these reserves. At March 31, 2001, there 

remained $272.3 million of merger, restructuring and other nonrecurring reserves in our Consolidated Balance Sheet, of which 

$231.6 million is included in current liabilities and $40.7 million is 

included in long-term liabilities. 

These statements when made were materially false and misleading and omitted material 

information for the reasons set forth above in Section(s) A, A.1.a and A.1.d. 

5/30/01 Conference Call

249. On May 30, 2001, Tyco held a conference call with analysts to discuss the 

Company’s continued strategy of growing through acquisitions (including the CIT merger). 

Tyco stated: 

KOZLOWSKI: This morning we announced the acquisition of C.R. 

Bard for roughly $3.2 billion. We are of course 

excited about this deal and let me tell you why. It 

strengthens and broadens our healthcare franchise 

and is immediately accretive by about 54 per share 

for the first 12 months of ownership. . . . our 

operations continue to perform well and we are on 

target to achieve our earnings and cash flow targets 

for the quarter and for the rest of our fiscal year. 

* * * 

 We are on schedule to close CIT this coming 

Friday. . . . CIT will be immediately accretive to us 

probably adding about a penny to our fiscal third 

quarter earnings for the one month that we own the 

company and another couple of cents for our fiscal 

fourth quarter results. The accretion is incremental 

to the earnings comments we have made in the past. 

In other words, we are comfortable with earning 

expectations of around 694 per share in the third 

quarter, consensus is now around 684, and around 

277-278 for the year versus a consensus of about 

275 for the year. I also want to take this 

opportunity to briefly outline the acquisition of 

Cambridge Security. . . . This deal is a classic Tyco 

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bolt-on transaction. We’ll fold Cambridge into our

existing ADT infrastructure, thereby standing about

$220 million of cost efficiencies. We look for the

deal to add about 34 to earnings during the first year 

that we have it, with an initial cash on cash return in 

excess of 20% for the year. So from our organic 

growth plan for next year and the acquisitions of 

Cambridge, CIT, and Bard, we’re starting to view 

the year fiscal year 2002 as a good year - a very 

good year for us. 

These statements when made were materially false and misleading and omitted material 

information for the reasons set forth above in Section(s) A, A.1.a, A.1.d and A.1.e. 

250. On July 6, 2001, in an article entitled, “Tyco Closes $1 Billion Purchase,” THE 

WALL STREET JOURNAL reported that: 

Tyco International Ltd. said it closed its $1 billion acquisition of 

the electronic-security business of Cambridge Protection Industries 

LLC. . . . 

Tyco Chairman Dennis Kozlowski said the acquisition would be 

“immediately accretive” to earnings and would generate 

“strong organic growth with attractive incremental margins.” 

The acquisition was announced May 17. [Emphasis added.] 

These statements when made were materially false and misleading and omitted material 

information for the reasons set forth above in Section(s) A, A.1.a and A.1.d. 

251. On July 18, 2001, Tyco announced its results for the third quarter of fiscal 2001 

(the three months ended June 30, 2001):18

Revenues for the quarter rose 25% to $9.29 billion compared with 

last year’s $7.42 billion. Diluted earnings per share before 

extraordinary items for the third quarter of fiscal 2001 were $0.67, 

or $1.22 billion, compared to $0.58, or $997.3 million, in the third 

quarter of fiscal 2000. Net income before non-recurring and 

extraordinary items rose to $1.31 billion, an increase of 32% 

compared to $992.1 million last year. Diluted earnings per share 

before non-recurring and extraordinary items for the third fiscal 

quarter ended June 30, 2001 were $0.72, a 24% increase over 

 

18 On July 25, 2001, Tyco filed this announcement with the SEC on Form 8-K, which was 

signed by Swartz. 

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earnings of $0.58 per diluted share in the third quarter of fiscal 

2000. 

These statements when made were materially false and misleading and omitted material 

information for the reasons set forth above in Section(s) A, A.1.a and A.1.d. 

7/18/01 Conference Call

252. On July 18, 2001, Tyco held a conference call to discuss, among other things, its 

earnings during the third quarter of fiscal 2001. According to Tyco: 

KOZLOWSKI: Organic growth excluding TyCom, was 6% for the 

combined company, with a 17% increase at Fire & 

Security, an 8% increase in Healthcare more than 

offsetting a 5% decline at Electronics. . . . 

* * * 

 The outlook for continued growth at Tyco is 

excellent. Based on the business trends we see 

today, we remain comfortable with our previous 

guidance of 277-278 for fiscal year 2001. That’s 

primarily because of the recurring revenue, 

healthcare and service businesses that I 

emphasized earlier on. Looking out to 2002, while 

it may be too early to be precise, we believe that a 

345 estimate is quite reasonable. In regards to Free 

Cash Flow, our previous guidance of $4 billion for 

2001 now appears to be too conservative and I 

would point toward a higher $4.3 or 4.4 billion 

number. We are confident we can grow our Free 

Cash Flow by 20% to exceed $5 billion and some 

of that is coming from some reduction in working 

capital, specifically on the Electronics side of the 

business. 

These statements when made were materially false and misleading and omitted material 

information for the reasons set forth above in Section(s) A, A.1.a and A.1.d. 

8/3/01 Conference Call

253. On August 4, 2000, Tyco held a conference call to discuss, among other things, its 

acquisition of Sensormatic. According to Kozlowski, on behalf of Tyco: “This will be an 

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excellent deal for us . . . . and it’s immediately accretive by at least .3 cents per share during the

first year of our ownership.” 

254. About Tyco’s earnings guidance, Kozlowski added: 

KOZLOWSKI: . . . all in all, we remain very comfortable with our 

guidance of $2.77-2.78 per share for our fiscal ‘01

which closes on September 30th this year which 

would represent about a 27% increase vs. last year. 

For fiscal year 2002, we continue to believe that 

$3.45 per share is a reasonable estimate, but as we

said on the conference call, we will allow for a 

range between $3.20 and $3.60 . . . 

These statements when made were materially false and misleading and omitted material 

information for the reasons set forth above in Section(s) A, A.1.a and A.1.d. 

8/13/01 10-Q for quarter ended 6/30/01

255. On August 13, 2001, Tyco filed its Form 10-Q for the quarter ended June 30, 

2001 (the “8/13/01 10-Q”), in which Tyco set out numerous materially false and misleading 

statements. These false and misleading statements addressed a variety of topics, including the 

following: 

Tyco’s Operating Results

256. The 8/13/01 10-Q also gives favorable, purportedly accurate information 

concerning Tyco’s operating results. For example, Tyco provided the following summary 

information: 

TYCO INTERNATIONAL LTD. 

AND CONSOLIDATED 

SUBSIDIARIES 

FOR THE QUARTERS 

ENDED JUNE 30, 

 

 2001 2000 

 

INCOME BEFORE INCOME TAXES, MINORITY INTEREST, 

 AND EXTRAORDINARY ITEMS ........................................ 1,614.8 1,333.7 

Income taxes .................................................................................. (378.8) (333.7) 

Minority interest ............................................................................ (15.8) (2.7) 

 

Income before extraordinary items ................................................ 1,220.2 997.3 

Extraordinary items, net of tax....................................................... (3.4) -- 

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NET INCOME............................................................................... $ 1,216.8 $ 997.3 

 

These statements when made were materially false and misleading and omitted material 

information for the reasons set forth above in Section(s) A, A.1.a and A.1.d. 

257. In addition, these statements are materially false and misleading because they fail 

to disclose the aggressive accounting and incentivizing practices described above (and admitted 

by Tyco in the December Report), but instead attribute Tyco’s favorable results to organic 

growth and synergies resulting from Tyco’s acquisitions: 

Operating income, before certain (charges) credits, improved in all 

segments in both the quarter and nine months ended June 30, 2001 

as compared to the quarter and nine months ended June 30, 2000, 

with the exception of the Telecommunications segment discussed 

below. The operating income improvements are the result of 

increased revenues resulting from organic growth and from 

acquisitions that are accounted for under the purchase method of 

accounting. We enhance our margins through improved 

productivity and cost reductions in the ordinary course of business, 

unrelated to acquisition or divestiture activities.

These statements when made were materially false and misleading and omitted material 

information for the reasons set forth above in Section(s) A, A.1.a and A.1.d. 

Tyco’s Reserves

258. The 8/13/01 10-Q also gives materially false and misleading information 

regarding the Company’s reserves. For example: 

During the nine months ended June 30, 2001, we recorded 

restructuring and other non-recurring charges of $214.7 million, of 

which $39.8 million was included in cost of sales, primarily related 

to the closure of several manufacturing plants, sales offices, 

warehouses and administrative offices and an environmental 

remediation project. In addition, we incurred a non-recurring 

charge of $39.0 million related to the write-up of inventory under 

purchase accounting, which has been included in cost of sales. We 

also determined that $166.8 million of non-recurring charges 

established in the prior year were not needed due to the settlement 

of litigation. At September 30, 2000, there existed merger, 

restructuring and other non-recurring reserves of $365.9 million. 

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During the nine months ended June 30, 2001, we paid out $113.5 

million in cash and incurred $86.2 million in non-cash charges that 

were charged against these reserves. At June 30, 2001, there 

remained $214.1 million of merger, restructuring and other nonrecurring reserves in Tyco Industrial’s Consolidated Balance 

Sheet, of which $183.8 million is included in current liabilities and 

$30.3 million is included in long-term liabilities.

These statements when made were materially false and misleading and omitted material 

information for the reasons set forth above in Section(s) A, A.1.a and A.1.d. 

9/11/01 Conference Call

259. On September 11, 2001, Tyco held a conference call/investor meeting with 

analysts. During the call, Tyco provided investors with significant assurance that the Company 

was performing well and that it would remain profitable. For example: 

KOZLOWSKI: . . . we remain very much on track to achieve our 

earnings and cash flow targets for the year. 

Specifically, we’re confident that Tyco will earn 

$2.77-2.78 a share in fiscal year ‘01 which would 

represent a 27% increase vs. last year. Our free 

cash flow will exceed $4 billion, compared to $3.4 

billion last year. For fiscal year ‘02, we are looking 

for around $3.45 per share, with a range of 320 to 

365, depending upon the end-markets for the 

electronics industry. This is the same thing we have 

been saying for months. The $3.45 would represent 

around a 25% increase above this year’s record total 

and even the low end of our range would show 

better than a 15% growth. We expect free cash 

flows to exceed $5 billion next year. Our ability to 

deliver this growth in a pretty tough economic 

environment is a function of our very large 

exposure to recurring and service businesses such as 

security and businesses with no economic volatility

like health care. 

* * * 

 So we thought about titling my section of this 

agenda because there’s been a lot of negative 

sentiment, a lot of questions, so we thought I’d call 

this part “Don’t worry, be happy.” Everything 

at Tyco is going to be okay. [Emphasis added.] 

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These statements when made were materially false and misleading and omitted material 

information for the reasons set forth above in Section(s) A, A.1.a and A.1.d. 

10/18/01 Conference Call

260. On October 18, 2001, Tyco conducted another conference call with analysts to 

convey their positive earnings estimates. 

KOZLOWSKI: Putting this together, we are reiterating our previous 

guidance of $3.70 per share for the current fiscal 

year we are in that began on October 1st which 

represents around 23% growth. 

* * * 

We remain very comfortable with our projection .3 

cents per share of earnings accretion from the 

[Sensormatic] deal. 

These statements when made were materially false and misleading and omitted material 

information for the reasons set forth above in Section(s) A, A.1.a and A.1.d. 

261. The next day, on October 19, 2001, THE WALL STREET JOURNAL reported 

Tyco’s false assurance that it was well-positioned to grow during the economic downturn. 

L. Dennis Kozlowski, Tyco’s chairman and chief executive officer, 

also gave a bullish forecast for fiscal 2002, slightly raising the 

range of the company’s earnings targets and saying Tyco “has 

never been better positioned to grow during an economic 

downturn.” 

This statement when made was materially false and misleading and omitted material information 

for the reasons set forth above in Section(s) A, A.1.a and A.1.d. 

10/23/01 S-4 (and related S-4/A and Prospectus)

262. On October 23, 2001, Tyco filed with the SEC a Form S-4 relating to a proposed 

amalgamation agreement between TyCom and a subsidiary of Tyco wherein TyCom would 

become a wholly-owned subsidiary of Tyco (the “10/23/01 S-4”). Because the 10/23/01 S-4 

incorporates the following documents by reference, it contains the same materially false and 

misleading statements set forth in those documents, as described herein: (i) Tyco’s Annual 

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Report on Forms 10-K and 10-K/A for the fiscal year ended September 30, 2000; (ii) Tyco’s 

Quarterly Reports on Form 10-Q for the quarterly periods ended December 31, 2000, March 31, 

2001 and June 30, 2001; and (iii) Tyco’s Current Reports on Form 8-K filed on November 1, 

2000, November 15, 2000, February 9, 2001, March 15, 2001, March 29, 2001, April 3, 2001, 

May 24, 2001, June 15, 2001, July 25, 2001, August 3, 2001, and August 16, 2001. 

263. Under the heading “Recent Developments of Tyco and TyCom,” Tyco stated the 

following with regard to its fourth quarter of fiscal 2001 financial results: 

Revenues before non-recurring items. . . for the quarter rose 29% 

to $10.08 billion compared with last year’s $7.80 billion. Diluted 

earnings per share before non-recurring items, extraordinary items 

and the adoption of SAB 101 for the fourth quarter fiscal 2001 

were $0.86, a 34% increase over earnings of $0.64 per diluted 

share in the fourth quarter fiscal 2000. After giving effect to such 

items, revenues for the fourth quarter fiscal 2001 were $10.01 

billion compared to $9.57 billion in the fourth quarter fiscal 2000 

and diluted earnings per share for the fourth quarter of fiscal 2001 

were $0.70 per share, compared to $1.12 diluted earnings per share 

in the fourth quarter of fiscal 2000. 

These statements when made were materially false and misleading and omitted material 

information for the reasons set forth above in Section(s) A, A.1.a and A.1.d. 

264. On November 9, 2001, Tyco filed with the SEC a Form S-4/A (the “11/9/01 S4/A”), amending the 10/23/01 S-4. Because the 11/9/01 S-4/A incorporates by reference the 

same documents that were incorporated by reference in the 10/23/01 S-4, it contains the same 

materially false and misleading statements set forth in those documents, as described herein. 

265. Like the 10/23/01 S-4, the 11/9/01 S-4/A contains false and misleading statements 

about Tyco’s financial results under the heading “Recent Developments of Tyco and TyCom.” 

Revenues before non-recurring items . . . for the quarter rose 29% 

to $10.08 billion compared with last year’s $7.80 billion. Diluted 

earnings per share before non-recurring items, extraordinary items 

and the adoption of SAB 101 for the fourth quarter fiscal 2001 

were $0.86, a 34% increase over earnings of $0.64 per diluted 

share in the fourth quarter fiscal 2000. After giving effect to such 

items, revenues for the fourth quarter fiscal 2001 were $10.01 

billion compared to $9.57 billion in the fourth quarter fiscal 2000 

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and diluted earnings per share for the fourth quarter of fiscal 2001 

were $0.70 per share, compared to $1.12 diluted earnings per share 

in the fourth quarter of fiscal 2000. 

* * * 

Revenues before non-recurring items and the adoption of SAB 101 

for the year ended September 30, 2001 increased to $36.29 billion, 

25% higher than last year’s $28.93 billion. Diluted earnings per 

share before non-recurring charges and credits and extraordinary 

items, and the adoption of SAB 101, for the year rose to $2.81 per 

diluted share, or $5.15 billion, a 29% increase over last year’s 

diluted per share earnings of $2.18, or $3.73 billion. 

These statements when made were materially false and misleading and omitted material 

information for the reasons set forth above in Section(s) A, A.1.a and A.1.d. 

266. On November 13, 2001, Tyco filed with the SEC a Prospectus relating to the 

amalgamation agreement between TyCom and a subsidiary of Tyco (the “11/13/01 Prospectus”). 

Because the11/13/01 Prospectus incorporates by reference the same documents that were 

incorporated by reference in the 10/23/01 S-4, it contains the same materially false and 

misleading statements set forth in those documents, as described herein. 

267. Like the 10/23/01 S-4 and 11/9/01 S-4/A, the 11/13/01 Prospectus contains false 

and misleading statements about Tyco’s financial results under the heading “Recent 

Developments of Tyco and TyCom.” These statements are identical to those quoted above from 

the 11/9/01 S-4/A under the same heading, and are materially false and misleading for the same 

reasons. 

11/15/01 Conference Call

268. Tyco hosted another conference call with investors on November 15, 2001. 

During the call, Kozlowski, on Tyco’s behalf, continued to provide investors with false 

assurances concerning the Company’s projected earnings growth: 

KOZLOWSKI: Let me start here this morning with our guidance for 

fiscal year 2002. We expect earnings per share to 

grow over 21% this year to $2.70 a share. 

* * * 

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 Looking to the business cycle, we believe Tyco will 

grow revenues at a 10% rate and we expect our long 

track record of margin improvements to continue. . . 

These statements when made were materially false and misleading and omitted material 

information for the reasons set forth above in Section(s) A, A.1.a and A.1.d. 

269. On December 7, 2001, J.P. Morgan, reporting materially false and misleading 

information received from Tyco, issued an analyst report entitled, “Tyco Int’l: Investor Meetings 

Reinforce Increasing ROIC Message.” The report stated: 

The story at Tyco remains on track, characterized by accelerating 

ROIC and strong to improving fundamentals across the portfolio. 

We recently had the opportunity to spend a few days with Dennis 

Kozlowski, during which the Tyco CEO reinforced some of the 

themes discussed at the investor day. . . . The story seems very 

much on track as management presentations touched on most of 

the major current issues, including expectations for increasing 

ROIC, strong operating trends in key businesses and the 

acquisition strategy going forward. . . . We continue to rate Tyco 

our top pick and look for further multiple expansion. . . . 

270. The price of Tyco stock closed at $58.84 on December 7, 2001. 

12/28/01 10-K for fiscal year ended 9/30/01

271. On December 28, 2001, Tyco filed its Form 10-K for the fiscal year ended 

September 30, 2001 (the “2001 10-K”). 

272. In the 2001 10-K, Tyco set out numerous materially false and misleading 

statements, as evidenced by (among other things) Tyco’s restatement of the Company’s 

operating results in a December 31, 2002 Form 10-K/A for the 2001 fiscal year. These 

materially false and misleading statements addressed a variety of topics, including the following: 

Tyco’s “Strategy”

273. The 2001 10-K purports to set forth Tyco’s “Strategy,” which Tyco repeated 

verbatim statements in other SEC filings discussed above. According to the 2001 10-K: 

Tyco’s strategy is to be the low-cost, high-quality producer and 

provider in each of our industrial markets and, through Tyco 

Capital, to provide innovative financing and leasing solutions to 

independent customers and in support of our industrial segments. 

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We promote our leadership position by investing in existing 

businesses, developing new markets and acquiring complementary 

businesses and products. Combining the strengths of our existing 

operations and our business acquisitions, we seek to enhance 

shareholder value through increased earnings per share and strong 

cash flows. 

This statement of strategy when made was materially false and misleading and omitted material 

information for the reasons set forth above in Section(s) A, A.1.a and A.1.d. 

Tyco’s Operating Results

274. The 2001 10-K also gives favorable, purportedly accurate information concerning 

Tyco’s operating results. For example, Tyco provided the following summary information ($ in 

millions): 

Fiscal 2001 Fiscal 2000 Fiscal 1999 

 

Income before income taxes, minority interest, extraordinary items 

 and cumulative effect of accounting changes ............................................ 6,003.5 6,464.8 1,705.2 

Income taxes ................................................................................................. (1,284.9) (1,926.0) (637.5) 

Minority interest ............................................................................................. (47.5) (18.7) -- 

 

INCOME BEFORE EXTRAORDINARY ITEMS AND CUMULATIVE EFFECT 

 OF ACCOUNTING CHANGES ................................................................... 4,671.1 

 

4,520.1 

 

1,067.7 

Extraordinary items, net of tax....................................................................... (17.1) (0.2) (45.7) 

Cumulative effect of accounting changes, net of tax .................................... (683.4) -- -- 

 

TYCO INDUSTRIAL NET INCOME .............................................................. $3,970.6 $4,519.9 $1,022.0 

 

These statements when made were materially false and misleading and omitted material 

information for the reasons set forth above in Section(s) A, A.1.a and A.1.d. 

275. In addition, these statements are materially false and misleading because they fail 

to disclose the aggressive accounting and incentivizing practices described above (and admitted 

by Tyco in the December Report), but instead attribute Tyco’s favorable results to organic 

growth and synergies resulting from Tyco’s acquisitions. According to the 2001 10-K: 

Operating income, before certain (charges) credits and accounting 

change, improved in all segments in each of Fiscal 2001 and Fiscal 

2000, with the exception of the Telecommunications segment as 

discussed below. The operating improvements are the result of 

both increased revenues in all but our Telecommunications 

segment and enhanced margins in all but our Healthcare and 

Specialty Products segment. Increased revenues resulted from 

acquisitions that are accounted for under the purchase method of 

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accounting and from organic growth. We enhanced our margins 

through improved productivity and cost reductions in the ordinary 

course of business, unrelated to acquisition or divestiture activities. 

These statements when made were materially false and misleading and omitted material 

information for the reasons set forth above in Section(s) A, A.1.a and A.1.d. 

276. And concerning profits in Tyco’s electrical business, Tyco stated: 

The 14.3% increase in revenue, before accounting change, in 

Fiscal 2001 over Fiscal 2000 resulted primarily from acquisitions. 

These acquisitions included: Siemens Electromechanical 

Components GmbH & Co. KG (“Siemens”) and AFC Cable 

Systems, Inc. (“AFC Cable”) in November 1999; Praegitzer 

Industries, Inc. (“Praegitzer”) in December 1999; Critchley Group 

PLC (“Critchley”) in March 2000; the electronic OEM business of 

Thomas & Betts in July 2000; CIGI Investment Group, Inc. 

(“CIGI”) in October 2000; and Lucent Technologies’ Power 

Systems business unit in December 2000. Excluding the impact of 

these acquisitions, revenue increased an estimated 0.3%, which 

reflects an economic slowdown in the computer and consumer 

electronics and communications industries and, to a lesser extent, 

the effect of foreign exchange rates. 

The 62.1% increase in revenue in Fiscal 2000 over Fiscal 1999 was 

predominantly due to acquisitions and, to a lesser extent, organic 

growth. These acquisitions included: Glynwed International, plc 

in March 1999; Raychem Corporation (“Raychem”) in August 

1999; Siemens and AFC Cable in November 1999; Praegitzer in 

December 1999; Critchley in March 2000; and the electronic OEM 

business of Thomas & Betts in July 2000. Excluding the impact of 

these acquisitions, revenue increased an estimated 13.1%. 

The 20.0% increase in operating income and the increase in 

margins, before certain (charges) credits and accounting change, in 

Fiscal 2001 compared with Fiscal 2000 was primarily due to 

acquisitions and improved margins at both Tyco Printed Circuit 

Group and AMP. These increases were somewhat offset by 

decreased operating income and margins at Allied Tube and 

Conduit resulting from higher raw material prices. 

These statements when made were materially false and misleading and omitted material 

information for the reasons set forth above in Section(s) A, A.1.a and A.1.d. 

Management Remuneration

277. The 2001 10-K addresses management remuneration only by reference, stating: 

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Information concerning executive compensation is hereby 

incorporated by reference to the Registrant’s definitive proxy 

statement which will be filed with the Commission within 120 

days after the close of the fiscal year. 

Because the 2001 10-K incorporates Tyco’s Proxy Statement, filed on January 8, 2002, the 2001 

10-K contains the same materially false and misleading statements set forth therein, as described 

below. 

278. The 2001 10-K also gives limited information concerning loans taken by senior 

management under Tyco’s Key Employee Loan Program (the “KEL program”), which was 

instituted to encourage ownership of the Company’s common stock by executives and other key 

employees. According to the 10-K: “During Fiscal 2001, the maximum amount outstanding 

under [the KEL] program was $29.5 million. Loans receivable under this program were $11.2 

million and $11.4 million at September 30, 2001 and 2000, respectively.” These statements 

when made were materially false and misleading and omitted material information for the 

reasons set forth above in Section(s) B, B.4 and B.5. 

2001 Annual Report to Shareholders

279. On or about January 11, 2002, Tyco released its 2001 Annual Report to 

Shareholders (the “2001 Annual Report”). The 2001 Annual Report again reminded investors of 

Tyco’s strategy to achieve growth by acquisitions: 

DISCIPLINED ACQUIRER Good acquirers don’t build 

empires. They make money. Tyco approaches acquisitions with 

a strict set of rules. We begin with the strategic logic: the 

transaction must improve our potential for long-term internal 

growth. It must be immediately accretive to earnings and cash 

flow per share and produce high returns on invested capital. 

To consistently achieve these targets, we require that each 

acquisition be championed by a business unit that will oversee the 

integration into one of our existing segments. [Emphasis added.] 

These statements when made were materially false and misleading and omitted material 

information for the reasons set forth above in Section(s) A, A.1.a and A.1.d. 

280. The 2001 Annual Report also set forth information concerning Tyco’s Key 

Employee Loan program: 

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During Fiscal 2001, the maximum amount outstanding under [the 

Key Employee Loan] program was $29.5 million. Loans 

receivable under this program were $11.2 million and $11.4 

million at September 30, 2001 and 2000, respectively. 

These statements when made were materially false and misleading and omitted material 

information for the reasons set forth above in Section(s) B, B.4 and B.5. 

281. The 2001 Annual Report also included a letter to Tyco shareholders from 

Kozlowski on Tyco’s behalf, which states: 

Fiscal 2001 was a year of outstanding performance for Tyco 

International. And, although I have made similar statements 

before, the consistency of our ability to deliver strong results is 

important, especially in a year marked by global economic 

turbulence. Many outstanding companies found it impossible to 

meet their financial targets last year; and some couldn’t make any 

money at all. 

Yet in the worst economic environment we have seen in a decade, 

Tyco managed to exceed its profit goals. All of us at Tyco are 

very proud of that achievement. 

How were we able to perform so well? The answers go to the 

heart of what makes Tyco tick. And they explain why, despite the 

current economic slowdown, we remain optimistic about fiscal 

2002. 

We grew diluted earnings per share 29 percent in fiscal 2001 in 

large part because of the strategy we formed during the 1990-1991 

recession to reinvent Tyco as a company that could thrive in any 

economy. Since then, we have built business with low cyclicality 

and the ability to generate strong recurring revenues. 

These statements when made were materially false and misleading and omitted material 

information for the reasons set forth above in Section(s) A, A.1.a and A.1.d. 

282. Kozlowski’s letter goes on to say: 

This strength was reflected in our earnings. For the ninth 

consecutive year, we increased revenues and earnings 

substantially. Revenues rose 25 percent to $36.3 billion and 

earnings grew $1.4 billion to $5.1 billion, a 38 percent increase 

over the prior year. Our diluted earnings per share increased 29 

percent to $2.81. Free cash flow exceeded $4.7 billion in fiscal 

2001 and should surpass $5 billion next year. 

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Much of the increase came from organic growth. If Tyco never 

made another acquisition, we should be able to increase our 

earnings at a solid double-digit rate. We are fortunate to be in the 

types of businesses that grow even during economic slowdowns. 

For fiscal 2002, we are looking forward to earnings growth of 20 

percent or better 

I remain optimistic about Tyco’s future. It’s a cliché today for a 

CEO to proclaim that his company is “well-positioned” but, in 

truth, we are. 

These statements when made were materially false and misleading and omitted material 

information for the reasons set forth above in Section(s) A, A.1.a and A.1.d. 

283. The letter continues: 

Fiscal 2001 was a year of many achievements. Among the 

highlights: 

* * * 

* We acquired The CIT Group, Inc., a leading commercial 

consumer finance company with over $50 billion in assets. In the 

four months we have owned CIT (now known as Tyco Capital 

Corporation), it has performed exceptionally well. Tyco Capital is 

a broadly diversified lender both geographically and by industry 

with powerful franchises and the ability to grow its earnings in all 

types of environments. It has a large base of recurring revenue. 

[Italics in original.] 

These statements when made were materially false and misleading and omitted material 

information for the reasons set forth above in Section(s) A, A.1.a, A.1.d and A.1.e. 

284. The letter also states: 

In 2001, Tyco demonstrated that, despite difficult business 

conditions, it could indeed grow its business in virtually any 

environment. We believe we can continue to do so, and that we 

can deliver consistent growth for investors in the future. 

We are in excellent businesses, and everywhere we look we see 

opportunities to expand by creating new products, by moving into 

new markets and sometimes by acquisitions. We are poised to 

deliver many years of exciting returns. 

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These statements when made were materially false and misleading and omitted material 

information for the reasons set forth above in Section(s) A.1.a and A.1.d. 

285. The 2001 Annual Report also sets forth all the identical operating results quoted 

above from the 2001 10-K. Those results are materially false and misleading, and omit material 

information, for the same reasons given above. 

2002 Materially False and Misleading Statements and Omissions

1/15/02 Conference Call

286. On January 15, 2002, Tyco held a conference call to discuss, among other things, 

its earnings during the first quarter of fiscal 2002. Although the Company was to announce its 

breakup into four separate parts the following week, the Company continued to give false 

reassurance of favorable results: 

KOZLOWSKI: Putting all this together, we remain committed to 

our full year earnings guidance of $3.70 per share,

up 21% from last year. We have not previously 

offered any guidance at all on the second quarter. 

Given the likelihood of another tough quarter in 

electronics, we think second quarter earnings will 

be in the range of 80-824 per share up roughly 17% 

for the quarter. 

287. Tyco also falsely reassured investors and analysts about “rumors” that were 

resurfacing about Tyco’s accounting, and about the openness of its disclosures: 

KOZLOWSKI: We’re a very open company, we’re very willing to 

talk about anything that our investors, shareholders, 

interested parties have to talk to us about, we have 

Jack Blackstock, Maryanne Kane, Mark Swartz, 

myself, available, we present our accounting in the

best disclosures that we can possibly put together 

here. Are we complex? Yes, but because we are 

complex we have absolutely no qualms 

whatsoever in presenting a good disclosure, 

there’s nothing hidden behind the scenes, our 

cash flows are going to be strong, we will back up 

our earnings with our cash flows and from time to 

time there are, of course, some motivated parties 

who can thrive or make money on rumors and that’s 

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an unfortunate part of this business, but here at 

Tyco we’re very willing to discuss anything at all 

that anybody might have . . . . [Emphasis added.] 

These statements when made were materially false and misleading and omitted material 

information for the reasons set forth above in Section(s) A, A.1.a, A.1.d and A.3. 

288. A January 16, 2002 article in THE WALL STREET JOURNAL entitled, “Tyco 

International Says Soft Demand Will Depress Fiscal Second-Quarter Results,” reported: 

Mr. Kozlowski said the company remains “frustrated by 

continuing negative rumors” regarding the company’s 

accounting. “There is nothing negative going on at any place at 

Tyco,” he said, inviting anyone with questions about the 

company’s accounting practices to “give us a call.” He also said 

the company stands by its earnings estimate of $3.70 a share for 

the fiscal year. Tyco is based in Bermuda but managed from 

Exeter, N.H. [Emphasis added.] 

These statements when made were materially false and misleading and omitted material 

information for the reasons set forth above in Section(s) A, A.1.a and A.1.d. 

289. Similarly, a January 16, 2002 article in THE NEW YORK TIMES entitled, “Tyco 

Shares Fall as Investors Show Concern on Accounting,” reported: 

Dennis Kozlowski, Tyco’s chairman, expressed frustration in a 

conference call with analysts yesterday morning that Tyco’s 

accounting continues to be questioned. “Our accounting has 

been reviewed and found to be sound,” Mr. Kozlowski said. 

“Our disclosure is exceptionally detailed.” 

* * * 

Mr. Swartz, Tyco’s chief financial officer, said Tyco follows 

standard accounting in its acquisitions and does not 

manipulate balance sheets. [Emphasis added.] 

These statements when made were materially false and misleading and omitted material 

information for the reasons set forth above in Section(s) A, A.1.a, A.1.d. and A.3. 

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290. Shortly thereafter, on January 22, 2002, Tyco issued a press release concerning its 

plan to separate into “four independent, publicly traded companies.”19 The press release stated: 

PEMBROKE, BERMUDA, JANUARY 22, 2002--Tyco 

International Ltd. (NYSE-TYC, BSX-TYC, LSE-TYI) today 

announced a plan to unlock tens of billions of dollars of 

shareholder value by separating Tyco into four independent, 

publicly traded companies: Security and Electronics; Healthcare; 

Fire Protection and Flow Control; and Financial Services. Tyco 

believes these actions will lead to substantially greater total 

shareholder value by creating independent companies that will be 

more appropriately valued by the market. Each new public 

company created from these transactions will be a proven industry 

leader, and each will go forward with a global market position; a 

strong and experienced management team; an entrepreneurial 

culture; an independent Board of Directors and significant 

financial strength. 

* * * 

“This is a bold, shareholder-value driven plan that we believe will 

create extraordinary near- and long-term benefits for Tyco’s 

shareholders and bondholders, as well as for our employees and 

customers,” said L. Dennis Kozlowski, Chairman and Chief 

Executive Officer of Tyco. “Over the past decade, Tyco’s share 

price has increased ten-fold as we have used Tyco’s size, access to 

capital and operating philosophy to build world-class healthcare, 

electronics, telecommunications, security, fire protection, flow 

control, and financial services businesses. These businesses have 

now developed to a size and stage where they can thrive on their 

own and perhaps be even more agile than Tyco. The plan we are 

announcing today is the logical extension of the same value 

creation strategy we have successfully pursued for nearly a 

decade.” 

“Furthermore, as independent, public companies, each of these 

businesses will offer investors a ‘pure-play’ opportunity with 

excellent growth prospects and greatly increased simplicity, clarity 

and transparency. As such, we believe each will be valued 

substantially higher than the implied valuations it has received in 

recent years as part of Tyco.” 

 

19 The January 22, 2002 press release was filed with the SEC on Form 8-K on January 24, 

2002, which was signed by Swartz. 

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Mr. Kozlowski continued, “I am extremely proud of Tyco’s 

performance. We have built a great portfolio of businesses and 

over the five years ended September 30, 2001, we have 

delivered earnings per share growth at a compounded annual 

rate of over 40% and industry-leading operating profit 

margins in each of our businesses. During this same period, we 

have increased annual free cash flow from $240 million in 1996 

to $4.8 billion in fiscal 2001. Nonetheless, even with this 

performance, Tyco is trading at a 2002 P/E multiple of 12.0x, a 

discount of almost 50% to the S&P 500.”

“The plan announced today is designed to close that gap--the gap 

between Tyco’s market value in recent years and the value of our 

businesses. Our objective has always been to deliver value to our 

shareholders. That is why we are taking this action today, and why 

we are all very excited about the future.” [Emphasis added.] 

These statements when made were materially false and misleading and omitted material 

information for the reasons set forth above in Section(s) A, A.1.a and A.1.d. 

1/22/02 Conference Call

291. Tyco held a conference call with analysts on January 22, 2002 to discuss its plan 

to break the Company into four separate parts. Kozlowski and Swartz, on behalf of Tyco, stated 

as follows: 

KOZLOWSKI: . . . the plan [to break up the company] will release 

value . . . . the separation will enhance our ability to 

continue to create shareholder value in the future. . . 

. We are strictly playing offense here. I want to 

stress that this is not a defensive response to the

baseless ridiculous rumors last week nor the 

recent weakness in the stock price. 

* * * 

SWARTZ: Related to the accounting rumors and 

accusations that Dennis talked about earlier, the 

split offs are going to create more transparency 

and financial disclosure on the pure play 

individual businesses that you will be seeing. 

* * * 

SWARTZ: During the balance of this year, and as we look 

forward to fiscal 2003, the earnings of Tyco will 

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continue strong. Guidance for the second quarter is 

a strong 14% to 17% growth over the prior year. 

The full year earnings of $3.70 are in excess of 20% 

growth over the prior year, and every one of these 

businesses will enter fiscal 2003 with extremely 

strong organic fundamentals to continue to have 

these strong earnings. 

* * * 

SWARTZ: I do take issue with better disclosure and we 

have many times asked people to show us better 

disclosure on acquisitions and we’ll do it and 

have yet to see any that would be improved from 

what we currently have. Secondly, as far as cash 

pay for acquisitions, they are included in those 

footnotes 100 percent and back to footnote 2 you 

can look and see exactly what the cash was this year 

and last year and go back every year you want to so

every acquisitions we have made is disclosed and it

is included. . . . 

* * * 

SWARTZ: . . . So the amount of disclosure that will end up 

being seen will be the same good state of art 

disclosure that we have had better than anyone else

we can find out there but it will be done on a more

reduced level and even with all these accounting 

insinuations, allegations, rumors, etc. we have 

had over the past few weeks, this has not 

changed our plan ANY nor any level of comfort 

as far as being able to go forward, have these 

individual financial statements and send each of 

these businesses off with extremely strong 

earnings and cash flows. [Emphasis added.] 

These statements when made were materially false and misleading and omitted material 

information for the reasons set forth above in Section(s) A, A.1.a, A.1.d and A.3. 

292. Kozlowski, on Tyco’s behalf, also went out of his way to assure investors that 

there were no accounting improprieties or cash flow issues at Tyco. For example, Kozlowski 

stated: 

KOZLOWSKI: . . . we have no liquidity crisis . . . 

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* * * 

. . . there’s absolutely no new accounting 

questions . . . 

* * * 

I want to stress that this is not a defensive response 

to the baseless ridiculous rumors last week 

* * * 

The quality of our earnings has been excellent. 

This is shown in the ratio of pre-cash flow to 

earnings or the cash conversion ratio. Our free cash 

flow has represented over 90% of earnings during 

the last couple of years. [Emphasis added.] 

These statements when made were materially false and misleading and omitted material 

information for the reasons set forth above in Section(s) A, A.1.a and A.1.d. 

293. Investors saw Tyco’s plan to break itself up as a further sign that there were no 

accounting improprieties at the Company. For example, a January 23, 2002 article in USA 

TODAY entitled, “Tyco to split into four independent companies,” reported: 

“You don’t create four new public entities if you have something 

to hide,” says John Inch, analyst at Bear Stearns. 

294. On January 23, 2002, Wachovia Securities, reporting materially false and 

misleading information received from Tyco, issued an analyst report entitled, “TYC: Raising 

Target Price to $80.” The report stated: 

Management - we like the individual business teams and have seen 

their businesses first hand over the past few years - we think they 

will do just fine. But - while this was an excellent company before 

Dennis Kozlowski became CEO (soon followed by Mark 

Schwartz) [sic] he clearly took things to a different level, and that 

will be difficult to replicate in terms of vision and sheer drive. 

There are only one of each. 

295. Kozlowski, on Tyco’s behalf, was then quoted in THE NEW YORK TIMES on 

January 24, 2002 as saying that investors should not react negatively to the Company’s new 

breakup strategy: 

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“Crooks are going to be crooks at any company,” Mr. Kozlowski 

said. “But we have executives of very high integrity.” 

[Emphasis added.] 

These statements when made were materially false and misleading and omitted material 

information for the reasons set forth above in Section(s) A, A.1.a and A.1.d. 

1/28/02 Proxy Statement

296. On January 28, 2002, Tyco filed with the SEC its Proxy Statement for the 2002 

annual meeting. The Proxy Statement contains materially false and misleading statements on a 

variety of topics, including management remuneration, the Key Employee Loan Program, and 

allegations of accounting impropriety by the Company. 

Management Remuneration

297. Concerning Tyco’s executive compensation program generally, the 2002 Proxy 

Statement states: 

[Tyco’s executive compensation program] offers the executive 

significant financial rewards when Tyco and the executive achieve 

excellent results. At lower levels of performance, where expected 

compensation targets are not achieved, executive compensation is 

sharply reduced. Executives are ineligible for cash bonuses and do 

not benefit from equity-based compensation. Thus, in order for 

Mr. Kozlowski and Mr. Swartz to have earned a cash bonus in 

fiscal 2001, the Company had to achieve a minimum of 15% 

growth in net income and at least a 10% growth in operating cash 

flow over fiscal 2000. The performance criterion required to vest 

the minimum number of restricted shares granted to these 

executives was a growth rate in earnings per share before nonrecurring items of at least 15% over fiscal 2000. The Committee 

reports that the Company achieved each of these benchmarks, 

reflecting superior performance notwithstanding a very difficult 

business and economic environment. 

These statements when made were materially false and misleading and omitted material 

information for the reasons set forth above in Section(s) B. 

298. The 2002 Proxy Statement also contains materially false and misleading 

information regarding the administration of compensation to executive officers and key 

managers: 

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The Compensation Committee of the Board of Directors is 

composed solely of independent directors, none of whom has any 

interlocking relationships with Tyco that are subject to disclosure 

under rules of the SEC relating to proxy statements. The 

Compensation Committee approves all of the policies under which 

compensation is paid or awarded to Tyco’s Chief Executive 

Officer, reviews and, as required, approves such policies for 

executive officers and key managers, and has oversight of the 

administration of executive compensation programs. 

These statements when made were materially false and misleading and omitted material 

information for the reasons set forth above in Section(s) B. 

299. The 2002 Proxy Statement contains the following specific information concerning 

the compensation of Kozlowski and Swartz: 

 ANNUAL COMPENSATION(1) LONG TERM COMPENSATION 

 OTHER RESTRICTED SHARES 

NAME & PRINCIPAL CASH STOCK ANNUAL STOCK UNDERLYING 

OTHER 

POSITION YEAR SALARY BONUS(3) BONUS(4) COMPENSATION(5) AWARD(S)(6) STOCK OPTIONS 

COMPENSATION (7) 

 

L. Dennis Kozlowski................................ 2001 $1,650,000 $4,000,000 $219,543 $30,398,880 1,439,135 

$4,313,553 

 CHAIRMAN & CEO, 2000 1,350,000 2,800,000 143,652 21,207,540 5,357,798(8) 

383,500 

 TYCO INTERNATIONAL LTD. 1999 1,350,000 3,200,000 81,960 25,707,178 6,621,834 

305,041 

Mark H. Swartz............................................................. 2001 968,750 2,000,000 500,014 277,856 15,199,440 788,425 

2,112,968 

 EVP & CFO, TYCO 2000 768,750 1,400,000 171,039 10,603,770 2,692,649(8) 

121,448 

 INTERNATIONAL LTD. 1999 750,000 1,600,000 63,066 12,029,641 2,976,480 

86,948 

These statements when made were materially false and misleading and omitted material 

information for the reasons set forth above in Section(s) B, B.1.a-b, B.2, B.3, B.4.a-b, B.5, B.6, 

B.7 and B.8. 

300. The 2002 Proxy Statement failed to disclose and misrepresented the actual 

compensation of Kozlowski: 

For fiscal 2001, Mr. Kozlowski received a base salary of $1.65 

million and, based on a 38.9% increase in Net Income before nonrecurring items and a 31.3% increase in Operating Cash Flow, a 

cash bonus in the amount of $4 million, as shown in the 

SUMMARY COMPENSATION TABLE on page 14. Mr. 

Kozlowski was granted 600,000 shares of performance-based 

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restricted stock on October 1, 2001. If the pre-determined 

specified performance criteria are met, these shares will vest over a 

period of up to three years. After three years, any remaining 

unearned shares will be forfeited and returned to the Company. 

Mr. Kozlowski also received restoration options in accordance 

with the restoration option provision of the Company’s option 

program. The restoration provision enables executive officers to 

use certain earned equity awards and certain proceeds from the sale 

of shares acquired upon the exercise of options to pay option 

exercise costs, repay indebtedness owed to Tyco International (US) 

Inc., or for tax planning purposes while maintaining their equity 

position in Tyco. 

These statements when made were materially false and misleading and omitted material 

information for the reasons set forth above in Section(s) B, B.1.a, B.2, B.3, B.4.a, B.5, and B.7. 

Key Employee Loan Program

301. The 2002 Proxy Statement provides materially false and misleading statements 

concerning Tyco’s KEL Program. It states, for example: 

The Compensation Committee administers the loan program. The 

Committee authorizes loans, which may not exceed the amount 

allowable under any regulation of the United States Treasury 

or other state or federal statute. Loans may be required to be 

secured by Tyco common shares owned by the borrower or may be 

unsecured. Loans under the loan program generally bear interest at 

Tyco’s incremental short-term borrowing rate (which was 3.7% for 

2001). The loans are generally repayable in ten years or when the 

borrower reaches age 69, whichever occurs first, except that earlier 

payments must be made in the event that the borrower’s 

employment with Tyco or its subsidiaries terminates. The 

borrower is also required to make loan payments upon the sale or 

other disposition of Tyco common shares with respect to which 

loans have been granted, other than gifts to certain family 

members. [Emphasis added.] 

These statements when made were materially false and misleading and omitted material 

information for the reasons set forth above in Section(s) B, B.4 and B.5. 

302. The 2002 Proxy Statement also falsely and misleadingly states: 

At September 30, 2001, the amount of loans outstanding under the 

[Key Employee Loan] program totaled $11,230,192, of which $0 

was outstanding for Mr. Kozlowski, $231,718 was outstanding for 

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Mr. Boggess, $20,702 was outstanding for Mr. Meelia and $0 was 

outstanding for Mr. Swartz. The largest amount of indebtedness 

under the program during fiscal 2001 for each of the named 

officers was $23,009,703 for Mr. Kozlowski, $6,500,000 for Mr. 

Swartz, $20,702 for Mr. Meelia and $231,718 for Mr. Boggess. . . . 

Mr. Walsh, a director, was instrumental in bringing about the 

acquisition by a subsidiary of the Company of The CIT Group, Inc. 

(now Tyco Capital Corporation) of Livingston, New Jersey. For 

his services, Tyco paid Mr. Walsh a fee of $10 million. In 

addition, at Mr. Walsh’s request, Tyco contributed $10 million to a 

charitable fund established under The Community Foundation of 

New Jersey. Mr. Walsh, as trustee of this fund, recommends the 

public charities to which contributions are made. At the time of 

the acquisition, Mr. Walsh owned 50,000 shares of common stock 

of The CIT Group, Inc., which were converted to 34,535 Tyco 

common shares at the exchange ratio applicable to all stockholders 

of CIT. 

These statements when made were materially false and misleading and omitted material 

information for the reasons set forth above in Section(s) B, B.4, B.5 and B.7.f. 

303. In the January 29, 2002 edition of THE WALL STREET JOURNAL, Tyco 

disclosed that it paid Walsh $20 million for his role in the CIT merger deal: 

Tyco spokeswoman Maryanne Kane said Tyco’s board 

decided, without any outside help, that the $20 million 

payment was “appropriate based on the amount of work” Mr. 

Walsh did, which she said included providing guidance, advice 

and facilitating meetings. [Emphasis added.] 

A Tyco press release of that same date quoted Kozlowski as saying: “The Board felt that fee was 

appropriate in light of Mr. Walsh’s efforts.” These statements when made were materially false 

and misleading and omitted material information for the reasons set forth above in Section(s) B, 

B.7.f 

304. Tyco’s stock fell 20% in reaction to Tyco’s disclosure. On January 30, 2002, 

THE WALL STREET JOURNAL reported that: 

L. Dennis Kozlowski, Tyco’s chief executive, said in a statement 

that the payment was “appropriate in light of Mr. Walsh’s 

efforts.” But Mr. Kozlowski added that “clearly we are in an 

environment where people are intensely skeptical of corporate 

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America, and for that matter, of Tyco.” Mr. Kozlowski has 

repeatedly defended the company’s accounting as proper. He said 

he believes the sharp fall in Tyco’s stock price was “unjustified,” 

adding that the company is moving forward in “high gear” with its 

plan to break itself into four pieces to create more shareholder 

value. [Emphasis added.] 

These statements when made were materially false and misleading and omitted material 

information for the reasons set forth above in Section(s) A, A.1.a, A.1.d and B.7.f. 

305. On January 30, 2002, THE NEW YORK TIMES reported that Kozlowski and 

Swartz had sold stock by returning it to the Company: 

Two senior executives of Tyco International Ltd. quietly disposed 

of more than $100 million in Tyco stock during the company’s last 

fiscal year, despite public comments that they rarely if ever sold 

Tyco shares. 

L. Dennis Kozlowski, Tyco’s chairman, and Mark Swartz, its chief 

financial officer, returned the stock to the company in late 2000 

and 2001, according to forms filed with the Securities and 

Exchange Commission in November. 

* * * 

Mr. Kozlowski has repeatedly told analysts and the media that his 

large holdings in Tyco stock demonstrate his commitment to the 

company. 

“I’m paid in Tyco stock,” Mr. Kozlowski said in an interview last 

month. “We, the board, everybody, feel the best way to keep 

management’s interest aligned with shareholders is to keep 100 

percent of our net worth in Tyco’s stock.” 

Mr. Kozlowski returned about 1.25 million shares of stock to the 

company last year, according to the filings. Mr. Kozlowski owns 

about three million shares of Tyco stock, according to a report 

Tyco filed Monday with the S.E.C., and has an additional 11 

million Tyco options. 

These statements when made were materially false and misleading and omitted material 

information for the reasons set forth above in Section(s) B, B.9. 

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306. On January 31, 2002, J.P. Morgan, reporting materially false and misleading 

information received from Tyco, issued an analyst report entitled, “Tyco Int’l: Our Rebuttal to 

the Short Case and Liquidity Risk.” The report stated: 

The notion that Tyco “spring loads” its results in the quarters 

following an acquisition is not supported by an analysis of the 

segment results. In spite of the continual grind of bad press, 

rumors and a falling stock price, we believe there remains no 

smoking gun on Tyco accounting or business practices, and we see 

no liquidity risks. 

307. On February 4, 2002, Swartz admitted to THE WALL STREET JOURNAL that 

Tyco that, in fiscal years 1999, 2000 and 2001, the Company paid almost $8 billion in cash for 

over 700 undisclosed acquisitions, the existence or terms of which were never revealed to the 

investing public or disclosed in the Company’s public filings. The article stated: 

Tyco International Ltd. said it spent about $8 billion in its past 

three fiscal years on more than 700 acquisitions that were never 

announced to the public. 

* * * 

Although Tyco says its disclosures have been adequate, the 

company late last week sent a special alert to its investors giving 

new details about its unannounced acquisitions after questioned 

about them for this article. The alert, which gave fresh information 

about last year but not the full three-year period, revealed that 

Tyco paid $4.19 billion in cash for unannounced deals in the fiscal 

year ended Sept. 30, 2001, or about 37% of the $11.3 billion in 

cash it spent on all deals. The company said separately that it 

made 350 unannounced acquisitions in that fiscal year 

* * * 

Mark Swartz, Tyco’s chief financial officer, said the company 

clearly states in its financial filings the “net” amount of cash it paid 

for all acquisitions, a number that includes the hundreds of 

unannounced deals. He said the company doesn’t disclose details 

on its numerous smaller deals because they aren’t “material” given 

Tyco’s huge size. 

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When asked about prior years, Mr. Swartz said Tyco paid about 

$2.3 billion for 225 unannounced deals in fiscal 2000, and roughly 

$1.5 billion for between 150 and 175 companies in fiscal 1999. 

Mr. Swartz agreed that it would be impossible for an investor to 

discern the amounts it spent on unannounced deals, because Tyco 

doesn’t provide a crucial piece of information in its regulatory 

filings: The amount of cash on the balance sheets in companies it 

acquires. Tyco subtracts that amount from its total acquisition 

spending to get the “net” figure, but calculating the unannounced 

deals requires it to be added back. “You could fault me for that,” 

Mr. Swartz said, adding that the company may include that extra 

detail in future financial filings. 

These statements when made were materially false and misleading and omitted material 

information for the reasons set forth above in Section(s) A, A.1.a and A.1.d. 

308. On February 4, 2002, Tyco admitted in a press release that, contrary to its 

repeated assurances, Tyco did not have a healthy cash flow, had to exit the commercial paper 

market, and had to draw down the full $5.9 billion from its emergency backup credit lines to pay 

for $4.5 billion in outstanding commercial paper debt.20 The press release stated: 

PEMBROKE, BERMUDA, FEBRUARY 4, 2002--Tyco 

International Ltd. (NYSE: TYC, LSE: TYI, BSX: TYC) today 

announced that it will repurchase all of the company’s $4.5 billion 

commercial paper at its scheduled maturities. To fund these 

purchases, Tyco will borrow under its $5.9 billion of existing bank 

facilities with a term maturity of February 2003 as to $3.9 billion 

and February 2006 as to the other $2.0 billion. 

L. Dennis Kozlowski, Tyco’s Chairman and Chief Executive 

Officer, said, “While the increased interest costs will reduce 

earnings by up to $0.02 per share in fiscal 2002, by taking these 

actions we are enhancing Tyco’s flexibility, liquidity, and 

eliminating uncertainty about our ability to finance our recently 

announced plan to unlock shareholder value. Additionally, the 

company has projected remaining fiscal year 2002 free cash 

flow to be in excess of $4 billion, of which a majority will be used 

to reduce existing indebtedness.” 

 

20 The February 4, 2002 press release was filed with the SEC on Form 8-K on February 6, 

2002, which was signed by Swartz. 

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These statements when made were materially false and misleading and omitted material 

information for the reasons set forth above in Section(s) A, A.1.a and A.1.d. 

309. On February 4, 2002, Tyco admitted in a press release that, contrary to its 

repeated assurances, Tyco did not have a healthy cash flow, had to exit the commercial paper 

market, and had to draw down the full $5.9 billion from its emergency backup credit lines to pay 

for $4.5 billion in outstanding commercial paper debt. 

310. In addition to admitting that Tyco’s use of emergency debt would reduce the 

Company’s earnings and free cash flow, Swartz also admitted that Tyco’s draw-down of its 

emergency backup credit facilities substantially impaired the Company’s credit rating. At the 

beginning of Tyco’s conference call on February 6, 2002, Swartz told investors that they “did see 

the effect of our draw down on two of the agencies this week. . . . S&P took a dramatic step 

downward to BBB in our rating.” Standard & Poor’s also placed the Company on 

“CreditWatch,” citing concern over the “uncertainty” regarding Tyco’s access to the capital 

markets, and the smaller cushion available to the Company after the exhaustion of its emergency 

backup credit facilities. Similarly, Fitch Ratings placed Tyco’s commercial paper ratings on 

“Rating Watch Negative,” downgraded Tyco’s Senior Unsecured Debt (along with the 

Unconditionally Guaranteed Debt of Tyco’s subsidiary, Tyco International Group S.A.) from A 

to A-, and downgraded Tyco’s commercial paper from F1 to F2. 

311. Fear that the Company’s debt structure would explode only worsened. Tyco was 

foreclosed from the traditional commercial paper market and was forced into more costly forms 

of debt. For example, Tyco announced on January 8, 2003 that it sold $2.5 billion of 15-year 

convertible bonds and $1.25 billion of 20-year convertible bonds. The 15-year bonds carry a 

2.75 percent coupon and are convertible into Tyco shares at $22.78, a 32 percent premium over 

January 7, 2003’s closing price, $17.26. The 20-year bonds carry a 3.125 percent coupon and a 

$21.75 conversion price, a 26 percent premium. 

312. In addition to admitting that Tyco’s use of emergency debt would reduce the 

Company’s earnings and free cash flow, Swartz later admitted that Tyco’s draw-down of its 

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emergency backup credit facilities substantially impaired the Company’s credit rating. During 

the opening of Tyco’s conference call on February 6, 2002, Swartz stated that “you did see the 

effect of our draw down on two of the agencies this week. S&P took a dramatic step downward 

to BBB in our rating.” Standard & Poor’s also placed the Company on “CreditWatch,” citing 

concern over the “uncertainty” regarding Tyco’s access to the capital markets, and the smaller 

cushion available to the Company after the exhaustion of its emergency backup credit facilities. 

Similarly, Fitch Ratings placed Tyco’s commercial paper ratings on “Rating Watch Negative,” 

downgraded Tyco’s Senior Unsecured Debt (along with the Unconditionally Guaranteed Debt of 

Tyco’s subsidiary, Tyco International Group S.A.) from A to A-, and downgraded Tyco’s 

commercial paper from F1 to F2. 

2/6/02 Conference Call

313. In a conference call on February 6, 2002, Tyco announced that it was drawing 

down its bank lines, and attempted to squelch rumors about manipulative acquisition accounting. 

According to Kozlowski: 

KOZLOWSKI: Tyco has been over the last few weeks subjected to 

various rumors and we believe misleading press 

coverage. We have several examples of this in 

recent days, ranging from outlandish headlines in a

particular newspaper that is not even close to 

supported in the related article, to charges in things 

like TheStreet.com that we failed to disclose 

acquisitions that was later retracted by 

TheStreet.com. Reports and rumors such as this do 

harm to our company and our shareholders. They 

spook investors during these times, and they require 

lots of our management time to refute and they 

distract our employees. 

* * * 

 Now that you heard about there’s no liquidity 

problems and we’re going to be filing even more 

disclosures on our Qs and Ks at the end of the 

quarter and we’re rolling out ....even more 

disclosure to you and we have nothing at all that 

concerns us and we’ll walk anybody through any 

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aspects of the accounting that is necessary. Now 

let’s look back at the business. I want to assure 

that TYCO remains on solid ground in its 

businesses. 

* * * 

 Another benefit of the bank debt is that it makes us 

less susceptible to various market rumors, including 

those that we could have a liquidity issue, which we 

don’t, but if it is left to grow, it could become some 

kind of a self-fulfilling prophecy. 

* * * 

 The bank lines that we have put in place are more 

expensive than commercial paper and that’s why we 

did commercial paper in the past as opposed to bank

lines. 

* * * 

SWARTZ: On one other issue, the accounting questions that 

have been asked. Unfortunately, buried in a 

New York Times article today, they do come out 

and say that no evidence of accounting 

irregularities have been found at Tyco. That is 

true, that is exactly what happened two years 

ago when these same allegations were given, 

same exact arguments, and we were able to 

demonstrate two years ago that our accounting 

was sound, the results we were showing were 

appropriate, and that was confirmed by 

independent reviews both from the government 

and also from independent auditors. We are in 

the same position today as far as our approach to 

accounting. It’s on a conservative basis, it is full 

disclosure, second to none, and we do know that 

as a result of the questions being thrown out into 

the marketplace, in a current jittery market, that 

there are questions that end up coming from just 

the allegations themselves. We understand that, 

we recognize that, and we are currently working 

on the best way to once again demonstrate that 

the accounting is sound and appropriate and we 

will put that on a public filing in an 8-K with 

SEC to be able to once again demonstrate to you 

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that the accounting continues to be as sound as it 

was two years ago, a year ago and as included in 

our 10-K and our 10-Q that will be coming, one 

of full disclosure. So we do believe that the 

discussion we are having today, this morning, on 

our liquidity and accounting, will be able to 

prove that our business fundamentals and our 

approach to day-to-day business continues 

unchanged. 

* * * 

KOZLOWSKI: We still believe that we will earn about $4 billion in 

free cash for the year, even with some of the other

fluctuations in earnings that we talked about here 

and the possibilities of some downturns in 

electronics. 

* * * 

 So to state the obvious, there is a crisis of 

confidence at Tyco, but there’s no crisis of 

reality. Although I would argue this is not a crisis 

of our creation, but we will be out talking to you,

doing whatever is necessary over communicating to 

do our best to eliminate this crisis, as well as 

providing you pertinent financial information that 

will answer all of your questions. 

* * * 

SWARTZ: . . . since you brought up the issue on other 

acquisitions, the articles that came out Friday and

Monday related to the headlines of an inflammatory 

nature that these had never been included in 

financial statements or our cash flows. If anyone 

had been interested in seeing what the total amounts 

of cash acquisitions were for the 3-year period, they 

could go to the statement of cash flows on a line 

that says, “cash paid for acquisitions”, and be able 

to see that total. Additionally, footnote 2, which I 

talked about earlier, which is extremely 

comprehensive, and includes all the detailed 

information, is related to 100% of those acquisitions 

that are included on the cash flow statement. And if 

there had been a story that could have come out, it

would have been that there were acquisitions that 

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we did not put out individual press releases on; 

however, as far as the financial statements are 

concerned, 100% of the acquisitions are included in

there; we did have to pay the cash; it came out of 

our accounts. And additionally, the organic growth

that we talk about on a quarterly basis, continues to 

exclude all acquisitions, effective foreign currency, 

and raw materials. 

* * * 

KOZLOWSKI: There is no liquidity issue. [Emphasis added.] 

These statements when made were materially false and misleading and omitted material 

information for the reasons set forth above in Section(s) A, A.1.a, A.1.d and B.3. 

314. That same day, Tyco took an unusual step and issued a press release to reassert 

some points that were made during the February 6, 2002 conference call, including that “Tyco’s 

business fundamentals are strong.”21 This statement when made was materially false and

misleading and omitted material information for the reasons set forth above in Section(s) A, 

A.1.a and A.1.d. 

315. On February 11, 2002, THE WALL STREET JOURNAL reported that Tyco was 

trying to gain credibility with investors and convince them that the Company was healthy: 

Tyco International Ltd., seeking to raise its credibility with 

investors, released detailed quarterly financial projections showing 

strong cash flow from its operations, enough money to pay its 

debts and a $2.15 billion cash balance at the end of 2002. 

J. Brad McGee, a Tyco executive vice president, said the big 

industrial and financial-services concern took the unusual step to 

make a strong case it wasn’t in financial distress. “We wanted to 

make sure questions about liquidity were off the table,” he said. 

[Emphasis added.] 

This statement when made was materially false and misleading and omitted material information 

for the reasons set forth above in Section(s) A, A.1.a and A.1.d. 

 

21 The February 6, 2002 press release was filed with the SEC on Form 8-K on February 8, 

2002, which was signed by Swartz. 

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316. As part of their ongoing effort to keep investors continually in the dark, Tyco also 

held a conference with analysts on February 13, 2002. Tyco stated: 

KOZLOWSKI: I do want to remind you that we will be filing our 

fiscal first quarter Q on tomorrow. You’ll see even 

more disclosure than you are used to at Tyco. We 

already provide substantially more disclosure 

than our peers. We believe this is a good thing. 

The more you know about our accounting, I 

believe the more comfortable you will be. 

* * * 

SWARTZ: . . . We believed that as with all of our accounting 

that the best approach for us is to follow the 

most conservative that we can as far as showing 

the financial strength of the company. 

* * * 

KOZLOWSKI: We’re confident once we sit with these people and 

walk with them through what’s going on they see 

there is a stable company that’s a going concern, 

that’ll continue to be a going concern and does not 

have a liquidity crisis. [Emphasis added.] 

These statements when made were materially false and misleading and omitted material 

information for the reasons set forth above in Section(s) A, A.1.a, A.1.d and B.3. 

317. On February 13, 2002, THE NEW YORK TIMES reported that in 30 months, 

Kozlowski and Swartz made hundreds of millions of dollars selling their shares of Tyco stock: 

Since July 1999, Tyco International’s two top executives have 

made more than $500 million in profits by selling Tyco shares, 

while saying publicly that they rarely, if ever, reduce their 

holdings. 

2/13/02 Conference Call

During a conference call that same day, Kozlowski, on Tyco’s behalf, continued 

to falsely reassure analysts and investors concerning Tyco’s liquidity: “We’re confident once we 

sit with these people and walk with them through what’s going on they see there is a stable 

company that’s a going concern, that’ll continue to be a going concern and does not have a 

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liquidity crisis.” [Emphasis added]. These statements when made were materially false and 

misleading and omitted material information for the reasons set forth above in Section(s) A, 

A.1.a, A.1.d and A.1.f. 

2/14/02 10-Q

318. On February 14, 2002, Tyco filed Tyco’s Form 10-Q for the quarter ended 

December 31, 2001 (the “2/14/02 10-Q”), in which Tyco set out numerous materially false and 

misleading statements. These false and misleading statements addressed a variety of topics, 

including the following: 

Tyco’s Operating Results

319. The 2/14/02 10-Q also gives favorable, purportedly accurate information 

concerning Tyco’s operating results. For example, Tyco provided the following summary 

information: 

TYCO INTERNATIONAL LTD. 

AND CONSOLIDATED 

SUBSIDIARIES 

FOR THE QUARTERS 

ENDED DECEMBER 31, 

 

 2001 2000 

INCOME BEFORE INCOME TAXES, MINORITY INTEREST, 

 EXTRAORDINARY ITEMS AND CUMULATIVE EFFECT 

 OF ACCOUNTING CHANGES 

Income taxes .................................................................................. 1,845.1 1,538.3 

Minority interest ............................................................................ (390.5) (525.0) 

 (0.8) (12.5) 

Income before extraordinary items and cumulative 

 effect of accounting changes.................................................. 1,453.8 1,000.8 

Extraordinary items, net of tax....................................................... (2.8) -- 

Cumulative effect of accounting changes, net of tax ..................... -- (683.4) 

 

NET INCOME............................................................................... $ 1,451.0 $ 317.4 

 

These statements when made were materially false and misleading and omitted material 

information for the reasons set forth above in Section(s) A, A.1.a and A.1.d. 

320. In addition, these statements are false and misleading and omit material 

information because Tyco has admitted that during the quarter ended December 31, 2001, its 

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pre-tax income was overstated by more than 21%. As both the December Report and Tyco’s 

10-Q/A for the quarter ended December 31, 2001 (filed on December 31, 2002) reflect, Tyco has 

now recorded charges of $290.6 million for the first quarter of fiscal 2002, $185.9 million of 

which is attributable to ADT dealer reimbursements.

Tyco’s Reserves

321. The 2/14/02 10-Q also gives materially false and misleading information 

concerning Tyco’s reserves. For example: 

At the beginning of fiscal 2002, purchase accounting reserves were 

$732.1 million as a result of purchase accounting transactions in 

prior years. In connection with first quarter fiscal 2002 

acquisitions, we established purchase accounting reserves of $80.7 

million for transaction and integration costs. In addition, purchase 

accounting liabilities of $216.2 million and a corresponding 

increase to goodwill and deferred tax assets were recorded during 

the quarter ended December 31, 2001 relating to fiscal 2001 

acquisitions. These reserves related primarily to revisions 

associated with finalizing the exit plans of LPS, Tyco Capital and 

SecurityLink, all acquired during fiscal 2001. During the quarter 

ended December 31, 2001, we paid out $176.9 million in cash for 

purchase accounting liabilities, plus $41.8 million relating to earnout liabilities, and incurred $2.6 million in non-cash charges 

(including $2.3 million relating to earn-out liabilities) against the 

reserves established during and prior to this quarter. Certain 

acquisitions have provisions which require Tyco to make 

additional “earn-out” payments to the sellers, if the acquired 

company achieves certain milestones subsequent to its acquisition 

by Tyco. Also, in the quarter ended December 31, 2001, we 

determined that $15.8 million of purchase accounting reserves 

related primarily to acquisitions prior to fiscal 2002 were not 

needed and reversed that amount against goodwill. At December 

31, 2001, there remained $836.0 million in purchase accounting 

reserves on Tyco Industrial’s Consolidated Balance Sheet, of 

which $650.8 million is included in accrued expenses and other 

current liabilities and $185.2 million is included in other long-term 

liabilities. 

These statements when made were materially false and misleading and omitted material 

information for the reasons set forth above in Section(s) A, A.1.a and A.1.d. 

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322. During this time, Kozlowski, on Tyco’s behalf, continued to assure investors that 

there were no accounting improprieties at Tyco. For example, an article in the February 22, 

2002 edition of the Boston Globe, entitled “CEO DEFENDS TYCO PLAN, ACCOUNTING 

TYCO CHIEF DEFENDS BREAKUP PLAN, ACCOUNTING,” stated: 

HAMILTON, Bermuda - Tyco International Ltd. chief executive 

Dennis Kozlowski yesterday defended the conglomerate’s 

accounting methods and breakup plan, declaring, “We have 

nothing to hide,” even as a large investor questioned the 

impartiality of Tyco’s auditors. 

Kozlowski sought to reassure investors at Tyco’s annual 

shareholder meeting here that, despite a wave of uncertainty that 

has battered the company’s stock in recent weeks, “Our 

accounting is conservative and it is proper.” He said Tyco had 

been unfairly sucked into the cyclone of concern around the 

collapse of Enron Corp. 

“Let me assure you, Tyco is a very healthy and viable 

company,” Kozlowski said. 

[Emphasis added.] 

These statements when made were materially false and misleading and omitted material 

information for the reasons set forth above in Section(s) A, A.1.a, A.1.d and B.3. 

323. On February 28, 2002, THE NEW YORK TIMES reported that, prior to 

acquisition, Tyco encouraged Raychem to prepay some expenses before the acquisition was 

completed. 

Tyco International said yesterday that it had encouraged Raychem, 

an electronic components maker that it bought in 1999, to prepay 

some expenses before the acquisition was completed.

Tyco executives have denied that Tyco changes the payment 

practices of companies it buys before the takeovers are final. Brad 

McGee, a spokesman for Tyco, said yesterday that the 

prepayments at Raychem were standard business practices and did 

not contradict the company’s earlier statements. 

* * * 

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The disclosure about Raychem came in response to questions 

about a letter sent by a former Raychem employee to the Securities 

and Exchange Commission. The letter outlined payments that 

Raychem made at Tyco’s behest before the acquisition closed. 

Tyco paid $3 billion for Raychem in August 1999. Mr. McGee 

said last night that he had not seen the letter but that “some former 

employees did approach the S.E.C. with allegations.” He added 

that the S.E.C. had carefully reviewed Tyco’s actions and had 

found no problems. 

“The enforcement division of the S.E.C. specifically inquired 

into these allegations,” he said. “The results of their inquiry 

are now a matter of public record, a no-action letter.” 

The accusations, Mr. McGee said, “are well-covered territory, 

lacking any substance, that we consider to be a dead issue.” 

He said the prepayments had no effect on Tyco’s reported 

income, although they did improve its reported cash flow. 

* * * 

Last month, with its stock sliding, Tyco said it would split into four 

companies, reversing its decade-long strategy of growth by 

acquisition. Tyco’s shares have also been buffeted by the 

disclosure that L. Dennis Kozlowski, its chairman, and Mark H. 

Swartz, its chief financial officer, have sold more than $500 

million in Tyco stock over the last three years. Mr. Kozlowski said 

in December that “100 percent of my net worth” is in Tyco stock. 

[Emphasis added]. 

These statements when made were materially false and misleading and omitted material 

information for the reasons set forth above in Section(s) A, A.1.a, A.1.d and B.3. 

324. On March 10, 2002, in an article entitled, “TYCO’s WALKING A FINE LINE; 

CEO INSISTS BREAKUP WILL ADD VALUE,” the SUN-SENTINEL (Ft. Lauderdale) 

reported: 

“Tyco has always been an open company and we have nothing 

to hide,” Kozlowski told the shareholders, according to a Reuters 

report. “Our accounting is conservative and proper, living up 

to the letter and the spirit of the law.” [Emphasis added.] 

These statements when made were materially false and misleading and omitted material 

information for the reasons set forth above in Section(s) A, A.1.a, A.1.d and B.3. 

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325. On March 19, 2002, an article in THE WALL STREET JOURNAL entitled 

“Tyco Inflated Cash Flow Of Acquisition” reported that the Company engaged in certain 

accounting manipulations as part of its Raychem acquisition: 

A Tyco executive vice president, J. Brad McGee, denied there 

was any attempt to boost Tyco’s results, and defended its 

accounting as proper. Mr. McGee said the specific payments 

discussed in the e-mails were investigated by the Securities and 

Exchange Commission in 1999 and 2000 as part of a broader 

informal probe of Tyco’s accounting. The SEC ended its probe in 

mid-2000, taking no action. 

* * * 

Mr. McGee said Tyco has never “manipulated the cash flow or 

earnings of companies we acquire for the purpose of springloading, or getting better results after the acquisition.” [Emphasis 

added.] 

These statements when made were materially false and misleading and omitted material 

information for the reasons set forth above in Section(s) A, A.1.a, A.1.d. and B.3. 

326. On March 20, 2002, Deutsche Bank Alex Brown, reporting materially false and 

misleading information received from Tyco, issued an analyst report entitled, “TYC: S&P 

Comments.” The report stated: 

Tyco’s CFO Mark Swartz addressed recent articles in The Wall 

Street Journal, Fortune.com and the New York Times regarding 

Tyco’s acquisition accounting practices. Tyco believes that these 

articles are based on information that has been inaccurately 

“hashed and rehashed” during the past two months. . . . 

Tyco still believes that its accounting policies are appropriate . 

. . . and that allegations in the press are the results of 

reporting without knowledge of Tyco’s accounting practices. 

[Emphasis added.] 

These statements when made were materially false and misleading and omitted material 

information for the reasons set forth above in Section(s) A, A.1.a, A.1.d and B.3. 

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2/26/02 Conference Call

327. During a weekly conference call on February 26, 2002, Swartz, on Tyco’s behalf, 

sought to falsely reassure analysts and investors about the propriety of Tyco’s acquisition 

accounting practices. According to Swartz: 

SWARTZ: This is the same corporate management team we 

have in place today that was in place 2 years ago 

which is the last time we had accounting allegations 

against the company. Allegations that are exactly 

the same today as they were 2 years ago, however 

the names of the acquisition and the dollar amount 

have changed. Two years ago when we had these 

false allegations, as the management group, we 

told you that our accounting was appropriate 

and conservative, that the auditor opinions 

continued unchanged, the SEC ended up their 

enforcement action with no action being taken, 

and that the shareholder suits were baseless. 

With the court coming out yesterday and affirming 

the last point, the integrity of what we 

communicated to you 2 years ago was completely 

true, and 2 years ago we saw the same stock market 

volatility and credit market uncertainty that is in

place today. So now roll forward 2 years where 

we do have the same accounting allegations once 

again and as a management group we tell you 

once again that the accounting is appropriate 

and conservative, PwC, our outside auditors 

continue with their opinions unchanged and the 

new round of shareholder suits that copy the 

ones 2 years ago are also baseless. And our 

integrity is extremely important to us, that is 

why we believe in being completely open, 

disclosing to a level far beyond others and we 

will continue to do that until we are able to in the 

future provide you the same closure that we have 

been able to provide to the accusations that we 

had 2 years ago. 

* * * 

 . . . to conclude, our accounting continues to be 

done appropriately and conservatively. 

[Emphasis added.] 

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328. Swartz also sought to give false reassurance regarding Tyco’s liquidity: 

SWARTZ: . . . we are in a very liquid position right now for 

the next 12 months and that divestitures that we’re 

looking at and have talked about publicly to this 

point, which is both plastics and CIT, will be 

incremental to that liquidity and should give people 

even more comfort relative to our outlook and our 

ability to continue to go ahead and increase 

shareholder value and get the credit side of the 

house comfortable that all these other assertions 

that are being made are not true. [Emphasis 

added.] 

These statements when made were materially false and misleading and omitted material 

information for the reasons set forth above in Section(s) A, A.1.a, A.1.d and B.3. 

3/5/02 Conference Call

329. During a weekly conference call on March 5, 2002, Swartz, on Tyco’s behalf, 

continued to attempt, falsely, to allay concerns about Tyco’s acquisition “strategy,” and its 

accounting practices: 

SWARTZ: . . anyone who has been following Tyco over the past 

few years knows, we are extremely disciplined when it 

comes to acquisition. Every acquisition needs to be 

immediately additive to earnings and cash flow 

during the first quarter of ownership, needs to add

to the competitive strength of our businesses, has to 

provide minimum returns in the mid teens during 

the first year of ownership. That is our acquisition 

strategy, it is true for every acquisition and we 

continue to expect as we make acquisitions going 

forward, that we will continue to have income 

statement benefits and cash flow benefits as it reflects 

the strength of these acquisitions and the benefit it 

ends up bringing to our business. 

* * * 

 Well again, thank you for listening to us today and 

learning more about the accounting here at Tyco 

which, as you hear, continues to be in conformance 

with GAAP, prepared on a conservative basis with 

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proper disclosure for our investors to see the 

performance of our business. [Emphasis added.] 

These statements when made were materially false and misleading and omitted material 

information for the reasons set forth above in Section(s) A, A.1.a and A.1.d. 

3/12/02 Conference Call

330. Swartz’s campaign to falsely reassure investors and analysts about Tyco’s 

acquisition accounting and liquidity continued during the next weekly conference call, on March 

12, 2002: 

SWARTZ: . . . as we have said, our accounting, as far as 

acquisition accounting, in addition to the other 

areas that we have talked about, is in 

accordance with GAAP in an appropriate and 

consistent basis. 

* * * 

There is not a cash crisis looming at Tyco, nor 

has there been one in the past. 

* * * 

We have ample amounts of cash and liquidity 

available and given the ongoing uncertainty in that 

CP market, we don’t think it makes sense for us to 

jump in until that all balances itself out on issues 

unrelated to Tyco. [Emphasis added.] 

These statements when made were materially false and misleading and omitted material 

information for the reasons set forth above in Section(s) A, A.1.a and A.1.d. 

3/19/02 Conference Call

331. During the weekly investor call on March 19, 2002, Swartz, on Tyco’s behalf, 

again tried to characterize the allegations of improper acquisition accounting at Tyco as a 

“rehash”: 

SWARTZ: They [recent stories in The Wall Street Journal, 

New York Times and Fortune.com] continue to be a 

rehash of a rehash of items that we have 

thoroughly gone through and found to be totally 

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appropriate not only by ourselves, but also our 

auditors and others. We are at a total loss to 

explain how recycled and disproved allegations 

like these warrant placement as the second most 

important news story in the global business in 

finance areas today. [Emphasis added.] 

These statements when made were materially false and misleading and omitted material 

information for the reasons set forth above in Section(s) A, A.1.a, A.1.d and A.5. 

4/2/02 Conference Call

332. On April 2, 2002, the Company held yet another conference call in its ongoing 

efforts to provide false assurances concerning Tyco’s accounting practices. Swartz, on Tyco’s 

behalf, stated as follows: 

SWARTZ: [Referring to] “recycled allegations of so-called 

spring loading”

* * * 

 As I have said over the past few weeks based on 

January and February’s numbers, we see no need 

to revise earnings or cash flow guidance for the 

quarter. 

* * * 

SWARTZ: We know of no insider sales that have taken place 

during this period. 

* * * 

 We also are real pleased and proud of our 

accounting policies and the standard we have 

set for open and forthright disclosure. 

* * * 

We are unaware of any other management team 

of any company, of any size or complexity that 

has been willing to subject itself to as open a 

discussion of its accounting and disclosure 

practices as Tyco has. We think that says 

something about our confidence in Tyco and 

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more importantly the integrity of our numbers. 

[Emphasis added.] 

These statements when made were materially false and misleading and omitted material 

information for the reasons set forth above in Section(s) A, A.1.a, A.1.d and B.3. 

333. On April 3, 2002, J.P. Morgan, reporting materially false and misleading 

information received from Tyco, issued an analyst report entitled, “Tyco Int’l: The Weekly 

Conference Call and Fine Tuning Estimates.” The report stated: 

Tyco’s disclosure and openness in the past several months has 

been unprecedented, and we are still left without a “smoking gun”. 

We think Tyco remains a collection of valuable and strong 

franchises that are positioned for growth. 

* * * 

We find Tyco a compelling investment given its strong collection 

of businesses and attractive valuation. 

334. A few weeks later, on April 25, 2002, Tyco announced the termination of the 

breakup plan and poor financial results. The press release stated:22

Pembroke, Bermuda, April 25, 2002--Tyco International Ltd. 

(NYSE: TYC, BSX: TYC, LSE: TYI) today announced that it has 

terminated its plan to separate the company into four separate 

businesses and is taking steps to further strengthen the long-term 

prospects of the company. It also reported earnings for the second 

quarter in an accompanying release. 

335. The press release also attached a letter from Kozlowski to all shareholders in 

which he announced abandonment of the plan to break up Tyco, and then took “full 

responsibility”: 

Having said that, it’s been upsetting to see inaccurate reporting and 

unsubstantiated rumors about Tyco given such a public platform. 

As stewards of a public company we know we are subject to 

scrutiny every day and the current climate is one in which all 

companies are under a microscope. We have always tried to be 

as transparent in our accounting as possible. Indeed, I 

consider our disclosure to be second to none among our peer 

 

22 The April 25, 2002 press release was filed with the SEC on Form 8-K on May 1, 2002, 

which was signed by Swartz. 

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companies. That some in the media would compare us to 

companies that may have intentionally misled investors 

through the use of financial chicanery is insulting and 

inaccurate. To be thrown into stories about “accounting 

scandals” damages our reputation and casts aspersions on our 

employees. 

* * * 

By fully monetizing CIT, we can eliminate any lingering 

perceptions about the company’s short-term financial position and 

create a strong foundation for the future. 

* * * 

We will continue to drive organic growth through product 

innovation, superior service, and geographic expansion. 

* * * 

In addition, the senior corporate management team will not receive 

bonuses this year. [Emphasis added]. 

These statements when made were materially false and misleading and omitted material 

information for the reasons set forth above in Section(s) A, A.1.a, A.1.d and B.3. 

4/25/02 Conference Call

336. Tyco elaborated on its announcement during a conference call with analysts on 

April 25, 2002: 

KOZLOWSKI: Finally, Tyco was the subject of a wave of some 

incorrect rumors and some misleading press 

reports. These shook investors’ confidence and 

also scared our employees, suppliers and customers. 

In a melee we lost some customers and we confused 

employees. In doing so the rumors became partially

self-fulfilling. To prevent any risk of a liquidity 

squeeze we drew our backup bank lines and then 

triggered a debt rating downgrade from Standard & 

Poors and had higher costs of funds. We were 

comfortable being placed under a microscope but I 

have to admit to being very frustrated with some of

the outlandish stories and headlines. They 

damaged our reputation, hurt and confused our 

employees, and certainly cost our shareholders 

money. We responded to these series of rumors 

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with a series of weekly conference calls to answer 

questions from any and all. We are proud of our 

company and we believe that our openness will 

allow rationality ultimately to return. 

* * * 

 On an all end basis Tyco lost 96 cents per share, this 

includes one dollar and 61 cents per share of 

impairment and other unusual charges. I will 

highlight these items to you to help you analyze the 

underlying performance of the business, but I do 

want to stress that I see them as real costs and that it 

will be included in our compensation calculations. 

As a result, senior corporate management will not 

receive bonuses this year although operating 

managers may depending upon the results of their 

specific units. 

* * * 

SWARTZ: I’d like to stress that there are no liquidity issues, 

next February is a reasonable roll forward with the

reasonable amounts of debt that we would be in a 

position to go ahead and refinance, the only 

significance put that we have after that time period 

is not until our first fiscal quarter of 2004. 

* * * 

KOZLOWSKI: . . . I think on a going forward basis the press 

reports really had no accounting issues and they 

were getting more into the rumors and things on our

sale of assets or our overall strategic direction 

which is probably a fair criticism because there was 

a lot of uncertainty as to where Tyco was going and

by providing this clarity in our comprehensive letter 

to shareholders, our press release and this 

conference call today, hopefully we will clear that

up but if conference calls are needed, then we will

certainly re-institute them at a moments notice. 

[Emphasis added.] 

These statements when made were materially false and misleading and omitted material 

information for the reasons set forth above in Section(s) A, A.1.a, A.1.d and B.3. 

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337. That same day, April 25, 2002, Tyco publicly announced its plans for a 100% 

public offering of CIT in the amount of approximately $7.2 billion. By selling-off CIT, either 

through an outright sale or via an IPO, Tyco, as it informed investors, would improve its 

liquidity and reduce its debt by at least $10 billion. CIT filed an S-1 registration statement with 

the SEC that day. This statement when made was materially false and misleading and omitted 

material information for the reasons set forth above in Section(s) A.1.e. 

338. On April 26, 2002, Deutsche Bank Alex Brown, reporting materially false and 

misleading information received from Tyco, issued an analyst report entitled, TYC “It Was A 

Mistake” - Upside Remains - Lower Target On Conservative Guidance.” The report stated: 

EPS met: TYC reported $0.65 in line with DB, $0.02 better than 

consensus. Credibility lower: TYC terminated its break-up plan. 

While the reversal is a less-bad plan than breaking up in our view, 

investors justifiably punished TYC for changing its strategy 

(again). To its credit, TYC admitted “it was a mistake” and has 

conservative EPS. 

4/30/02 Conference Call

339. During a conference call on April 30, 2002, Swartz, on Tyco’s behalf, once again 

specifically addressed the question of Tyco’s liquidity and earnings power, falsely attempting to 

reassure investors and analysts: 

SWARTZ: . . . we continue to feel extremely comfortable as 

to the earnings power, the cash flow generation 

from every one of our businesses in which we 

participate. 

* * * 

Two other points related to liquidity, just some 

misconceptions in the marketplace, we did not head 

the monetization route because we weren’t in a 

position to spin CIT. From a debt perspective, we 

very well could have gone ahead and spun it. . . . we 

feel good about the liquidity, we have a plan in 

place to do it with minimal execution risk, there are 

plenty of assets with strong cash flows that we have 

that we can rely on, 

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* * * 

We are continuing to run these businesses 

without a liquidity issue in that we do not believe 

there is one right now and its not that our heads are 

in the sand but on the contrary it’s an issue next 

February, we’ve got a plan in place to go ahead and

raise the cash proceeds that are necessary to 

overcome that . . . 

* * * 

I do want to make clear though, you know, I 

am not changing any guidance as far as the 

balance of the year, we do think where we are 

currently, that that is the right level that people

should factor in. 

* * * 

SWARTZ: . . . there is no liquidity issue, for those of you 

looking at next February. [Emphasis added.] 

These statements when made were materially false and misleading and omitted material 

information for the reasons set forth above in Section(s) A.1. 

SUBSEQUENT EVENTS

5/15/02 10-Q for the quarter ended 3/31/02

340. On May 15, 2002, Tyco filed its Form 10-Q for the quarter ended March 31, 2002 

(the “5/15/02 10-Q”), in which Tyco set out numerous materially false and misleading 

statements, as evidenced by (among other things) its restatement of its operating results in a June 

12, 2002 10-Q/A for the same period. These false and misleading statements addressed a variety 

of topics, including the following: 

Tyco’s Operating Results

341. The 5/15/02 10-Q also gives favorable, purportedly accurate information 

concerning Tyco’s operating results. For example, Tyco provided the following summary 

information: 

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TYCO INTERNATIONAL LTD. 

AND CONSOLIDATED 

SUBSIDIARIES 

FOR THE QUARTERS 

ENDED DECEMBER 31, 

 

 2002 2001 

INCOME BEFORE INCOME TAXES, MINORITY INTEREST, 

 AND EXTRAORDINARY ITEMS 

Income taxes .................................................................................. (1,803.0) 1,488.1 

Minority interest ............................................................................ (97.4) (366.0) 

 (4.3) (11.7) 

 

(Loss) income before extraordinary items ..................................... (1,904.7) 1,110.4 

Extraordinary items, net of tax....................................................... (0.7) (10.3) 

 

NET (LOSS) INCOME ................................................................. $ (1,905.4) $1,100.1 

 

These statements when made were materially false and misleading and omitted material 

information for the reasons set forth above in Section(s) A.1. 

342. In addition, these statements are false and misleading and omit material 

information because Tyco has admitted that during the quarter ended March 31, 2002, it 

understated its reported loss by more than 71%. As both the December Report and Tyco’s 10-

Q/A for the quarter ended March 31, 2002 (filed on December 31, 2002) reflect, during the 

second quarter of fiscal 2002 Tyco failed to timely record a loss due to an impairment in the 

value of its CIT subsidiary, despite its contemporaneous analysis that an impairment charge 

was necessary.23 When Tyco ultimately restated its March 31, 2002 financial statements, it 

reported a $4.5 billion impairment in the value of CIT’s goodwill. The effect of this charge 

eliminated almost 40% of the earnings Tyco accumulated over its corporate life. 

343. Thus, the following additional statements in the 5/15/02 Tyco’s 10-Q were 

materially false and misleading and omitted material information (as the Company has 

effectively admitted): 

 

23 Tyco’s 10-K for the year ended September 30, 2002 states that “the Company performed a 

SFAS 142 first step impairment analysis as of March 31, 2002 and concluded that an 

impairment charge was warranted at that time.” Nonetheless, the Company failed to record 

the charge. 

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The Company periodically reviews and evaluates its goodwill and 

other intangible assets for potential impairment. Effective October 

1, 2001, the beginning of Tyco’s fiscal year 2002, the Company 

adopted SFAS No. 142, “Goodwill and Other Intangible Assets,” 

under which goodwill is no longer amortized but instead is 

assessed for impairment at least annually. Under the transition 

provisions of SFAS No. 142, there was no goodwill impairment at 

October 1, 2001. Updated valuations were completed as of 

March 31, 2002 for our Tyco Telecommunications (formerly 

TyCom) reporting unit and Tyco Capital, which resulted in no 

impairment of goodwill at that date. 

* * * 

However, during the quarter ended March 31, 2002, circumstances 

developed that could potentially impair the value of goodwill with 

respect to our Tyco Telecommunications reporting unit and Tyco 

Capital. Updated valuations were completed as of March 31, 

2002, which resulted in no impairment of goodwill at that date. 

[Emphasis added.] 

These statements when made were materially false and misleading and omitted material 

information for the reasons set forth above in Section(s) A.1. 

Tyco’s Reserves

344. The 5/15/02 10-Q also gives materially false and misleading information 

regarding Tyco’s reserves. For example: 

at the beginning of fiscal 2002, purchase accounting reserves were 

$732.1 million as a result of purchase accounting transactions in 

prior years. In connection with fiscal 2002 acquisitions, we 

established purchase accounting reserves of $182.2 million for 

transaction and integration costs. In addition, purchase accounting 

liabilities of $355.7 million and a corresponding increase to 

goodwill and deferred tax assets were recorded during the six 

months ended March 31, 2002 relating to fiscal 2001 acquisitions. 

These reserves related primarily to revisions associated with 

finalizing the exit plans of LPS, Tyco Capital and SecurityLink, all 

acquired during fiscal 2001. During the six months ended March 

31, 2002, we paid out $318.4 million in cash for purchase 

accounting liabilities, plus $58.0 million relating to earn-out 

liabilities, and incurred $26.3 million in non-cash charges and 

reclassifications (including $2.3 million relating to earn-out 

liabilities) against the reserves established during and prior to this 

six-month period. In addition, during the six months ended March 

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31, 2002, we assumed pre-existing put option rights of $105.9 

million, of which $22.2 million has been paid in cash. Certain 

acquisitions have provisions which require Tyco to make 

additional “earn-out” payments to the sellers if the acquired 

company achieves certain milestones subsequent to its acquisition 

by Tyco. Also, in the six months ended March 31, 2002, we 

determined that $47.3 million of purchase accounting reserves 

related to acquisitions prior to fiscal 2002 were not needed and 

reversed that amount against goodwill. At March 31, 2002, there 

remained $880.3 million in purchase accounting reserves on Tyco 

Industrial’s Consolidated Balance Sheet, of which $600.3 million 

is included in accrued expenses and other current liabilities and 

$280.0 million is included in other long-term liabilities. 

These statements when made were materially false and misleading and omitted material 

information for the reasons set forth above in Section(s) A.1. 

5/16/02 Conference Call

345. During a conference call on May 16, 2002, Swartz, on Tyco’s behalf, continued to 

reassure investors and analysts that Tyco was “comfortable with the guidance that we gave for 

the quarter and for the year,” and that “there is no real liquidity issue going on here at Tyco.” 

These statements when made were materially false and misleading and omitted material 

information for the reasons set forth above in Section(s) A.1. Tyco’s 10-Q/A (filed on December 

31, 2002) later revealed that during the quarter ended June 30, 2002, Tyco’s reported pre-tax 

income of $150.6 million was restated to a loss of $236.1 million because of an improper failure 

to timely record an impairment in the value of goodwill at Tyco Telecommunications and Tyco 

Infrastructure Services. As a result, Tyco’s reported pre-tax earnings during that quarter were 

overstated by approximately $387 million. 

346. On May 16, 2002, AP, Dow Jones, and Reuters reported that Swartz reiterated 

that the Company planned to pay off about $10 billion of its $27 billion in debt after spinning-off 

CIT, and that the Company was on course to do so by the end of June. According to Swartz, the 

Company was “not worried” about a potential debt downgrade to junk status given the 

Company’s cash and cash-flow levels as well as the benefit from the expected sale or initial 

public offering of CIT. Swartz further stated that the Company’s “financial position as we sit 

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right now is stronger than it was a year ago today.” As a result of the positive statements, the 

Company’s stock rose $1.14, or 5.87 percent, to close at $20.56. These statements when made 

were materially false and misleading and omitted material information for the reasons set forth 

above in Section(s) A.1. 

347. On May 17, 2002, numerous media outlets reported on the Company’s positive 

statements from May 16, particularly focusing on the expected sale or IPO of CIT by the end of 

June 2002. For example, THE WALL STREET JOURNAL reported: 

[Tyco’s] chief financial officer said the company is confident it can 

complete a sale or initial public offering of its CIT Group finance 

unit by the end of June. 

Mark Swartz also told an investor conference call that the 

company plans to pay off at least $10 billion of the $27 billion 

in debt being shouldered by its industrial arm, using the 

proceeds from the CIT deal, along with cash on hand from 

operations. [Emphasis added]. 

An IPO or sale of CIT is considered critical to investor confidence 

in Tyco, which has lost credibility this year amid abrupt changes in 

strategic direction and questions about its liquidity and heavy debt 

load. To raise cash, the company has been trying to unload CIT, 

which it bought last June for $9.5 billion, but which is probably 

worth much less now. Mr. Swartz said the company continues to 

pursue both an IPO of the unit and an outright sale. 

These statements when made were materially false and misleading and omitted material 

information for the reasons set forth above in Section(s) A.1. 

348. On May 31, 2002, UBS Warburg, reporting materially false and misleading 

information received from Tyco, issued an analyst report entitled, “Tyco Int’l: SIA Reports 

Semiconductor Shipments Down 8% in April.” The report stated: 

Over the last few months, earnings estimates for Tyco have 

dropped from just under $3.70 per share (the center of 

management’s range) to $2.58 per share. 

* * * 

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We maintain our fiscal 2002 earnings estimate of $2.60 per share 

and our fiscal 2003 earnings estimate of $2.95 per share. 

* * * 

We believe Tyco’s accounting policies are consistent with industry 

standards: Our analytical conclusion remains that Tyco’s 

accounting and disclosures are in accordance with GAAP and in 

accordance with industry practice. Our investment conclusion 

remains that Tyco’s stock should appreciate over time as investors 

regain comfort with its accounting policies. 

349. Tyco announced on June 1, 2002 that Kozlowski was the target of a criminal 

investigation being undertaken by the District Attorney of the County of New York into possible 

violations of state sales tax laws. 

350. According to the Company’s December Report, the Board was then informed on 

June 1 and June 2, 2002: (1) that Kozlowski and Belnick had been aware of the investigation 

since on or about May 3, 2002; (2) that the Company itself had received a subpoena in 

connection with the investigation; (3) that Belnick had retained counsel to represent the 

Company in the investigation; (4) that the Company’s counsel had met with prosecutors and had 

furnished prosecutors with data and documents; and (5) that it was now expected that Kozlowski 

would be indicted. 

351. According to the December Report, on June 2, 2002, Tyco requested that the 

Boies firm represent it in connection with negotiating the terms of Kozlowski’s resignation. 

Those negotiations led to Kozlowski resigning from the Tyco Board and from his position as the 

Company’s Chief Executive Officer on June 3, 2002. 

352. In light of this the market also immediately began to question all aspects of the 

Company’s performance. For example: 

a. Reuters Business Report (June 3, 2002): 

“This is one more piece of uncertainty and the share price is telling 

you what shareholders think,” said John Maack, director of 

equities at money manager Crabbe Huson Group. “What we 

needed here were signs of stability and that things were going to be 

OK, not this”; 

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b. TheStreet.com (June 3, 2002): 

“The market is taking this as an indication that if [Kozlowski] were 

somewhat devious as a person, then they’re extending that to the 

company,” said Brett Gallagher, head of U.S. equities at Julius 

Baer Investment Management; 

c. Wall Street Journal Online News Roundup (June 4, 2002): 

Mr. Kozlowski resigned Monday amid an investigation into 

possible sales-tax evasion involving millions of dollars in artwork. 

Although the investigation appeared to focus on how he managed 

his vast personal fortune, much of it from sales of company stock, 

analysts said it raised serious concerns about his oversight of Tyco 

and its finances. 

Investors already worried about the company’s future sold Tyco 

stock with a vengeance, sending its shares down nearly 27% 

Monday in extremely heavy trading. Tyco stock has fallen 73% 

since Jan. 1; and 

d. Forbes.com (June 4, 2002): 

Tyco’s diminishing credibility took another big hit on the news as 

did its stock - which fell 27% to $16.05 on Monday. Why? 

Similarities between Kozlowski’s personal dealings and Tyco’s 

corporate strategy keep coming to light. 

353. On June 4, 2002, Kozlowski was indicted by the District Attorney of the County 

of New York for conspiring with executives and employees of art galleries and art consultants in 

New York and London to avoid paying more than $1 million in New York State and City sales 

taxes on millions of dollars in artwork purchased by Kozlowski and his wife (Kozlowski 

Indictment). The Kozlowski Indictment alleges that from August 11, 2001 through June 3, 2002, 

Kozlowski and his co-conspirators avoided having either the customer pay or the vendor collect 

the sales taxes due on the sale of at least six expensive paintings valued at $13,175,000. 

According to an article in the NEW YORK POST, dated July 12, 2002, the paintings were paid 

for with Tyco funds and then repaid without interest. Kozlowski and his co-conspirators 

generated false documents, such as invoices and shipping documents, to make it appear that the 

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art work was to be shipped out of New York and therefore not covered by New York State sales 

tax provisions. 

354. An article in the June 4, 2002 edition of THE NEW YORK TIMES, entitled 

“Tyco Chief Out As Tax Inquiry Picks Up Speed,” reported: 

Two weeks ago, with the investigation of his art purchases 

accelerating, Mr. Kozlowski offered a more modest speech to the 

graduates of St. Anselm’s College in Manchester, N.H. 

“As you go forward in life, you will become leaders of families, 

communities, and even companies,” Mr. Kozlowski said in the text 

of his May 18 commencement address. “You will be confronted 

with questions every day that test your morals. The questions will 

get tougher and the consequences will become more severe. Think 

carefully, and for your sake, do the right thing, not the easy thing.” 

355. Upon the news of Kozlowski’s indictment and forced resignation, the price of 

Tyco shares dropped $5.90, or 27%, to $16.05 from the previous closing price of $21.95 on May 

31, 2002. 

356. As reported by Reuters Business Report on June 6, 2002: 

“The Company has a duty to disclose to its shareholders these 

types of loan arrangements, and if there was some 

misrepresentation regarding the nature of the loan, that could rise 

to a criminal violation of the securities laws,” said Robert Mintz, a 

former federal prosecutor who is a partner with McCarter & 

English. 

357. On June 7, 2002, Tyco announced that it may delay the public offering of CIT and 

that two major agencies, Moody’s Investors Services (“Moody’s”) and Standard & Poor’s 

(“S&P”), had cut their ratings on Tyco’s debt to one notch above junk status. Thus, Moody’s cut 

Tyco’s long-term credit rating to Baa3 from Baa2 and lowered its short-term rating to Prime 3 

from Prime 2. Moody’s warned that “Absent significant near-term debt reduction with proceeds 

from a successful sale of CIT, Tyco’s ratings would likely fall into speculative grade.” Moody’s 

further warned that it may cut the Company’s debt to junk status if a sale is not completed “in the 

very near future, as early as the end of June.” Moody’s also stated that it “believes that potential 

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proceeds from the (IPO) will fall short of expectations and Tyco will face a significant debt 

burden with sizable maturities over the next 18 months.” 

358. On the same day, S&P cut Tyco’s long-term rating to BBB- and left its short term 

rating unchanged at A2. S&P said Tyco faced an erosion in management credibility and investor 

confidence, and was “concerned about the Company’s ability to access capital markets or bank 

financing.” S&P changed its CreditWatch implication to “negative.” S&P stated that its ratings 

could be lowered further in the coming days or weeks if there were further developments in the 

criminal investigation or if the CIT IPO was not launched within the next two weeks; did not 

close within a month of the launch; or if proceeds from the offering were insufficient to improve 

Tyco’s liquidity. 

359. Tyco also confirmed on June 7, 2002 that it was launching its own 

“comprehensive internal investigation,” with the assistance of the Boies firm, into Kozlowski’s 

and other executives’ use of company funds. 

360. That same day, there were also numerous reports that the Manhattan District 

Attorney’s Office and the SEC had broadened their investigations beyond Kozlowski to 

determine if executives used the Company’s cash to buy any art and homes. 

361. Tyco’s shares plunged $4.50 per share on June 7, to close at $10.10 (a six-year 

low) on volume of 199.8 million shares. According to Reuters Business Report, on that date, 

“[t]he downgrades. . . , which are likely to make borrowing more expensive, could reduce 

[Tyco’s] cash flow by $635 million in its third and fourth quarter, [Tyco] Chief Financial Officer 

Mark Swartz said. Reuters further reported: 

“If the CEO would take those kinds of risks in his personal life, 

then you could make the assumption that he was acting that way at 

the company,” Plaza said. 

“Kozlowski was so hands-on and so aggressive throughout all 

parts of the company that it has to touch other management. You 

could assume that type of behavior was either allowed or 

encouraged.” 

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362. On June 7, 2002, J.P. Morgan Securities cut its rating on Tyco to “market 

perform” from “buy,” citing corporate governance issues and the Company’s potential legal 

problems. 

363. During a conference call held that same day, Swartz tried to downplay the crisis at 

Tyco as “a credibility and a perception issue.” Similarly, John Fort, who was chosen by the 

Board to assume control of the Company, tried to reassure analysts and investors, falsely, that all 

was fundamentally well at Tyco. According to Fort:

FORT: We are . . . we expect nothing related to Dennis 

to be material to our financials, and I think 

that’s worth repeating. They’re just not 

material. They’re not going to affect either our 

historic or expected financials.

* * * 

. . . we do not have a liquidity issue at this point 

even in spite of recent developments. 

* * * 

Now just look at this company and just take a 

look at it. I mean our accounting is sound, even 

though we have tough economic times, our 

earnings and cash flows are strong and real. 

We’re built on real hard assets factories and 

products and customers. We’re committed to solid 

organic growth going forward. We have 

competent excellent employees and we have our 

liquidity issues under control and with all that, I 

think it’s very difficult to forecast that we’re not 

going to be successful going forward. [Emphasis 

added.] 

364. On June 10, 2002, Tyco announced that it had fired Belnick because it had lost 

confidence in Belnick’s willingness and ability to conduct a fair investigation of company 

executives, including Belnick himself. 

365. Additionally, on June 10, 2002, Fitch Investors Services cut Tyco’s corporate 

credit rating to junk status, BB, from BBB and its commercial paper rating to B from F2, and 

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downgraded its ratings on CIT’s senior debt to BBB from A, citing concerns about the chaos 

surrounding Tyco. Among other reasons cited by Fitch was “short comings in corporate 

governance.” Fitch warned that it may cut the long-term rating again. “It may be more difficult” 

to unload CIT amid an “erosion in investor confidence” S&P analyst Werneth said in a 

conference call. “The longer [CIT] is out there, the worse it is for [Tyco]” said S&P managing 

director Kelly. 

366. On June 12, 2002, Tyco announced that it had restated previously issued financial 

statements for the second quarter of fiscal 2002 to report a $4.5 billion estimated goodwill 

impairment related to CIT Group Inc., then a wholly-owned subsidiary of Tyco. The Company 

filed amendments to both its and CIT’s Forms 10-Q for the quarter ended March 31, 2002. An 

amendment to the Registration Statement on Form S-1 relating to the proposed IPO of CIT 

Group Inc. was also filed to reflect this change. Tyco later re-sold CIT in a public offering that 

generated billions of dollars less than Tyco had paid for CIT only eighteen months earlier. 

367. Similarly, on June 12, 2002, the NEW YORK DAILY NEWS reported that the 

SEC was again looking into Tyco’s accounting for acquisitions: 

. . . The original inquiry got its start in 1999 after a Dallas 

investment manager began warning clients that cash flow from 

Tyco acquisitions appeared inflated. One theory was that Tyco 

was aggressively undervaluing the assets of acquisition targets 

before the new companies joined Tyco’s balance sheet. The 

practice, detractors said, allowed Tyco to build a pool of assets 

from which it could then unlock value at a later point. 

Though the SEC gave Tyco a clean bill of health two years ago, at 

least one New York businessman with close ties to Simplex 

Time Recorder, a December 2000 Tyco acquisition, told the 

Daily News he witnessed such dealings first-hand. 

“think it’s fair and accurate to say they made [Simplex] 

writedowns on the value of their receivables to a level that, if it 

didn’t break the law, certainly bordered on breaking the law,” 

the businessman said. 

[Emphasis added]. 

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368. On June 14, 2002, Dow Jones Business News discussed the impact of the recent 

Tyco debt downgrades: 

The rating downgrades trigger the termination of a program under 

which Tyco securitizes its accounts receivables. Tyco will have to 

come up with $530 million to buy back those receivables. But on 

the call, Mr. Swartz said the banks holding the securitizations are 

still buying receivables from the company, based on the 

fundamentals of the business. 

The official said management doesn’t know yet if it has to repay 

$225 million under a yen-denominated facility due to the credit 

rating downgrades. 

Mr. Swartz also said Tyco isn’t in danger of going above the 

52.5% debt-to- capital ratio governing its bank debt covenant. 

“We’re not facing any issues related to debt covenants,” he said. 

On the call, Mr. Swartz outlined Tyco’s debt obligations and 

suggested management should encounter little problem meeting its 

obligations. 

Tyco should have $10 billion in the next six months to pay down 

debt, said the CFO. He cited, among other things, the expected 

proceeds from CIT monetization and cash flow generation. The 

$10 billion paydown would cut Tyco’s debt to $17 billion from 

$27 billion, according to the official. 

Tyco is counting on the $5 billion to $5.8 billion from the CIT IPO 

proceeds to pay down a good chunk of its debt, though some 

company observers think that projection is aggressive. 

Mr. Swartz added that management is “comfortable” with the 

performance of CIT, which should get an upgrade from credit 

rating agencies once it’s separated from Tyco. 

Mr. Fort said getting SEC approval of CIT IPO prospectus has had 

a “substantial” impact on the company. “CIT is a very important 

step,” he said.” The roadshow is under way.” 

369. On June 17, 2002, Tyco filed a complaint in the United States District Court, 

Southern District of New York, alleging that Kozlowski approved a $20 million “fee” to Walsh, 

who served as a member of Tyco’s Board of Directors from 1997 though February 2002. This 

fee was to compensate Walsh in connection with Tyco’s acquisition of CIT. 

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370. On June 17, 2002, Tyco filed a lawsuit against Belnick in federal court in New 

York. In the Complaint, Tyco charged that Belnick had improperly used Tyco funds to buy a 

$2.75 million apartment in New York City and a $10 million resort property in Utah; concealed 

an additional $35 million of his compensation and unpaid loans from September 1998 to March 

2002 which were not approved by the Company’s board of directors and which were never 

disclosed to shareholders in violation of SEC Regulation S-K, Item 402; failed to disclose the 

criminal investigation of Kozlowski; failed to cooperate with the Company’s own internal 

investigation; and attempted to destroy documents. Tyco’s allegations were primarily based on 

an internal investigation it had conducted. 

371. In its Complaint, Tyco admitted that numerous payments and benefits paid to 

Belnick were never disclosed to the public. These included: the $15 million in interest free 

loans to buy homes in New York and Utah; the grant of 100,000 shares of restricted stock with a 

market value of over $5 million in April 2000; an additional $2 million cash bonus in July 2000; 

and a subsequent grant of 200,000 shares of restricted stock with a total market value of over $10 

million. In addition, in a retention agreement Belnick signed when he joined Tyco, he and 

Kozlowski agreed that Tyco would pay Belnick $20 million by October 1, 2002 if he were to 

stay with the Company. This agreement was not disclosed to the public or the Board. 

372. On June 17, 2002, Tyco filed a lawsuit against Walsh in federal court in New 

York, seeking restitution and damages resulting from Walsh’s breach of fiduciary duty and 

violation of the Company’s By Laws relating to Walsh’s taking of the $20 million fee without 

the requisite Board approval and without making a full disclosure of his interest in a transaction 

being contemplated by the Company. 

373. In addition to being sued by the Company, Walsh was criminally charged by the 

New York County District Attorney for intentionally concealing information from Tyco’s 

directors and shareholders about the $20 million finder’s fee “while engaged in inducing and 

promoting the issuance, distribution, exchange, sale, negotiation and purchase” of Tyco 

securities. 

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374. On July 1, 2002, Tyco priced the CIT shares at $23, well below the $25-$29 share 

estimated range announced on June 12, 2002. Thus, the CIT IPO grossed proceeds of $4.6 

billion, well below the reduced $5.0-$5.8 billion estimated range that was announced on June 12, 

2002. Given the announcement of the diminished proceeds Tyco would receive from the CIT 

IPO, Tyco’s shares declined by 6.2% on July 1, 2002. 

375. During a conference call on July 2, 2002, Tyco stated that it was satisfied with the 

CIT IPO, and that it expected to beat Wall Street forecasts for the fiscal third-Quarter and year 

end September 30, 2002. Tyco did not announce any extraordinary events or charges. Yet the 

very next day, after having deluded investors into thinking that Tyco was on the road to 

recovery, THE WALL STREET JOURNAL reported that Tyco planned to take a $2.4 billion 

charge for the third quarter to “reflect the diminished value of its former CIT Group finance 

unit.” 

376. On July 2, 2002, The Committee on Energy and Commerce of the United States 

Congress sent a letter to the SEC concerning accounting at five companies, including Tyco. The 

Committee made a specific request for “all records” in the SEC’s 1999-2000 investigation of 

Tyco’s accounting, which was, at that time, found not to be improper by the SEC. 

377. On September 10, 2002, Belnick was indicted by a New York County Supreme 

Court Grand Jury for failing to disclose two relocation loans that Belnick obtained from Tyco in 

six Director and Officer Questionnaires he completed between November 1998 and January 

2002. According to an Omnibus Pretrial Motion (the “Pretrial Motion”) filed by Belnick in the 

case, Belnick “regularly completed disclosure forms for PricewaterhouseCoopers confirming the 

balance of his outstanding New York (and subsequently Utah) relocation loans (and on two 

occasions advised the auditors that he actually owed more on the relocation loans than they 

calculated).” Belnick specifically alleged that on October 17, 2001, he “confirmed the Utah (and 

reconfirmed the New York) relocation loans” to PwC. Still, those loans were not publicly 

disclosed and Belnick knew they were not publicly disclosed. 

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378. On September 12, 2002, the New York County District Attorney charged 

Kozlowski and Swartz with “Enterprise Corruption,” grand larceny, conspiracy and falsifying 

business records relating to the theft of more than $170 million from Tyco and fraudulent sales 

of more than $430 million of Tyco securities. The indictment alleges that from January 1, 1995 

through September 9, 2002, Kozlowski and Swartz created and operated a criminal enterprise for 

the purpose of stealing money from Tyco and defrauding investors by falsifying records, 

concealing material information and providing false information to Tyco shareholders. 

379. The Enterprise Corruption Indictment noted that Kozlowski and Swartz did not 

act alone and described their roles in the criminal enterprise: 

Defendant Kozlowski was the boss of the criminal enterprise, and 

set its policies. He decided what bonuses would be paid, to whom, 

and when, without regard for the restrictions that the Board had put 

on executive officers’ compensation. He entered into private deals 

with executive officers and directors of Tyco, which he sought to 

keep secret even when they were required to be disclosed. He 

caused Internal Audit to report to the Board through himself, and 

ensured that they would not audit TME [Management, Inc., a Tyco 

subsidiary]. Working with personnel from Investor Relations, 

defendant Kozlowski met with and defrauded investors, analysts 

and journalists to manipulate Tyco’s stock price. He used the 

personnel in Executive Treasury to pay his bills from the Tyco 

“concentration account.” He established a system of internal 

controls in which his assistant’s authorization was sufficient to 

warrant expenditures of many millions of dollars. 

Defendant Swartz was chief of operations of [the criminal 

enterprise]; he was the second-in-command to defendant 

Kozlowski. Defendant Swartz exercised control over the transfer 

of funds, the booking of accounting entries, and the operations of 

those portions of Tyco’s Human Resources department dealing 

with certain compensation, bonuses, and loans. Defendant Swartz 

established a system by which the Finance Department, and not the 

Tyco Legal Department, controlled the data going into Tyco’s 

filings with the [SEC] and caused Tyco’s filings to be false and 

deceptive. Defendant Swartz deceived investors and the Board by 

misallocating substantial personnel costs resulting in falsely 

enhanced operating performance. 

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380. According to the Enterprise Corruption Indictment, Kozlowski and Swartz 

exercised control over Tyco’s flow of information and funds by: (1) granting themselves excess 

compensation in the form of improper bonuses; (2) forgiving the payment of personal expenses 

and unapproved loans; and (3) concealing these payments from the Company’s shareholders. 

Then, the indictment alleges that “[a]s part of a scheme constituting a systematic on-going course 

of conduct the defendants and others . . . falsely represented and materially omitted to represent 

accurately and in a timely fashion: 

(1) The compensation paid to executive officers. 

(2) The loans extended to executive officers. 

(3) The extent of stock sales by corporate insiders. 

(4) The earnings per share of Tyco stock before non-recurring charges. 

(5) The level of spending by the executive officers in managing the money and 

property of Tyco’s owners and investors. 

(6) Related party transactions.” 

381. The Enterprise Corruption Indictment charges that Kozlowski and Swartz 

concealed from Tyco’s shareholders that: (1) tens of millions of dollars worth of payments and 

forgiven loans were made to Tyco executives; (2) tens of millions of dollars worth of credit lines 

and loans were given to Tyco executives; (3) Kozlowski and Swartz sold substantial amounts of 

Tyco stock to Tyco; (4) Tyco’s reported earnings were artificially inflated; (5) Tyco executives 

used corporate resources to fund personal ventures and property acquisitions; (6) Tyco purchased 

properties from members of Tyco’s Board; and (7) Tyco gifted residences, money and other 

property to employees. 

382. Also according to the Enterprise Corruption Indictment, while Kozlowski was 

giving speeches to Tyco’s investors about his confidence in the Company, he misrepresented the 

number of Tyco stock sales he made, which had exceeded 5.5 million shares. During the time 

period covered by the indictment, Kozlowski received proceeds of more than $280 million in 

insider sales and Swartz received proceeds of more than $125 million in insider sales. 

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383. The same day Kozlowski was indicted for the second time, Tyco filed a lawsuit 

against Kozlowski in federal court in New York seeking the return of his income and benefits 

since 1997 and the forfeiture of all his severance pay. 

384. Among the perks enjoyed by Kozlowski at Tyco’s expense was the rent of a Fifth 

Avenue apartment from 1997 to 2001 at an annual rate of $264,000; the purchase of a $7 million 

Park Avenue apartment, purchased below market value in 2000 with interest free loans; the sale 

of his New Hampshire home to Tyco at higher than market value; the purchase of an apartment 

on Fifth Avenue in 2001 for $16.8 million and another $3 million in improvements and $11 

million in furnishings; and the gross-up of benefits to insulate Kozlowski from tax liability. 

385. Kozlowski also abused Tyco’s KELP, borrowing more than $274.2 million to pay 

for artwork, real estate maintenance fees, construction and remodeling costs for his homes, a 

yacht, investment property, antiques and furniture. Tyco’s Complaint against Kozlowski also 

disclosed several charitable contributions made by Tyco at Kozlowski’s direction. 

386. On September 12, 2002, the SEC filed an action against Kozlowski, Swartz and 

Belnick for fraud, making false and misleading proxy statements, fraudulent stock sales, 

reporting violations, and record-keeping violations. 

387. On December 17, 2002, the SEC filed a settled civil action in federal court for the 

Southern District of New York, alleging that Walsh violated the federal securities laws by 

signing a Tyco registration statement that failed to disclose his $20 million finder’s fee. 

388. Walsh’s case was the first of the four criminal cases brought by the New York 

County District Attorney over the last few months involving Tyco executives to be resolved. On 

December 17, 2002, Walsh entered a guilty plea, agreed to pay $20 million in restitution to Tyco 

(which was paid on that date) and a $2.5 million fine, and resigned from the three for-profit 

Boards on which he sat. Separately, Walsh entered into a consent agreement with the SEC 

which bars him from serving on a public for-profit Board. 

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ADDITIONAL SCIENTER ALLEGATIONS 

Insider Selling During the Relevant Period

389. While Tyco was issuing materially false favorable statements about the 

Company’s financial condition and business prospects, and concealing or obscuring negative 

information, its executives, who had access to confidential information and were aware of the 

truth about the Company and its financial condition, were benefitting from the illegal course of 

business or course of conduct described in this complaint by selling large blocks of the 

Company’s stock at artificially inflated prices without disclosing the material adverse facts about 

the Company to which they were privy. Such sales were unusual in their amount and in their 

timing. 

390. The following table shows the heavy insider selling (totaling more than $836 

million) by Tyco’s senior executives during the relevant period: 

SENIOR EXECUTIVE INSIDER SALES 

Name Position Date Shares Price $ Value

L. DENNIS KOZLOWSKI CEO,P,CB,OD 01/05/00 744,000.00 35.35 26,300,400.00 

L. DENNIS KOZLOWSKI CEO,P,CB,OD 09/07/00 934,417.00 58.28 54,457,822.76 

L. DENNIS KOZLOWSKI CEO,P,CB,OD 09/07/00 934,417.00 58.28 54,457,822.76 

L. DENNIS KOZLOWSKI CEO,P,CB,OD 09/07/00 451,191.00 58.28 26,295,411.48 

L. DENNIS KOZLOWSKI CEO,P,CB,OD 09/07/00 451,191.00 58.28 26,295,411.48 

L. DENNIS KOZLOWSKI CEO,P,CB,OD 09/07/00 30,626.00 58.28 1,784,883.28 

L. DENNIS KOZLOWSKI CEO,P,CB,OD 09/07/00 30,626.00 58.28 1,784,883.28 

L. DENNIS KOZLOWSKI CEO,P,CB,OD 09/11/00 1,007,401.00 56.83 57,250,598.83 

L. DENNIS KOZLOWSKI CEO,P,CB,OD 09/11/00 1,007,401.00 56.83 57,250,598.83 

L. DENNIS KOZLOWSKI CEO,P,CB,OD 09/11/00 240,501.00 56.83 13,667,671.83 

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L. DENNIS KOZLOWSKI CEO,P,CB,OD 09/11/00 240,501.00 56.83 13,667,671.83 

L. DENNIS KOZLOWSKI CEO,P,CB,OD 09/11/00 7,700.00 56.83 437,591.00 

L. DENNIS KOZLOWSKI CEO,P,CB,OD 09/11/00 7,700.00 56.83 437,591.00 

L. DENNIS KOZLOWSKI CEO,P,CB,OD 09/12/00 219,107.00 55.25 12,105,661.75 

L. DENNIS KOZLOWSKI CEO,P,CB,OD 09/12/00 219,107.00 55.25 12,105,661.75 

L. DENNIS KOZLOWSKI CEO,P,CB,OD 09/12/00 52,308.00 55.25 2,890,017.00 

L. DENNIS KOZLOWSKI CEO,P,CB,OD 09/12/00 52,308.00 55.25 2,890,017.00 

L. DENNIS KOZLOWSKI CEO,P,CB,OD 09/12/00 1,674.00 55.25 92,488.50 

L. DENNIS KOZLOWSKI CEO,P,CB,OD 09/12/00 1,674.00 55.25 92,488.50 

L. DENNIS KOZLOWSKI CEO,P,CB,OD 09/14/00 86,233.00 58.30 5,027,383.90 

L. DENNIS KOZLOWSKI CEO,P,CB,OD 09/14/00 86,233.00 58.30 5,027,383.90 

L. DENNIS KOZLOWSKI CEO,P,CB,OD 10/24/00 600,000.00 54.31 32,587,500.00 

L. DENNIS KOZLOWSKI CEO,P,CB,OD 10/31/00 148,000.00 56.69 8,389,750.00

L. DENNIS KOZLOWSKI CEO,P,CB,OD 01/30/01 350,000.00 62.80 21,980,000.00 

L. DENNIS KOZLOWSKI CEO,P,CB,OD 06/20/01 107,935.00 52.96 5,716,237.60

L. DENNIS KOZLOWSKI CEO,P,CB,OD 07/03/01 155,000.00 54.98 8,521,900.00

L. DENNIS KOZLOWSKI CEO,P,CB,OD 08/01/01 117,696.00 53.15 6,255,542.40

TOTAL 

 

8,284,947.00 $457,770,390.66

 

MARK H. SWARTZ CFO,O,EVP 01/05/00 372,000.00 35.35 13,150,200.00 

MARK H. SWARTZ CFO,O,EVP 09/07/00 368,197.00 58.28 21,458,521.16 

MARK H. SWARTZ CFO,O,EVP 09/07/00 368,197.00 58.28 21,458,521.16 

MARK H. SWARTZ CFO,O,EVP 09/11/00 944,398.00 56.83 53,670,138.34 

MARK H. SWARTZ CFO,O,EVP 09/11/00 944,398.00 56.83 53,670,138.34 

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MARK H. SWARTZ CFO,O,EVP 09/12/00 205,404.00 55.25 11,348,571.00 

MARK H. SWARTZ CFO,O,EVP 09/12/00 205,404.00 55.25 11,348,571.00 

MARK H. SWARTZ CFO,OD,EVP 10/24/00 300,000.00 54.31 16,293,750.00

MARK H. SWARTZ CFO,OD,EVP 10/31/00 74,000.00 56.69 4,194,875.00 

MARK H. SWARTZ CFO,OD,EVP 01/30/01 175,000.00 62.80 10,990,000.00

MARK H. SWARTZ CFO,O,EVP 02/01/01 107,958.00 60.96 6,581,119.68 

MARK H. SWARTZ CFO,OD,EVP 06/20/01 53,967.00 53.03 2,861,870.01 

MARK H. SWARTZ CFO,OD,EVP 07/03/01 77,500.00 54.98 4,260,950.00 

TOTAL 

 

4,196,423.00 $231,287,225.69

 

MARK A. BELNICK O,EVP 10/25/00 116,717.00 54.35 6,343,568.95 

MARK A. BELNICK O,EVP 07/19/01 200,000.00 53.85 10,770,000.00 

MARK A. BELNICK GC,O,EVP 12/04/01 116,666.00 58.00 6,766,628.00 

MARK A. BELNICK GC,O,EVP 12/04/01 116,666.00 58.13 6,781,794.58 

TOTAL 

 

550,049.00 $30,661,991.53

 

FRANK E. WALSH D 11/30/00 15,147.00 52.89 801,124.83 

FRANK E. WALSH D 11/30/00 15,147.00 52.96 802,185.12 

FRANK E. WALSH D 12/18/01 9,032.00 56.09 506,604.88 

FRANK E. WALSH D 12/18/01 6,691.00 56.09 375,298.19 

FRANK E. WALSH D 12/18/01 4,073.00 56.09 228,454.57 

TOTAL 

 

50,090.00 $2,713,667.59

 

MICHAEL A. ASHCROFT D 08/01/00 175,000.00 54.38 9,516,500.00 

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MICHAEL A. ASHCROFT D 08/02/00 75,000.00 54.38 4,078,500.00 

MICHAEL A. ASHCROFT D 08/03/00 50,000.00 53.38 2,669,000.00 

MICHAEL A. ASHCROFT D 08/04/00 25,000.00 53.45 1,336,250.00 

MICHAEL A. ASHCROFT D 08/07/00 275,000.00 53.96 14,839,000.00 

MICHAEL A. ASHCROFT D 08/08/00 25,000.00 54.50 1,362,500.00 

MICHAEL A. ASHCROFT D 08/09/00 78,500.00 53.89 4,230,365.00 

MICHAEL A. ASHCROFT D 08/10/00 100,000.00 53.81 5,381,000.00 

MICHAEL A. ASHCROFT D 08/11/00 196,500.00 54.43 10,695,495.00 

MICHAEL A. ASHCROFT D 02/06/01 228,300.00 61.30 13,994,790.00 

MICHAEL A. ASHCROFT D 02/09/01 271,700.00 60.00 16,302,000.00 

MICHAEL A. ASHCROFT D 12/05/01 247,400.00 59.98 14,839,052.00 

MICHAEL A. ASHCROFT D 12/07/01 252,600.00 58.15 14,688,690.00 

TOTAL 

 

2,000,000.00 $113,933,142.00

Total Insider Selling by 

Senior Executives 

 

15,081,509.00 $836,366,417.47

391. Other insiders in the Company similarly sold their Tyco stock at artificially 

inflated prices, without disclosing the truth to other investors. 

SELLING BY OTHER TYCO INSIDERS 

Name Position Date Shares Price $ Value

JERRY R. BOGGESS P,O 07/24/00 100,000.00 56.31 5,631,250.00 

JERRY R. BOGGESS O,OX 10/24/00 6,218.50 54.31 337,742.28 

JERRY R. BOGGESS O,OX 10/26/01 41,796.00 50.50 2,110,698.00 

TOTAL 

 

148,014.50 $2,110,698.00

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JOHN F. FORT D 07/25/00 10,000.00 55.00 550,000.00 

JOHN F. FORT D 07/26/00 7,500.00 55.25 414,375.00 

JOHN F. FORT D 07/26/00 2,500.00 55.00 137,500.00 

JOHN F. FORT D 07/27/00 10,000.00 54.56 545,600.00 

JOHN F. FORT D 07/27/00 5,000.00 54.81 274,050.00 

JOHN F. FORT D 07/28/00 5,000.00 52.56 262,800.00 

JOHN F. FORT D 07/28/00 5,000.00 53.31 266,550.00 

JOHN F. FORT D 07/28/00 5,000.00 53.43 267,150.00 

JOHN F. FORT D 07/28/00 5,000.00 53.50 267,500.00 

JOHN F. FORT D 07/28/00 500.00 52.68 26,340.00 

JOHN F. FORT D 07/31/00 10,000.00 53.62 536,200.00 

JOHN F. FORT D 08/01/00 10,000.00 54.50 545,000.00 

JOHN F. FORT D 08/01/00 5,000.00 54.00 270,000.00 

JOHN F. FORT D 08/02/00 5,000.00 54.00 270,000.00 

JOHN F. FORT D 08/02/00 5,000.00 54.06 270,300.00 

JOHN F. FORT D 08/03/00 5,000.00 53.25 266,250.00 

JOHN F. FORT D 10/25/00 10,000.00 54.06 540,600.00 

JOHN F. FORT D 10/25/00 10,000.00 54.13 541,300.00 

TOTAL 

 

115,500.00 $6,251,515.00

 

STEPHEN W. FOSS D 12/22/00 5,000.00 51.00 255,000.00 

STEPHEN W. FOSS D 09/21/00 4,088.00 40.78 166,708.64 

STEPHEN W. FOSS D 09/21/01 3,288.00 40.78 134,084.64 

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STEPHEN W. FOSS D 09/21/01 2,201.00 40.78 89,756.78 

STEPHEN W. FOSS D 09/21/01 894.00 40.78 36,457.32 

TOTAL 15,471.00 $682,007.38 

 

ALBERT R. GAMPER CEO,P,O 06/04/01 44,794.00 53.42 2,392,895.48 

ALBERT R. GAMPER CEO,P,O 06/07/01 310,815.00 55.82 17,349,693.30 

ALBERT R. GAMPER CEO,P,O 06/14/01 207,210.00 55.33 11,464,929.30 

ALBERT R. GAMPER O,OS 10/26/01 8,994.00 50.50 454,197.00 

TOTAL 571,813.00 $31,661,715.08 

 

NEIL R. GARVEY O,OS 10/24/00 26,528.00 54.31 1,440,802.00 

NEIL R. GARVEY O,OS 06/18/01 75,000.00 55.80 4,185,000.00 

TOTAL 101,528.00 $5,625,802.00 

 

PHILIP M. HAMPTON D 02/02/00 3,276.00 40.90 133,988.40 

PHILIP M. HAMPTON D 02/02/00 2,193.00 40.92 89,737.56 

PHILIP M. HAMPTON D 02/02/00 892 40.92 36,500.64 

TOTAL 6,361.00 $260,226.60 

 

STEPHEN P. MCDONOUGH O,OX 01/29/01 8,000.00 62.21 497,680.00 

STEPHEN P. MCDONOUGH O,OX 01/30/01 10,000.00 62.21 622,100.00 

TOTAL 18,000.00 $1,119,780.00 

 

RICHARD J. MEELIA O,OS 08/07/00 125,000.00 54.38 6,797,500.00 

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RICHARD J. MEELIA O,OX 10/24/00 14,607.00 54.31 793,342.69 

RICHARD J. MEELIA O,OS 10/26/01 96,970.00 50.59 4,905,712.30 

RICHARD J. MEELIA O,OX 10/26/01 96,970.00 50.59 4,905,712.30 

TOTAL 333,547.00 $17,402,267.29 

 

WILLIAM PETER SLUSSER D 12/13/01 2,467.00 54.35 134,081.45 

WILLIAM PETER SLUSSER D 12/13/01 2,467.00 54.35 134,081.45 

WILLIAM PETER SLUSSER D 12/14/01 4,533.00 55.00 249,315.00 

TOTAL 9,467.00 $517,477.90 

 

JOSEPH F. WELCH D 02/04/02 1,800.00 32.00 57,600.00 

TOTAL 1,800.00 $57,600.00 

 

Total Insider Selling by 

Other Tyco Insiders 1,321,501.50 $65,689,089.25 

 

GRAND TOTAL 16,403,010.50 $902,055,506.72 

392. In addition to his open market sales, Kozlowski sold numerous Tyco shares to the 

Company. Due to a loophole that does not require immediate disclosure of sales of stock by 

company executives - regardless of their magnitude - when the sale is made to the issuing 

company, these sales were not reported until the filing of a Form F-5, up to thirteen months after 

the sales. Although the proceeds from these sales are not disclosed in the Form F-5, plaintiffs 

estimate that the proceeds exceed $65 million. 

393. In addition to his open market sales, Swartz sold numerous Tyco shares directly to 

the Company. Due to a loophole that does not require immediate disclosure of sales of stock by 

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company executives - regardless of their magnitude - when the sale is made to the issuing 

company, these sales were not reported until the filing of a Form F-5, up to thirteen months after 

the sales. Although the proceeds from these sales are not disclosed in the Form F-5, plaintiffs 

estimate that the proceeds exceed $38 million. 

394. According to a February 13, 2002 article in THE NEW YORK TIMES, although 

Kozlowski and Swartz publicly stated that they rarely if ever sold their Tyco shares, late in fiscal 

2000 and during fiscal 2001, and unknown to the investing public, Kozlowski and Swartz 

secretly sold approximately $105 million of Tyco stock directly to the Company. These sales 

were not disclosed to investors until November 13, 2001 - thirteen months after the first of 

those sales were made (the “Undisclosed Insider Sales”). The Undisclosed Insider Sales are 

especially suspect because, by making them directly to the Company, Kozlowski and Swartz did 

not have to disclose them in SEC Form 4 within 10 days after the month of the sales, as would be 

required with open-market sales. By selling their shares back to the Company, Kozlowski and 

Swartz were able to hide such sales from investors for thirteen months. 

395. A February 11, 2002 article in THE NEW YORK TIMES discussed the 

Undisclosed Insider Sales: 

Two top executives at Tyco International sold more than $100 

million in Tyco shares in late 2000 and 2001, but the sales did not 

become public for as long as a year. Today, Tyco shares are worth 

about half what they were at the time of the transactions. . . . 

[T]hese sellers . . . have taken advantage of an 11-year old 

loophole in federal securities laws that allows executives to wait as 

long as 13 months to disclose their sales when the buyer of the 

their shares is the company itself. The loophole is the same one 

that enabled Kenneth L. Lay, the former chief executive of Enron, 

to sell millions of dollars of Enron shares in the months that the 

stock was plummeting, without filing the usual federal disclosure 

forms for insider sales. 

In the wake of Enron’s collapse and new questions about Tyco’s 

accounting methods, corporate governance experts say the rule 

should be changed so that investors can have a clear, prompt 

picture of executive stock sales. 

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Kozlowski and Swartz hid their private sales to the Company from public scrutiny for over 

thirteen months while they continued making false and materially misleading statements on 

Tyco’s behalf, and while secretly pocketing $105 million from the Undisclosed Insider Sales 

alone. Indeed, Kozlowski and Swartz even received new stock options from the Company to 

replace the Tyco shares they sold through the Undisclosed Insider Sales. 

396. Furthermore, the Company’s incentive plan (the “Plan”) for additional payments 

to Kozlowski and Swartz was directly tied to the Company’s reported earnings growth and free 

cash flow. Under the Plan, in fiscal 2000-2001 alone, Kozlowski and Swartz received 

10,278,007 shares of restricted stock, worth $51,606,420 and $25,803,210, respectively, and 

were also each paid a cash bonus of $6.8 million and $3.4 million, respectively, based upon 

certain performance criteria. According to the Company’s Schedule 14A, filed on January 29, 

2001 (the “2001 Proxy Statement”), the incentive compensation to Kozlowski and Swartz was 

based upon, inter alia, (i) an increase in earnings for the Company, and (ii) an improvement in 

operating cash flow for the Company. Tyco’s 2001 Proxy Statement also explicitly admitted that 

Kozlowski’s and Swartz’s incentive compensation “is in direct correlation to Tyco’s 

performance and . . . ultimately determined by the future performance of Tyco as reflected by its 

share price.” Further, the Company’s Schedule 14A filed on January 28, 2002 stated: 

[I]n order for Mr. Kozlowski and Mr. Swartz to have earned a 

cash bonus in fiscal 2001, the Company had to achieve a 

minimum of 15% growth in net income and at least a 10% 

growth in operating cash flow over fiscal 2000. The 

performance criterion required to vest the minimum number of 

restricted shares granted to these executives was a growth rate in 

earnings per share before non-recurring items of at least 15% over 

fiscal 2000. 

(Emphasis added.) As such, compensation to Kozlowski and Swartz under Tyco’s incentive plan 

was inextricably linked to Tyco’s materially false and misleading statements during the relevant 

period. 

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INAPPLICABILITY OF STATUTORY SAFE HARBOR 

397. The statutory safe harbor provided for forward-looking statements under certain 

circumstances does not apply to any of the allegedly false statements pleaded in this Complaint. 

The statements complained of concerned Tyco’s financial statements and historical and/or 

current condition affecting the Company. Many of the statements pleaded herein were not 

specifically identified as “forward-looking statements” when made. To the extent of any 

forward-looking statements, there were no meaningful cautionary statements identifying the 

important then-present factors that could and did cause actual results to differ materially from 

those in the purportedly forward-looking statements. Alternatively, to the extent that the 

statutory safe harbor does apply to any forward-looking statements pleaded herein, Tyco is liable 

for those false forward-looking statements because at the time each of those statements was 

made, Tyco knew or recklessly disregarded that the statement was false or misleading, knew of 

or recklessly disregarded and failed to disclose adverse information relating to the statement, 

and/or the statement was authorized and/or approved by an executive officer of Tyco who knew 

or recklessly disregarded that the statement was materially false and misleading when made. 

398. Any warnings contained in the press releases and the financial statements quoted 

herein were generic statements of the kind of risks that affect any company and misleadingly 

contained no specific factual disclosure of any of Tyco’s accounting irregularities or the 

Undisclosed Acquisitions. 

APPLICABILITY OF PRESUMPTION OF RELIANCE: 

FRAUD-ON-THE-MARKET DOCTRINE 

399. At all relevant times, the market for Tyco’s securities was efficient in that it 

promptly digested current information with respect to the Company from all publicly available 

sources and reflected such information in the price. 

400. As an illustration, the common stock of Tyco met the requirements for listing, and 

was listed and traded on the New York Stock Exchange, a highly developed and efficient market, 

under the ticker symbol “TYC.” During the period when Franklin purchased Tyco securities, 

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Tyco stock was heavily traded, with volume averaging at least several million shares daily. Tyco 

filed periodic public reports with the SEC, and was followed by analysts from major brokerages, 

including Goldman Sachs, Salomon Smith Barney, and T. Rowe Price. The reports of these 

analysts were redistributed to their customers and the public at large, and Tyco regularly issued 

press releases, which were carried by national newswires. Thus, the analyst reports and Tyco’s 

press releases entered the public marketplace. As a result, the market for Tyco securities 

promptly digested current information with respect to Tyco from all publicly available sources, 

and reflected such information in Tyco’s stock price. Franklin relied on the integrity of the 

market price of Tyco’s securities. 

401. Based upon the foregoing, Franklin is entitled to a presumption of reliance upon 

the integrity of the market for ultimate proof of its claims on the merits. Franklin will also rely, 

in part, upon the presumption of reliance established by material omissions and upon its actual 

reliance on Tyco’s materially false and misleading statements. 

LOSS CAUSATION 

402. Franklin was damaged as a result of Tyco’s fraudulent conduct set forth herein. 

The price of Tyco’s common stock steadily rose and stayed in the $50s for much of the period 

during and following the June 4, 2001 CIT acquisition and the period during which Franklin 

made additional acquisitions. On January 29, 2002, the day after the improperly-concealed 

Walsh payment was disclosed in the Company’s 2002 Proxy Statement, Tyco’s shares fell from 

$42 to $33.65, reducing the company’s market capitalization - according to Tyco - by almost $17 

billion in one day. Subsequently, as Tyco fought off attacks on the credibility of the Company’s 

financial statements and the integrity of its management, the price of Tyco common stock slid 

down to $20 per share. Subsequently, by April 30, 2002, Tyco shares fell to $15.59. Finally, on 

June 7, 2002, Tyco stock fell to a six-year low, down $4.50 to $10.10 per share, on news that: 

(1) the Manhattan DA’s office and the SEC broadened their investigations beyond Kozlowski to 

determine if Tyco executives used the company’s cash to buy and art and homes; (2) S&P and 

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Moody’s reduced Tyco’s debt to lowest investment-grade rating (just above junk bond status), 

forcing Tyco to repay at least $530 million in debt; (3) the sale of CIT was delayed by the SEC 

while its fraud investigation continues; and (4) Tyco confirmed that it was launching its own 

“comprehensive internal investigation” into Kozlowski’s and other executives’ use of company 

funds. The stock continued to trade at low levels during the 90 days thereafter. 

COUNT I 

VIOLATION OF SECTION 11 OF THE 1933 ACT 

403. Franklin brings this Count against Tyco pursuant to Section 11 of the 1933 Act, 

15 U.S.C. § 77k. 

404. This Count does not sound in fraud. All of the preceding allegations of fraud or 

fraudulent conduct and/or motive are specifically excluded from this Count. 

405. The following registration statements and prospectuses (the “Registration 

Statements/Prospectuses”) were inaccurate and misleading, contained untrue statements of 

material facts, omitted to state other facts necessary to make the statements made not misleading, 

and concealed and failed adequately to disclose material facts as described above: 

Form S-4 relating to a proposed merger between The CIT Group, 

Inc. and Tyco Acquisition Corp. XIX (NV), a direct wholly-owned 

subsidiary of Tyco, dated March 29, 2001 

Amendment No. 1 to Form S-4, dated April 13, 2001 

Prospectus relating to the proposed merger between The CIT 

Group, Inc. and Tyco Acquisition Corp. XIX (NV), dated April 24, 

2001 

Post-Effective Amendment No. 1 to Form S-4 relating to the 

proposed merger between The CIT Group, Inc. and Tyco 

Acquisition Corp. XIX (NV), dated May 24, 2001 

Prospectus relating to Tyco’s proposed offer to exchange up to 

7,141,083 common shares of Tyco stock for exchangeable shares 

of Tyco’s direct subsidiary, CIT Exchangeco, Inc., dated June 5, 

2001 

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Form S-8 in connection with the issuance of securities to The CIT 

Group, Inc. Savings Incentive Plan, relating to the proposed 

merger between The CIT Group, Inc. and Tyco, dated June 7, 2001 

406. The Company is the registrant and issuer for these offerings. 

407. As issuer of the shares, Tyco is strictly liable to Franklin for the material 

misstatements and omissions in the Registration statements/Prospectuses. 

408. By reasons of the conduct herein alleged, each defendant violated, and/or 

controlled a person who violated, Section 11 of the 1933 Act. 

409. Franklin acquired Tyco shares issued pursuant to, or traceable to, the Registration 

Statements/Prospectuses. 

410. Franklin has sustained damages. The value of Tyco shares has declined 

substantially subsequent to and due to Tyco’s violations. 

411. At the time they acquired Tyco shares, Franklin was without knowledge of the 

facts concerning the wrongful conduct alleged herein and could not have reasonably discovered 

such facts or wrongful conduct. Less than one year elapsed from the time that Franklin 

discovered or reasonably could have discovered the facts upon which this Complaint is based to 

the time that plaintiffs filed their Complaint (excluding periods tolled by virtue of the pendency 

of various class actions against Tyco). Less than three years elapsed from the time that the 

securities upon which this Count is brought were bona fide offered to the public to the time 

plaintiffs filed their Complaint (excluding periods tolled by virtue of the pendency of various 

class actions against Tyco). 

COUNT II 

VIOLATION OF SECTION 10(b) OF THE 1934 ACT 

AND RULE 10b-5 PROMULGATED THEREUNDER 

412. Franklin repeats and realleges each and every allegation above as if set forth in 

full herein. 

413. Franklin brings this Count against Tyco for violations of Section 10(b) of the 

1934 Act and Rule 10b-5 promulgated thereunder. 

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414. Tyco carried out a scheme, plan and course of conduct that was intended to and 

did: (i) deceive the investing public, including Franklin; (ii) artificially inflate and maintain the

market price of Tyco securities; and (iii) cause Franklin to purchase or otherwise acquire Tyco 

securities at inflated prices. In furtherance of this unlawful scheme, plan, and course of conduct, 

Tyco took the actions set forth herein. 

415. Tyco: (a) employed devices, schemes, and artifices to defraud; (b) made untrue 

statements of material fact and/or omitted to state material facts necessary to make the statements 

made not misleading; and/or (c) engaged in acts, practices, and a course of business that operated 

as a fraud and deceit upon the purchasers and/or acquirers of the Company’s stock in an effort to 

maintain artificially high market prices for Tyco securities in violation of Section 10(b) of the 

1934 Act, 15 U.S.C. 78j(b), and Rule 10b-5 promulgated thereunder, 17 C.F.R. 240.10b-5. 

416. In addition to the duties of full disclosure imposed on Tyco as a result of its 

making affirmative statements and reports to the investing public, Tyco had a duty to promptly 

disseminate truthful information that would be material to investors, in compliance with GAAP 

and the integrated disclosure provisions of the SEC as embodied in SEC Regulations S-X (17 

C.F.R. § 210.01 et seq.) and S-K (17 C.F.R. § 229.10 et seq.) and other SEC regulations, 

including truthful, complete and accurate information with respect to the Company’s operations 

and performance so that the market prices of the Company’s publicly traded securities would be 

based on truthful, complete and accurate information. 

417. Tyco, directly and indirectly, by the use of means and instrumentalities of 

interstate commerce and/or the mails, engaged and participated in a continuous course of conduct 

to conceal adverse material information about the Company’s financial results, businesses, 

operations, and prospects as specified herein. Tyco employed devices, schemes, and artifices to 

defraud, while in possession of material, adverse, non-public information, and engaged in acts, 

practices, and a course of conduct as alleged herein, in an effort to assure investors of Tyco’s 

earnings, assets, revenues expenses and the accuracy of the Company’s financial reporting of 

performance, which included the making of, or the participation in the making of, untrue 

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statements of material facts and omissions to state the material facts necessary in order to make 

the statements made about the Company’s financial and business operations in the light of the 

circumstances under which they were made, not misleading, as set forth more particularly herein. 

418. Tyco had actual knowledge of the misrepresentations and omissions of material 

facts set forth herein, or acted with reckless disregard for the truth in that it failed to ascertain 

and to disclose such facts, even though such facts were available to them. Tyco’s material 

misrepresentations and/or omissions were done knowingly or recklessly and for the purpose and 

effect of concealing Tyco’s accounting irregularities and the Undisclosed Acquisitions from the 

investing public and supporting the artificially inflated price of its securities. As demonstrated 

by Tyco’s statements set forth above, if it did not have actual knowledge of the 

misrepresentations and omissions alleged, Tyco was reckless in failing to obtain such knowledge 

by deliberately refraining from taking those steps necessary to discover whether those statements 

were false or misleading. 

419. As a result of the dissemination of the materially false and misleading information 

and/or Tyco’s failure to disclose material facts, as set forth herein, the market price of Tyco 

securities was artificially inflated at all relevant times. In ignorance of the fact that the market 

price of Tyco’s publicly-traded securities was artificially inflated, and relying directly or 

indirectly on the materially false and misleading statements made by Tyco, or upon the integrity 

of the market in which the securities trade, and the truth of any representations made to 

appropriate agencies as to the investing public, at the times at which any statements were made, 

and/or on the absence of material adverse information that was known to or recklessly 

disregarded by Tyco but not disclosed in public statements by Tyco, Franklin purchased or 

otherwise acquired for value Tyco securities at artificially high prices and was damaged thereby. 

420. At the time of such misstatements and omissions, Franklin was ignorant of their 

falsity, and believed them to be true. Had Franklin or the marketplace known of the true 

financial condition of the Company, which was not disclosed by Tyco, Franklin would not have 

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purchased or otherwise acquired Tyco securities, or, if it had purchased or otherwise acquired 

such securities, Franklin would not have done so at artificially inflated prices. 

421. By virtue of the foregoing, Tyco has violated Section 10(b) of the 1934 Act, and 

Rule 10b-5 promulgated thereunder. 

422. As a direct and proximate result of Tyco’s wrongful conduct, Franklin suffered 

damages. 

423. Franklin commenced this action within two years of having discovered the basis 

for its claim and within five years of the alleged violations (as tolled during the pendency of 

various class actions against Tyco). Consequently, this action is timely. 

COUNT III 

VIOLATION OF SECTION 18 OF THE EXCHANGE ACT 

424. Except as described below, Franklin repeats and realleges each and every 

allegation contained in the foregoing paragraphs as fully set forth herein. 

425. For purposes of this claim, Franklin expressly excludes and disclaims any 

allegation that could be construed as alleging fraud or intentional or reckless misconduct, as this 

claim is based solely on claims of strict liability and/or negligence under Section 18 of the 

Securities Exchange Act, 15 U.S.C. ¶78(r). 

426. As alleged herein, Tyco made or caused to be made statements in documents filed 

with the SEC pursuant to the rules or regulations of the Exchange Act -- including Tyco’s 10-Ks 

and 10-Qs for the relevant period -- or undertakings contained in registration statements as 

provided in subsection (d) of Section 15 of the Exchange Act, which statements were, at the time 

and in light of the circumstances under which made, false or misleading with respect to material 

facts. 

427. Franklin actually read, reviewed and relied on the false and materially misleading 

statements contained in those documents in making the decision to purchase Tyco securities. 

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428. In ignorance of the falsity of the Section 18 Tyco statements or of the true facts, 

and after reading and actually relying thereon, Franklin purchased Tyco securities in actual 

eyeball reliance upon Tyco’s representations. 

429. Tyco’s materially false or misleading statements artificially inflated the price of 

Tyco securities. 

430. Had it known the true facts, Franklin would not have purchased the Tyco 

securities, and/or would not have purchased them at the inflated price. 

431. Upon disclosure of the true facts, the price of Tyco securities purchased by 

Franklin dropped, and Franklin suffered damages if an amount to be proven at trial. 

432. By reason of the foregoing, Tyco is liable to Franklin for violation of Section 18 

of the Exchange Act, 15 U.S.C. §78(r). 

PRAYER FOR RELIEF

WHEREFORE, Franklin prays for judgment as follows: 

1. Awarding Franklin compensatory damages as a result of the wrongs alleged in 

Counts I - III of the Complaint; 

2. Awarding Franklin costs and expenses in this litigation, including reasonable 

attorneys’ fees and experts’ fees and other costs and disbursements; and 

3. Awarding Franklin such other and further relief as the Court may deem just and 

proper. 

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DEMAND FOR JURY TRIAL

Franklin hereby demands trial by jury for all issues so triable.

Dated: September 24, 2007 

LAW OFFICES OF MARC B. KRAMER 

A Professional Corporation 

150 JFK Parkway, Suite 100 

Short Hills, New Jersey 07078 

973.847.5924 

Attorneys for Plaintiffs 

s/ Marc B. Kramer_______ 

Marc B. Kramer (MK-8473) 

CERTIFICATION IN ACCORDANCE WITH LOCAL CIVIL RULE 11.2

 I certify that the matter in controversy is not the subject of any other action, 

arbitration or administrative proceeding, pending or contemplated, except as follows: the 

allegations in this matter are related to the matters at issue in In re Tyco International, Ltd. 

Securities Litigation, MDL Docket No. 02-1335-B pending in the United States District Court 

for the District of New Hampshire. 

Dated: September 24, 2007 

LAW OFFICES OF MARC B. KRAMER 

A Professional Corporation 

150 JFK Parkway, Suite 100 

Short Hills, New Jersey 07078 

973.847.5924 

Attorneys for Plaintiffs 

s/ Marc B. Kramer_______ 

Marc B. Kramer (MK-8473) 

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