UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF NEW JERSEY 

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PUBLIC EMPLOYEES’ RETIREMENT 

ASSOCIATION OF COLORADO, 

Plaintiff, 

v. 

TYCO INTERNATIONAL, LTD., TYCO 

ELECTRONICS LTD., COVIDIEN LTD., 

L. DENNIS KOZLOWSKI, MARK H. SWARTZ, 

FRANK E. WALSH, JR., and 

PRICEWATERHOUSECOOPERS LLP 

Defendants. 

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Civil Number __________ 

JURY TRIAL DEMANDED 

 x 

COMPLAINT 

 ENTWISTLE & CAPPUCCI LLP 

Andrew J. Entwistle (AE-6513) 

Johnston de F. Whitman, Jr. 

Richard W. Gonnello 

30 Columbia Turnpike 

P.O. Box 95 

Florham Park, NJ 07932 

Tel: (973) 236-0666 

Fax: (973) 236-9565 
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TABLE OF CONTENTS 

I. ALLEGATIONS PURSUANT TO LOCAL CIVIL RULE 10.1....................................... 1 

II. INTRODUCTION .............................................................................................................. 1

III. JURISDICTION AND VENUE ......................................................................................... 2 

IV. PARTIES ............................................................................................................................ 3 

A. Plaintiff ................................................................................................................... 3 

B. Tyco Defendants ..................................................................................................... 4 

C. PricewaterhouseCoopers LLP................................................................................. 7 

V. DEFENDANTS’ WRONGFUL COURSE OF CONDUCT .............................................. 7 

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

Financial Reporting, Reported Acquisition Costs, and the Purported 

Success of Its Acquisition Strategy......................................................................... 9 

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

Financial Disclosures................................................................................ 15 

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

Misleading Financial Statements During the Relevant 

Period ............................................................................................ 17 

b. Tyco’s Improper Failure To Disclose Material Related 

Party Transactions......................................................................... 26 

i. Undisclosed Extraordinary Related Party 

Compensation ................................................................... 27 

ii. Undisclosed Related Party Loans ..................................... 28 

c. Tyco’s False and Misleading Accounting for Acquired 

Companies and Improper Manipulation of Accounting 

Reserves ........................................................................................ 30 

d. Tyco’s Improper Failure To Timely Record Impaired 

Goodwill ....................................................................................... 39 

e. Tyco’s Improper Recognition of Excess Reimbursements 

From Independent Dealers............................................................ 41 

f. Violations of SEC Regulations ..................................................... 44 
ii 

2. Tyco’s Failure To Disclose Numerous Acquisitions During the 

Relevant Period......................................................................................... 45 

3. Tyco’s Withholding of Documents From the SEC During Its 1999-

2000 Inquiry.............................................................................................. 46 

4. Breakdown of Tyco’s Internal Controls ................................................... 47 

5. PwC’s Participation in the Fraud and Its Scienter .................................... 50 

B. Material Omitted Information Concerning Looting of the Company by Its 

Senior Executives Who Were Conducting Tyco as a Criminal Enterprise .......... 63 

1. Relocation Programs................................................................................. 66 

a. L. Dennis Kozlowski .................................................................... 66 

b. Mark H. Swartz............................................................................. 67 

c. Other Executive Officers .............................................................. 68 

2. The “TyCom Bonus” Misappropriation.................................................... 69 

3. The “ADT Automotive Bonus” Misappropriations.................................. 71 

4. Key Employee Loan Program................................................................... 72 

a. L. Dennis Kozlowski .................................................................... 73 

b. Mark H. Swartz............................................................................. 74 

5. Attempted Unauthorized Credits to Key Employee Loan Accounts ........ 75 

6. Self-Dealing Transactions and Other Misuses of Corporate Trust........... 76 

a. Kozlowski Evidence Tampering................................................... 76 

b. Kozlowski Fraudulent New York Home Purchase....................... 76 

c. Concealed, Fraudulent Overpayment to Kozlowski for New 

Hampshire Property ...................................................................... 77 

d. Kozlowski Non-Legitimate Business Expenses ........................... 77 

e. Kozlowski Charitable Contributions for Personal Benefit ........... 77 

f. Walsh Payment ............................................................................. 78 

g. Swartz Breach of Nominee Agreement ........................................ 80 
iii 

h. Swartz Personal Expense Reimbursement.................................... 80 

i. Compensation Committee Deceptions.......................................... 80 

j. Other Undisclosed Transactions Between Tyco and Its 

Directors........................................................................................ 81 

7. Kozlowski and Swartz Engage in Short Swing Trading........................... 82 

VI. THE DEFENDANTS’ MATERIALLY FALSE AND MISLEADING 

STATEMENTS DURING THE RELEVANT PERIOD.................................................. 82 

A. Materially False and Misleading Statements Throughout the Relevant 

Period That Acquisitions Will Be Immediately “Positive” or “Accretive”.......... 82 

B. 1999 Materially False and Misleading Statements and Omissions ...................... 87 

1. The 1999 10-K Filed on December 13, 1999 ........................................... 88 

a. Tyco’s “Strategy”.......................................................................... 88 

b. Tyco’s Manipulation of Purchase Accounting Reserves.............. 89 

c. Tyco’s Operating Results.............................................................. 90 

d. Management Remuneration.......................................................... 92 

2. The 1999 10-K/A Filed on 1/28/00........................................................... 93 

3. The 1999 10-K/A Filed on 6/26/00........................................................... 94 

a. Tyco’s Operating Results.............................................................. 96 

4. 12/21/99 S-8.............................................................................................. 97 

5. 12/21/99 S-4 (and Related S-4/A and Prospectus) ................................... 97 

6. 1999 Annual Report to Shareholders........................................................ 99 

C. 2000 Materially False and Misleading Statements and Omissions .................... 102 

1. 1/18/00 Conference Call ......................................................................... 102 

2. 1/20/00 8-K ............................................................................................. 103 

3. 1/28/00 S-8.............................................................................................. 104 

4. 2/11/00 10-Q for Quarter Ended 12/31/99.............................................. 104 
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a. Tyco’s Operating Results............................................................ 104 

b. Tyco’s Charges and Reserves ..................................................... 105 

5. 3/1/00 Proxy Statement for 2000 Annual meeting ................................. 107 

a. Management Remuneration........................................................ 107 

b. Key Employee Loan Program..................................................... 110 

c. Allegations of Misconduct Against Tyco ................................... 111 

6. 4/18/00 Earnings Announcement............................................................ 111 

7. 4/18/00 Conference Call ......................................................................... 112 

8. 5/15/00 10-Q for Quarter Ended 3/31/00................................................ 114 

a. Tvco’s Operating Results............................................................ 114 

b. Tyco’s Charges and Reserves ..................................................... 115 

9. 6/26/00 10-Q/A Filed for Quarter Ended 12/31/99................................. 116 

a. Tyco’s Operating Results............................................................ 118 

b. Tyco’s Charges and Reserves ..................................................... 119 

10. 6/26/00 10-Q/A filed for Quarter Ended 3/31/00 ................................... 120 

a. Tyco’s Operating Results............................................................ 121 

b. Tyco’s Charges and Reserves ..................................................... 123 

11. 6/28/00 Conference Call ......................................................................... 125 

12. 7/12/00 S-4 (and Related S-4/A and Prospectus) ................................... 126 

13. 7/13/00 Press Release ............................................................................. 128 

14. 7/19/00 Earnings Announcement............................................................ 129 

15. 7/19/00 Conference Call ......................................................................... 130 

16. 7/24/00 S-4 (and related S-4/A, Prospectuses, and Post-Effective 

Amendment) ........................................................................................... 131 

17. 12/15/00 Prospectus................................................................................ 136 

18. 8/14/00 10-Q for Quarter Ended 6/30/00................................................ 137 
v 

a. Tyco’s Operating Results............................................................ 137 

b. Tyco’s Charges and Reserves ..................................................... 138 

19. 8/18/00 S-3 (and Related Prospectus)..................................................... 139 

20. 8/18/00 S-3.............................................................................................. 141 

21. 8/18/00 S-3 (and Related Prospectus and Prospectus Supplements)...... 142 

22. 10/18/00 Press Release ........................................................................... 145 

23. 10/18/00 S-4 (and Related S-4/A’s)........................................................ 146 

24. 10/23/00 S-8............................................................................................ 150 

25. 10/24/00 Earnings Announcement.......................................................... 151 

26. 10/24/00 Conference Call ....................................................................... 151 

27. 11/9/00 S-3 (and Related S-3/A and Prospectus) ................................... 153 

28. 11/14/00 Conference Call ....................................................................... 157 

29. 12/4/00 Simplex Acquisition .................................................................. 158 

30. 12/8/00 S-3 (and Related S-3/A and Prospectus) ................................... 158 

31. The 2000 10-K Filed on 12/21/00........................................................... 162 

a. Tyco’s “Strategy”........................................................................ 163 

b. Tyco’s Manipulation of Purchase Accounting Reserves............ 163 

c. Tyco’s Operating Results............................................................ 164 

d. Management Remuneration and Related Transactions............... 165 

32. 12/29/00 Lucent Acquisition Closes....................................................... 166 

33. 2000 Annual Report to Shareholders...................................................... 166 

D. 2001 Materially False and Misleading Statements and Omissions .................... 171 

1. 1/17/01 Press Release ............................................................................. 171 

2. 1/17/01 Conference Call ......................................................................... 172 

3. 2001 Proxy Statement............................................................................. 172 
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a. Management Remuneration........................................................ 172 

b. Key Employee Loan Program..................................................... 175 

4. 1/31/01 S-8.............................................................................................. 176 

5. 2/13/01 10-Q for Quarter Ended 12/31/00.............................................. 176 

a. Tyco’s Operating Results............................................................ 176 

b. Tyco’s Reserves.......................................................................... 177 

6. 2/23/01 S-4 (and Related S-4/A and Prospectus) ................................... 178 

7. 3/13/01 Conference Call ......................................................................... 180 

8. 3/16/01 S-3 (and related Prospectus) ...................................................... 181 

9. 3/29/01 S-4 (and Related S-8)................................................................. 182 

10. 4/18/01 Press Release ............................................................................. 187 

11. 4/18/01 Conference Call ......................................................................... 188 

12. 5/11/01 10-Q for Quarter Ended 3/31/01................................................ 189 

a. Tyco’s Operating Results............................................................ 189 

b. Tyco’s Reserves.......................................................................... 190 

13. 5/30/01 Conference Call ......................................................................... 191 

14. 7/18/01 Earnings Announcement............................................................ 192 

15. 7/18/01 Conference Call ......................................................................... 193 

16. 7/24/01 S-3.............................................................................................. 193 

17. 8/3/01 Conference Call ........................................................................... 194 

18. 8/13/01 10-Q for Quarter Ended 6/30/01................................................ 195 

a. Tyco’s Operating Results............................................................ 195 

b. Tyco’s Reserves.......................................................................... 196 

19. 8/24/01 S-4 (and Related S-4/A and Prospectus) ................................... 197 

20. 8/28/01 S-3 (and Related Prospectus and Supplemental Prospectus)..... 199 
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21. 9/11/01 Conference Call ......................................................................... 201 

22. 10/18/01 Press Release ........................................................................... 202 

23. 10/18/01 Conference Call ....................................................................... 203 

24. 10/23/01 S-4 (and Related S-4/A and Prospectus) ................................. 203 

25. 11/15/01 Conference Call ....................................................................... 206 

26. 12/28/01 10-K for Fiscal Year-ended 9/30/01........................................ 206 

a. Tyco’s “Strategy”........................................................................ 207 

b. Tyco’s Operating Results............................................................ 207 

c. Management Remuneration........................................................ 209 

27. 2001 Annual Report to Shareholders...................................................... 210 

E. 2002 Materially False and Misleading Statements and Omissions .................... 212 

1. 1/8/02 S-4 (and Related S4/A)................................................................ 212 

2. 1/15/02 Press Release ............................................................................. 214 

3. 1/15/02 Conference Call ......................................................................... 215 

4. 1/22/02 Conference Call ......................................................................... 218 

5. 1/28/02 Proxy Statement......................................................................... 221 

a. Management Remuneration........................................................ 221 

b. Key Employee Loan Program..................................................... 223 

6. 1/31/02 Analyst Report........................................................................... 226 

7. 2/4/02 Press Release ............................................................................... 228 

8. 2/6/02 Conference Call ........................................................................... 229 

9. 2/11/02 Disclosures................................................................................. 232 

10. 2/13/02 Conference Call ......................................................................... 232 

11. 2/14/02 10-Q ........................................................................................... 233 

a. Tyco’s Operating Results............................................................ 233 
viii 

b. Tyco’s Reserves.......................................................................... 234 

12. 2/22/02 Boston Globe Article ................................................................. 235 

13. 2/26/02 Conference Call ......................................................................... 236 

14. 2/28/02 New York Times Article ........................................................... 237 

15. 3/5/02 Conference Call ........................................................................... 238 

16. 3/10/02 Sun Sentinel Article................................................................... 239 

17. 3/12/02 Conference Call ......................................................................... 239 

18. 3/19/02 Conference Call and Wall Street Journal Article ...................... 240 

19. 4/2/02 Conference Call ........................................................................... 241 

20. 4/3/02 Analyst Report............................................................................. 242 

21. 4/25/02 Press Release ............................................................................. 242 

22. 4/25/02 Conference Call ......................................................................... 243 

23. 4/30/02 Conference Call ......................................................................... 245 

24. 5/15/02 10-Q for the Quarter Ended 3/31/02.......................................... 246 

a. Tyco’s Operating Results............................................................ 246 

b. Tyco’s Reserves.......................................................................... 248 

25. 5/16/02 Conference Call ......................................................................... 249 

26. Announcements of Criminal Investigations............................................ 250 

VII. POST-RELEVANT PERIOD EVENTS......................................................................... 255 

VIII. ADDITIONAL SCIENTER ALLEGATIONS............................................................... 261 

A. Insider Selling During the Relevant Period ........................................................ 261 

B. Tyco’s $40 Billion in Public Stock Offerings During the Relevant Period........ 265 

IX. INAPPLICABILITY OF STATUTORY SAFE HARBOR ........................................... 265 

X. PLAINTIFF’S RELIANCE ON DEFENDANTS’ FALSE AND MISLEADING 

STATEMENTS............................................................................................................... 266 

XI. LOSS CAUSATION....................................................................................................... 267 
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XII. APPROPRIATENESS OF GROUP PLEADING AS TO THE INDIVIDUAL 

DEFENDANTS .............................................................................................................. 269 

XIII. THE INDIVIDUAL DEFENDANTS’ CONTROL OVER TYCO................................ 270 

XIV. THE INDIVIDUAL DEFENDANTS’ USE OF ANALYSTS AS A CONDUIT 

TO DISSEMINATE FALSE AND MISLEADING INFORMATION ABOUT 

TYCO.............................................................................................................................. 272 

XV. NEW JERSEY RICO ALLEGATIONS......................................................................... 274 

A. Tyco Defendants’ Pattern of Racketeering Conduct .......................................... 274 

1. Theft and Violations of Chapter 20 of Title 2C of the New Jersey 

Statutes.................................................................................................... 274 

2. Fraudulent Practices and Violations of Chapter 21 of Title 2C of 

the New Jersey Statutes .......................................................................... 276 

3. Use of Tyco to Further and Promote Criminal Objects .......................... 277 

4. Securities Violations ............................................................................... 277 

5. Mail and Wire Fraud............................................................................... 278 

B. Tyco Defendants’ Violations of the New Jersey RICO Act ............................... 279 

C. Plaintiff’s Injuries Arising From Tyco Defendants’ Violations of the New 

Jersey RICO Act ................................................................................................. 281 

XVI. CAUSES OF ACTION................................................................................................... 281 

COUNT I (Against Tyco, Kozlowski, Swartz, Walsh, and PwC for Violation of 

Section 10(b) of the 1934 Act and Rule 10b-5).................................................. 281 

COUNT II (Against Kozlowski, Swartz, and Walsh for Violation of Section 20(a) 

of the 1934 Act) .................................................................................................. 285 

COUNT III (Against Kozlowski, Swartz, and Walsh for Violation of Section 20A 

of the 1934 Act) .................................................................................................. 286 

COUNT IV (Against All Defendants for Violation of Section 11 of the 1933 Act)..... 287 

COUNT V (Against Tyco, Kozlowski, Swartz, And Walsh For Violation Of 

Section 12(a)(2) of the 1933 Act) ....................................................................... 290 

COUNT VI (Against Kozlowski, Swartz, and Walsh for Violation of Section 15 

of the 1933 Act) .................................................................................................. 291 
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COUNT VII (Against Tyco for Violations of N.J.S.A. 2C;41-2(a)) .............................. 292 

COUNT VIII (Against Tyco for Vicarious Liability in Violation of N.J.S.A. 

2C:41-2(a)).......................................................................................................... 293 

COUNT IX (Against Tyco for Liability Under N.J.S.A. 2C:41-2(b)) ........................... 298 

COUNT X (Against Tyco And The Individual Defendants As An Association In 

Fact for Violations Of N.J. S.A. 2C:41-2(b)) ..................................................... 299 

COUNT XI (Against The Individual Defendants for Liability Under N.J.S.A. 

2C:41-2(b)) ......................................................................................................... 299 

COUNT XII (Against Tyco for Vicarious Liability Under N.J.S.A. 2C:41-2(b)).......... 300 

COUNT XIII (Against The Individual Defendants for Liability Under N.J.S.A. 

2C:41-2(c)).......................................................................................................... 301 

COUNT XIV (Against All Tyco Defendants for Liability Under N.J.S.A. 2C:41-

2(c))..................................................................................................................... 302 

COUNT XV (Against All Tyco Defendants As An Association In Fact for 

Liability Under N.J.S.A. 2C:41-2(c)) ................................................................. 302 

COUNT XVI (Against Tyco for Vicarious Liability Under N.J.S.A. 2C:41-2(c)) ........ 303 

COUNT XVII (Against All Defendants for Violations Of N.J.S.A. 2C:41-2(d)).......... 304 

XVII. PRAYER FOR RELIEF ................................................................................................. 305 

XVIII. JURY TRIAL DEMANDED.......................................................................................... 306 

XIX. VERIFICATION AND CERTIFICATION PURSUANT TO LOCAL CIVIL 

RULE 11.2 ...................................................................................................................... 306 
I. ALLEGATIONS PURSUANT TO LOCAL CIVIL RULE 10.1 

1. The name and address of the parties are as follows: (i) Plaintiff Public 

Employees’ Retirement Association of Colorado (“Colorado PERA”), 1300 Logan Street, 

Denver, Colorado 80203; (ii) Defendant Tyco International Ltd. (“Tyco” or the “Company”), 90 

Pitts Bay Road, Second Floor, Pembroke, HM 08, Bermuda; (iii) Defendant Tyco Electronics 

Ltd., Chesney House, Second Floor, 96 Pitts Bay Road, Pembroke HM 08, Bermuda; (iv) 

Defendant Covidien Ltd., 90 Pitts Bay Road, Second Floor, Pembroke, HM 08, Bermuda; (v) 

Defendant Covidien (U.S.), 15 Hampshire Street, Mansfield, MA 02048; (vi) Defendant L. 

Dennis Kozlowski, Mid-State Correctional Facility (Inmate No. 05A4820), RR 291, Marcy, New 

York 13403; (vii) Mark H. Swartz, Oneida Correctional Facility, 6100 School Road, Rome, New 

York, 13440, Inmate No. 05A4823; (viii) Defendant Frank E. Walsh, Jr., 2 Morgan Court, 

Morristown, New Jersey 07960; and (ix) PricewaterhouseCoopers LLP (“PwC”), 300 Madison 

Avenue, 24th Floor, New York, New York 10017. 

II. INTRODUCTION 

2. Plaintiff, by its attorneys, makes the following allegations upon information and 

belief (except as to allegations specifically pertaining to plaintiff and its counsel that are based 

on personal knowledge) based upon the investigation conducted by and under the supervision of 

plaintiff’s counsel, which included reviewing and analyzing information and financial data 

relating to the “Relevant Period” (December 13, 1999 through June 7, 2002), concerning Tyco 

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

and Bloomberg), including 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. Plaintiff’s investigation included reviewing the 
2 

pleadings filed by the parties in In re Tyco International, Ltd. Sec. Litig., MDL Docket No. 02-

1335-PB (D. N.H.); Franklin Mutual Advisors, LLC, et al. v. Tyco Int’l Ltd., et al., Case No. 07-

CV-04575-WJM-MF (D.N.J.); Teacher Retirement System of Texas, et al. v. Tyco Int’l Ltd., et 

al., Case No. 07-CV-05704-WJM-MF (D.N.J.); Federated American Leaders Fund, Inc. et al. v. 

Tyco Intl Ltd., et al., Case No. 2:08-cv-00478-WJM-MF (D.N.J.); Nuveen Balanced Municipal 

and Stock Fund, et al. v. Tyco Int’l Ltd., et al., Case No. 08-CV-00518-WJM-MF (D.N.J.); and 

Blackrock Global Allocation Fund, Inc., et al. v. Tyco International Ltd., et al., Case No. 2:08-

cv-00519-WJM-MF (D.N.J.). Except as alleged herein, the underlying information relating to 

Defendants’ misconduct and the particulars thereof are not available to plaintiff and the public 

and lie exclusively within the possession, custody, and control of Defendants and other insiders, 

thus preventing plaintiff from further detailing Defendants’ misconduct. Plaintiff believes that 

further substantial evidentiary support will exist for the allegations set forth below after a 

reasonable opportunity for discovery. 

III. JURISDICTION AND VENUE 

3. This action arises under Sections 10(b), 20(a), and 20A of the Securities 

Exchange Act of 1934 (the “Exchange Act”), as amended, 15 U.S.C. §§ 78j(b), 78(n) and 78t(a), 

78(t)-1(a), and SEC Rule 10b-5, 17 C.R.F. § 240.10b-5, promulgated thereunder; under Sections 

11, 12(a)(2), and 15 of the Securities Act of 1933 (the “Securities Act”), 15 U.S.C. §§ 77k(a), 

77l(a)(2), and 77o; and under the New Jersey Racketeer Influenced and Corrupt Organizations 

Act (“NJ RICO”) (N.J.S.A. 2C:41-1, et seq.). 

4. This Court has jurisdiction over this action pursuant to 28 U.S.C. §1331; Section 

22 of the Securities Act, 15 U.S.C. § 77v; and Section 27 of the Exchange Act, 15 U.S.C. § 78aa. 

This Court also has supplemental jurisdiction over the NJ RICO claims pursuant to 28 U.S.C. § 

1367. 
3 

5. Venue is proper in this District pursuant to § 27 of the Exchange Act and 28 

U.S.C. § 1391(b). Furthermore, Tyco maintains offices in this District and many of the acts and 

omissions charged herein, including the preparation and dissemination of materially false and 

misleading information, occurred, at least in part, in this District. 

6. In connection with the acts alleged in this Complaint, the Defendants, directly or 

indirectly, used the means and instrumentalities of interstate commerce, including but not limited 

to the United States mail, interstate telephone communications, internet communications, and the 

facilities of the New York Stock Exchange (the “NYSE”). 

7. In connection with Colorado PERA’s claims under New Jersey’s RICO Statute, 

the racketeering enterprises engaged in trade or commerce in New Jersey or affected trade or 

commerce in New Jersey. 

IV. PARTIES 

A. Plaintiff 

8. Colorado PERA, which was established in 1931, operates by authority of the 

Colorado General Assembly. Colorado PERA provides retirement and other benefits to the 

employees of more than 400 government agencies and public entities in the State of Colorado. 

Colorado PERA’s membership includes employees of the Colorado state government, most 

teachers in the State of Colorado, many university and college employees, judges, many 

employees of Colorado cities and towns, Colorado State Troopers, and the employees of a 

number of other public entities within the State of Colorado. With approximately $42 billion in 

assets and more than 230 employees, Colorado PERA is the 25th largest public pension plan in 

the United States. 

9. Colorado PERA purchased Tyco securities at artificially inflated prices during the 

Relevant Period, as set forth in the tables that are attached hereto in Exhibit A. Colorado PERA 
4 

was damaged as the truth regarding the Defendants’ wrongful actions and statements gradually 

emerged to the public and the value of the Tyco securities declined in response. 

B. Tyco Defendants 

10. Defendant Tyco is a Bermuda corporation. The headquarters of Tyco’s principal 

U.S. subsidiary have been located at 9 Roszel Road, Princeton, New Jersey 08540 since on or 

about August 29, 2002. Prior to that time, the headquarters of Tyco’s principal U.S. subsidiary 

were located at 1 Tyco Park, Exeter, New Hampshire 03833. 

11. Tyco is a diversified manufacturing and services company. During the Relevant 

Period, Tyco designed, manufactured, and distributed electronic and electrical components, 

undersea cable communications systems, disposable medical supplies, fire detection and 

suppression systems, electronic security systems, and other products. 

12. Tyco’s common stock has at all relevant times traded on the NYSE under the 

ticker symbol TYC. 

13. On June 29, 2007, Tyco split itself into three entities: (i) Tyco; (ii) Covidien Ltd. 

(“Covidien”); and (iii) Tyco Electronics Ltd. (“Tyco Electronics”). According to Tyco’s Form 

10-K filed with the SEC on November 27, 2007, each of the three separate entities assumes 

responsibilities for any alleged violations of the securities laws pre-existing the split: 

Tyco will assume 27%, Covidien will assume 42% and Tyco 

Electronics will assume 31% of certain Tyco pre-separation 

contingent and other corporate liabilities, which include securities 

class action litigation, ERISA class action litigation, certain legacy 

tax contingencies and any actions with respect to the spin-offs or 

the distributions made or brought by any third party. Any amounts 

relating to these contingent and other corporate liabilities paid by 

Tyco after the spin-offs that are subject to the allocation provisions 

of the Separation and Distribution Agreement will be shared 

among Tyco, Covidien and Tyco Electronics pursuant to the same 

allocation ratio. As described in the Separation and Distribution 

Agreement, Tyco, Tyco Electronics and Covidien are jointly and 

severally liable for all amounts relating to the previously disclosed 
5 

securities class action settlement. All costs and expenses that Tyco 

incurs in connection with the defense of such litigation, other than 

the amount of any judgment or settlement, which will be allocated 

in the manner described above, will be borne equally by Covidien, 

Tyco Electronics and Tyco. 

14. As described above, Defendant Covidien is a successor corporation of Tyco that 

is liable jointly and severally with Tyco. Covidien split from Tyco on June 29, 2007 and began 

trading as a public company on July 2, 2007 on the NYSE under the ticker symbol COV. 

15. As described above, Defendant Tyco Electronics is a successor corporation of 

Tyco that is liable jointly and severally with Tyco. Tyco Electronics split from Tyco on June 29, 

2007 and began trading as a public company on July 2, 2007 on the New York Stock Exchange 

under the ticker symbol TEL. 

16. Defendant L. Dennis Kozlowski was Tyco’s Chairman and Chief Executive 

Officer throughout the Relevant Period until June 3, 2002. On June 17, 2005, Kozlowski was 

convicted by a New York jury of 22 of 23 counts of grand larceny, securities fraud, conspiracy, 

and falsifying business records. As a consequence, Kozlowski was sentenced to 8 1/3 to 25 

years in prison, ordered to pay $134 million in restitution, and fined $70 million by Manhattan 

Supreme Court Judge Michael Obus. Kozlowski’s conviction and sentence were upheld by the 

Appellate Division of the New York Supreme Court on November 13, 2007. 

17. Defendant Mark H. Swartz was Tyco’s Executive Vice-President and Chief 

Financial Officer during the Relevant Period. Before his appointment as CFO, Swartz was 

Tyco’s Director of Mergers and Acquisitions. Swartz became a Tyco Board member in 2001 

and ranked as the highest paid CFO in the United States that year. According to research firm 

Equillar Inc., Swartz earned nearly $47 million in compensation in 2001, or nearly $15 million 

more than the next highest paid CFO, Richard Bressler of Viacom. On June 17, 2005, Swartz 

was convicted by a New York jury of 22 of 23 counts of grand larceny, securities fraud, 
6 

conspiracy, and falsifying business records. As a consequence, Swartz was sentenced to 8 1/3 to 

25 years in prison, ordered to pay $134 million in restitution, and fined $35 million by 

Manhattan Supreme Court Judge Michael Obus. Swartz’s conviction and sentence were upheld 

by the Appellate Division of the New York Supreme Court on November 13, 2007. 

18. Defendant Frank E. Walsh, Jr. was a director of Tyco throughout the Relevant 

Period until February 2002, when he did not stand for re-election to the Board. On December 

17, 2002, Walsh pleaded guilty to a felony violation of New York’s Martin Act in the Supreme 

Court of the State of New York (New York County) and settled a civil action for violation of 

federal securities laws brought by the SEC in United States District Court for the Southern 

District of New York. 

19. Both the felony charge and the civil action were brought against Walsh based on a 

$20 million payment by Tyco, $10 million of which went to Walsh with the balance going to a 

charity of which Walsh is trustee. The payment was purportedly made for Walsh’s assistance in 

arranging Tyco’s acquisition of The CIT Group, Inc. (“CIT”). The felony charge accused Walsh 

of intentionally concealing information concerning the payment from Tyco’s directors and 

shareholders while engaged in the sale of Tyco securities in the State of New York. The SEC 

action alleged that Walsh knew that the registration statement covering the sale of Tyco 

securities as part of the CIT acquisition contained a material misrepresentation concerning fees 

payable in connection with the acquisition. 

20. Pursuant to the plea, Walsh agreed to pay $20 million in restitution to Tyco and to 

pay other fines to the State of New York. Pursuant to the settlement, Walsh consented to an 

order permanently enjoining him from violating provisions of the federal securities laws, 

requiring him to pay restitution to Tyco, and permanently barring him from serving as an officer 
7 

or director of a publicly held company. Tyco received Walsh’s restitution payment of $20 

million. 

21. Collectively, Defendants Kozlowski, Swartz, and Walsh shall be referred to 

hereafter as the “Individual Defendants.” Collectively, Tyco, Covidien, Tyco Electronics, and 

the Individual Defendants shall be referred to hereafter as the “Tyco Defendants.” 

C. PricewaterhouseCoopers LLP 

22. Defendant PwC, which is headquartered in New York City, acted as the 

Company’s purportedly independent outside auditor at all relevant times. PwC audited Tyco’s 

materially false and misleading financial statements during the Relevant Period and issued 

materially false and misleading opinions as to those financial statements. Additionally, PwC 

consented to the use of its unqualified opinions on Tyco’s financial statements in Tyco’s reports, 

Registration Statements, and Prospectuses filed with the SEC and disseminated to the investing 

public. 

23. On August 13, 2003, the SEC issued an order instituting settled cease-and-desist 

proceedings against Richard P. Scalzo, CPA, the PwC engagement partner for the firm’s audits 

of Tyco’s financial statements for the fiscal years 1997 through 2001. The SEC’s order found 

that Scalzo recklessly violated the antifraud provisions of the federal securities laws by 

recklessly issuing fraudulent audit reports and engaging in improper professional conduct by 

failing to conduct the audits in accordance with generally accepted auditing standards 

(“GAAS”). Scalzo consented to the issuance of the order, which ordered him to cease and desist 

from violations of the antifraud provisions and permanently barred him from appearing or 

practicing before the SEC as an accountant. 

V. DEFENDANTS’ WRONGFUL COURSE OF CONDUCT 

24. Throughout the Relevant Period, the Defendants failed to disclose and falsely 
8 

denied the falsification of Tyco’s financial reporting, reported acquisition costs, and the 

purported success of its acquisition strategy. The Defendants also failed to disclose the 

systematic looting of the Company by its senior executives who were conducting Tyco as a 

criminal enterprise. For example, Tyco has now admitted that during the Relevant Period the 

Company engaged in the following misconduct: 

• 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”; 

• 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; 

• Failed to disclose that senior management “exerted pressure” on and 

“provided incentives” to employees to artificially inflate reported 

earnings; 

• Failed to disclose that it paid off executives at companies it acquired by 

incentivizing them to manipulate their financial reporting before the 

acquisition to create the false appearance of superior earnings for Tyco 

after the acquisition; 

• Failed to disclose “a number of accounting entries that were incorrect and 

required correction”; 

• Failed to disclose a number of material related party transactions, 

including (i) “abuse of [Tyco’s] employee relocation loan program;” (ii) 

“unapproved bonuses;” (iii) “compensation arrangements;” (iv) 

“perquisites;” and (v) “self-dealing transactions”; 

• Failed to disclose that it artificially inflated Tyco’s earnings by engaging 

in “Financial Engineering” and the improper manipulation of accounting 

reserves; 

• 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; 

• Failed to disclose that it improperly included excess “reimbursements” 

received by its home security business (ADT) in the Company’s earnings 
9 

rather than recognizing such payments over the life of the contract, with 

the net effect of the appropriate recognition of such payments totaling 

approximately $186 million; 

• Failed to disclose contingent liabilities and significant risks and 

uncertainties; 

• Failed to disclose the effects of Tyco’s approximately 700 undisclosed 

acquisitions (“Undisclosed Acquisitions”); and 

• 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. 

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

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

Strategy 

25. Throughout the Relevant Period, the Tyco Defendants touted Tyco’s 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 numerous ways to create the appearance of financial success through an intentional 

and undisclosed scheme to inflate financial results, as Tyco has now admitted after the close of 

the Relevant Period. The nature of this scheme was never disclosed to investors during the 

Relevant Period. To the contrary, the Tyco Defendants 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. 

26. 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 Defendant Kozlowski’s 

resignation 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 
10 

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.” 

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

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

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

was intentionally limited in scope. The December Report states 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).”1

 Such an examination was deemed “impossible” in the 

December Report, which stressed that “documentation was not always available; the 

documentation that was available was often dispersed.” 

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

 

1

 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. 
11 

document many decisions contemporaneously.” Journal entries2

 were apparently used to 

engineer desired financial results and in many cases lacked any documentation that would detail 

who made, prepared, or approved the entry. 

29. 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 

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.” 

30. 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.” 

31. 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. 

 

2

 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: (i) an explanation as to why account balances are being changed; (ii) the date of the 

journal entry; (iii) the identification of the preparer of the journal entry; and (iv) the 

identification of management who approved the recording of the journal entry. 
12 

32. Indeed, 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.” The December Report also acknowledges that Tyco’s Form 8-K filed on 

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

fraud.” 

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

that were acquired by Tyco, and that the financial reporting of those companies was 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.” 

34. 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 
13 

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.” 

35. 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.) 

36. 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.) 

37. 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. 

38. 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 
14 

merger. The memo lists numerous cost-savings measures and discusses 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.” 

39. Another document that has not yet been made available to the public, 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. 

40. In the December Report, the Company 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 

than it devoted to identifying appropriate accounting adjustments 

that would increase reported earnings after an acquisition. 

41. 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, 
15 

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 

[Defendant PwC], 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. 

42. The Tyco Defendants’ scheme to manipulate Tyco’s financial results is confirmed 

by the Company’s announcement that first quarter profit fell 32% in fiscal 2003. This is in stark 

contrast to the manipulated financial results released by the Company throughout the Relevant 

Period. 

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

Disclosures 

43. 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 Tyco Defendants knowingly or recklessly employed numerous deceptive 

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

reported current earnings. 

44. Despite this admission, Tyco baselessly contends that the Tyco Defendants’ 

deliberate and long-standing attempts to inflate the Company’s operating results did not result in 

a “significant or systematic fraud affecting Tyco’s prior financial statements.” This conclusion is 

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

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

required”; (ii) the “aggressive accounting pursued by prior senior management”; (iii) 

“breakdowns of internal control which occurred during fiscal 2002”; (iv) “abuse of our employee 
16 

relocation loan programs”; (v) “unapproved bonuses”; (vi) “undisclosed compensation 

arrangements”; (vii) “unreported perquisites”; (viii) “self-dealing transactions”; (ix) “a lack of a 

stated and demonstrable commitment by former senior management to set appropriate standards 

of ethics, integrity, accounting, and corporate governance”; and (x) “other misuses of corporate 

trust.” 

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

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

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

management pressured the management of an acquisition target into adopting accounting 

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

years.

46. Civil lawsuits against Tyco and media coverage of the Tyco scandal prompted: (i) 

investigations by the US. Attorney, the SEC, the District Attorney for New York County, and the 

State of New Hampshire Bureau of Securities Regulation; (ii) the replacement of Tyco’s entire 

Board of Directors; (iii) the termination and criminal indictment of Tyco’s former Chief 

Executive Officer, Chief Financial Officer, and Chief Corporate Counsel; (iv) the guilty plea of 

one of Tyco ‘s former outside directors in New York County in connection with accepting an 

improper $20 million payment; and (v) the convictions of Defendants Kozlowski and Swartz as 

described above. See December Report; 2002 Form 10-K. 

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

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

affecting Tyco’s prior financial statements.” 
17 

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

Financial Statements During the Relevant Period 

48. At all relevant times during the Relevant Period, each of Tyco’s financial 

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

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.

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

the rules and regulations of the SEC), the Tyco Defendants 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 Relevant Period financial statements were 

materially false and misleading, as Defendants knew or recklessly ignored. 

50. In an apparent attempt to shield itself and Defendant PwC from liability, Tyco has 

also now concluded 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.) 

51. 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 

 

3

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

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

inaccurate. 
18 

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

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

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

misstated when issued. See generally Accounting Principles Board (“APB”) Opinion No. 20, 

¶¶ 13, 38. 

52. 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. 

53. 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. 

54. 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 us 

any unrecorded proposed audit adjustments, were not material 

individually or in the aggregate to the current year or any prior 
19 

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: 

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. 

55. 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 2001.4

 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.5 Accordingly, the operating income of Tyco’s Fire 

and Security Services segment for fiscal 2001 was overstated by approximately 9%.6

56. 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.) 

57. As the SEC’s Staff Accounting Bulletin (“SAB”) No. 99, 17 C.F.R. Part 211, 

 

4

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

5

 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. 

6

 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%. 
20 

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: 

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 
21 

quantitatively small misstatement. 

58. 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. Accordingly, the nine percent overstatement of operating 

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

59. Indeed, Tyco has admitted that the Tyco Defendants engaged in numerous 

“financial engineering” practices that were “undertaken with the purpose and effect of increasing 

reported results.” 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.” 

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

its Relevant Period 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. 

61. 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 prior to 

and during the Relevant Period. 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 
22 

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 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 
23 

“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 Wemeth, 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 

ultra cautious when deciding whether to roll over their loans. 

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.” 

62. Whatever Tyco’s motivation for minimizing its Relevant Period restatements, 

Tyco’s pattern of “aggressive” accounting did in fact violate 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 
24 

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

treatment to employ.” 

63. 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, and the 

rules thereunder which require SEC registrants to make and keep books, records, and accounts 

that accurately and fairly reflect its transactions. 

64. 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 its acquired 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. 

65. 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.” 

66. 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); 
25 

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); 

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 
26 

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

represent (Concepts Statement No. 2, ¶¶ 95, 97). 

67. 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 Relevant Period financial statements that were neither 

useful, complete, neutral, conservative, nor unbiased. In short, Tyco has admitted, albeit 

backhandedly, that it violated fundamental precepts of GAAP,7

 and that its “aggressive” 

accounting practices rendered its Relevant Period financial statements materially false and 

misleading. 

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

Transactions 

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

between related parties.8 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 

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

description of the transaction, (iii) the dollar amount of transactions for each period for which an 

income statement is presented, and (iv) the amounts due from or to the related parties as of the 

date of each balance sheet.9

 

7

 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. 

8

 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. 

9

 Pursuant to SFAS No. 57, disclosure of compensation arrangements that are not in the ordinary 
27 

69. 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. 

70. As Tyco has now admitted, before and during the Relevant Period, 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 (during the Relevant 

Period): 

i. Undisclosed Extraordinary Related Party Compensation 

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

the Southern District of New York alleging that Defendant Kozlowski approved a $20 million 

“fee” that was paid to Defendant 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. 

72. In September 2000, Defendant 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 Defendants Kozlowski and Swartz received 

approximately $33 million and $17 million respectively. 

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

prepared a memorandum signed by Defendant 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 

 

course is necessary for users to understand financial statements. 
28 

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. 

74. 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.” 

75. 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, Defendant Kozlowski purchased the property 

from Tyco at its depreciated book value of approximately $7 million, rather than its then current 

market value. 

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

from Defendant Kozlowski for approximately $4.5 million. In addition, Defendant Kozlowski 

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

investment; (ii) an “extravagant” $1 million birthday celebration for his wife in Sardinia; (iii) 

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

donations or for his personal benefit. 

ii. Undisclosed Related Party Loans 

77. The Tyco Defendants 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 V.B.1 and 

V.B.4, these loans were either repaid by the Individual Defendants without interest, repaid 

through unauthorized “forgiveness,” or simply reclassified to other loan accounts that the 

Individual Defendants had with the Company. 
29 

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

Defendant 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, 

Defendant Kozlowski improperly “borrowed” approximately $7 million to purchase a 

cooperative apartment in New York City in 2000. 

79. Similarly, Defendant Swartz “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. 

80. Additionally, Mark A. Belnick, Tyco’s former Executive Vice President and 

Chief Corporate Counsel, “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. 

81. 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. 

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

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

30, 2002, Defendant Kozlowski owed Tyco approximately $43.8 million, plus accrued interest, 

for amounts borrowed under Tyco’s KEL Program. 
30 

83. Similarly, Defendant 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, 

other Tyco Executive Officers “borrowed” more than $14.6 million under the KEL program. 

84. The Tyco Defendants knew that, in gross violation of GAAP, the material related 

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

financial statements during the Relevant Period. The Tyco Defendants also knew that, by failing 

to do so, the Company’s financial statements during the Relevant Period violated GAAP and 

were materially false and misleading. 

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

Improper Manipulation of Accounting Reserves 

85. As noted above, the Tyco Defendants knew or recklessly ignored that they caused 

certain of the companies acquired by Tyco 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. 

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

definitive agreement to acquire CIT. According to a senior economist that worked for 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 Defendant 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, according to the CIT senior economist, McGee was there to “prepare for 

the acquisition.” 

87. According to the witness, although McGee (with the assistance of another Tyco 
31 

employee) was supposed to assist with the transition and report to Al Dumper (CIT’s CEO), 

McGee began dictating important business decisions for CIT. In fact, according to the witness, 

what had previously been a mild-tempered and quiet executive staff, quickly changed upon 

McGee’s arrival. Screaming matches between McGee and CIT’s executives were common. 

According to the CIT senior economist, “[t]here were some acrimonious issues there. Lots of 

shouting and screaming. A lot of screaming at each other, and it was tense and bad on executive 

row. McGee was de facto dictating and running the company.” 

88. 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 Wall Street 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. 

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

the highly suspicious nature of the Tyco Defendants’ accounting treatment with respect to CIT in 

an interview on February 25, 2002 with Business Week 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 fine. . . . 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 
32 

“provision for credit losses.” That was well over twice the $68.3 

million provision CIT took in the entire first quarter. 

90. 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 chargefor 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. 

* * * 

[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] . . . . 

91. The February 25, 2002 Business Week Online article quoted 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].” 

92. Furthermore, the Business Week 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). 

93. Similarly, on June 12, 2002 The New York Daily News reported that the SEC was 

again looking into Tyco’s accounting for acquisitions: 
33 

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. 

“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 

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

businessman said. 

94. Tyco has now admitted that the Tyco Defendants engaged in the above-noted 

accounting manipulations throughout the Relevant Period 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. 

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

[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. 

Similarly, Tyco’s acquisition of Raychem was announced May 19, 1999 

and consummated August 12, 1999. Internal Tyco documents raise issues 
34 

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. The 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. 

96. 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 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. 

97. 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: (i) litigation 

and other accruals recorded in purchase accounting, some of which were subsequently reversed; 

(ii) exit costs, which included amounts that did not qualify as exit costs; and (iii) matters not 

reserved previously by the acquired entity (including warranty and environmental accruals). 

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

• “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 
35 

had been improperly manipulated in order to increase reported earnings 

subsequent to the consummation of the acquisition.” 

“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.” 

“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. 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.” 

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

pressure’ on Surgical’s former CFO and presented a ‘plan’ for increasing 

earnings.” 

“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.” 

“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 ‘overaccrue expenses in Q3 before closing’ and ‘accrue in advance rebates.’” 

99. The manipulation of accounting reserves employed by the Tyco Defendants 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 
36 

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.

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

“identified several adjustments” that Defendant PwC proposed to 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. 

101. 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. 

102. 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 
37 

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 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.” 

103. 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.”

104. 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). 

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

admissions have been circumscribed by a lack of documentation. 

106. During the Relevant Period, the Tyco Defendants also falsely stated that the 

Company had and would continue to acquire other companies that would be immediately 
38 

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 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. 

107. 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. 

108. In furtherance of its scheme to mislead investors, the Tyco Defendants 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.” 

109. Thus, in furtherance of their scheme to defraud unsuspecting investors while 

shamelessly enriching themselves, and in a gross violation of GAAP, the Tyco Defendants 
39 

engaged throughout the Relevant Period in a practice of manipulating the accounting for Tyco’s 

acquisitions and accounting reserves in a deliberate attempt to materially overstate Tyco’s 

operating results and misrepresent the performance, ability, and integrity of Tyco’s management. 

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

110. Tyco’s Relevant Period 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 Relevant Period 

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. 

111. 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 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. 

112. 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 
40 

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,10 which resulted in no impairment 

of goodwill at that date. 

(Footnote added). 

113. 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. 

114. Shortly after Defendant 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. 

115. 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%. 

116. 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 

 

10 Tyco Capital includes CIT and all of its subsidiaries. 
41 

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

approximately $387 million.

117. Here again, Tyco has admitted that its previously issued Relevant Period financial 

statements were, when issued, materially false and misleading to the detriment of unsuspecting 

investors. 

e. Tyco’s Improper Recognition of Excess Reimbursements From 

Independent Dealers 

118. As of January 2003, Tyco’s ADT subsidiary routinely purchased residential 

security monitoring contracts from external independent dealers who operated under the 

umbrella of ADT’s authorized dealer network. ADT incurred costs for performing due diligence 

associated with the purchase of such contracts and for maintaining and operating the authorized 

dealer network. 

119. The independent dealers operating within the network reimbursed ADT for 

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

by the independent dealers materially exceeded the actual costs incurred by ADT.11 Prior to 

fiscal 2002, Tyco improperly recognized into earnings the amount by which the independent 

dealer reimbursements exceeded the amount actually incurred by ADT. 

120. 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 tracking of property tax payment activity, sending 

delinquency letters on overdue accounts, etc.) for a ten-year period. 

Company A requires customers to prepay for all the services for 

 

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

incurred. 
42 

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 pre-existing 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 

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

121. In violation of the requirements of SAB No. 101, Tyco improperly included the 
43 

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

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

122. 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. 

123. The Tyco Defendants 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 during the Relevant Period. 

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

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

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 
44 

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). 

125. Tyco’s Relevant Period 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. 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... 

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 
45 

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 Relevant Period 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 During the Relevant 

Period 

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”), Defendant Swartz admitted that Tyco had spent out 

$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 Tyco 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 
46 

the unannounced deals requires it to be added back. “You could fault me for that,” Defendant 

Swartz is quoted as saying. 

3. Tyco’s Withholding of Documents From the SEC During Its 1999-2000 

Inquiry 

130. 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. 

131. The Tyco Defendants withheld a substantial number of documents from the SEC 

during its 1999-2000 inquiry, causing the SEC to reach a false conclusion in its investigation. 

Moreover, as set forth below, the Tyco Defendants made false statements to investors concerning 

the merits of the SEC investigation and the Company’s purported “cooperation.” 

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, 

including the Individual Defendants. 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 
47 

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 

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 the Tyco Defendants’ fraudulent scheme. 

4. Breakdown of Tyco’s Internal Controls 

136. Although the Tyco Defendants 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, the Company was in fact 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) 
48 

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 

replacing our senior management team. The 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, during the Relevant Period: 

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. 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 
49 

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. 

139. 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.” 

140. 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.” 

141. Tyco’s lack of adequate internal controls increased the opportunity for the Tyco 

Defendants to commit the fraud alleged above, and rendered the Company’s Relevant Period 

financial statements inherently 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. 

142. Although these materially adverse factors, trends, and facts were apparent to 

Defendants, including Defendant PwC, at all material times Defendants failed to timely and 

adequately disclose them during the Relevant Period. Instead, as detailed below, PwC continued 
50 

to knowingly or recklessly issue “clean” audit opinions on the Company’s fraudulent financial 

statements throughout the Relevant Period, and the Tyco Defendants continued to portray the 

Company in positive terms, and any partial disclosures that they may have made of certain of 

these problems were materially incomplete and calculated to deceive or mislead investors as to 

the true nature and extent of the problems and material liabilities facing the Company. 

5. PwC’s Participation in the Fraud and Its Scienter 

143. Tyco has been a long time and significant client of PwC and a major source of 

income for PwC’s Boston office. In fact, during fiscal 2001 alone, the fees paid by Tyco to PwC 

exceeded $51 million. Indeed, 75% of this amount was non-audit fees, including fees for 

consulting and other services rendered to Tyco by PwC. 

144. As noted in the SEC’s 2001 Revision of the Commission’s Auditor Independence 

Requirements:12

In a June 2000 study, Brand Finance plc surveyed analysts and 

representatives of companies listed on the London Stock 

Exchange. Brand Finance reported, Analysts are concerned that 

the acceptance of non-audit fees by auditors is likely to result in 

the independence of the audit being compromised. 94% of 

analysts stating an opinion believe that significant non-audit fees 

are likely to compromise audit independence. 76% of companies 

stating an opinion felt that auditor independence is likely to be 

compromised where significant non-audit fees are received from 

audit clients. 

Brand Finance also found that “83% of analysts who expressed an 

opinion believe objectivity is threatened even when the non-audit 

fee is less than the audit fee.” 

In another recent survey, the Association for Investment 

Management and Research surveyed its members and certified 

financial analyst candidates regarding auditor independence issues. 

AIMR reported that “[p]otential threats to auditor independence, 

 

12 17 CFR Parts 210 and 240, Release Nos. 33-7919; 34-43602; 35-27279; IC-24744; IA-1911; 

FR-56. 
51 

resulting from audit firms providing non-audit services to their 

audit clients [were) troublesome to many. . . respondents.” 

A recent poll was conducted by Public Opinion Strategies to 

determine, among other things, how the investing public views our 

proposed rules. The results showed that eighty percent of investors 

surveyed favor (forty-nine percent strongly favor; thirty-two 

percent somewhat favor) an SEC rule that generally would require 

restrictions on the types of consulting services accounting firms 

can provide their audit clients, and fifty-one percent thought the 

new rule was “very important” to protecting individual stock 

market investors. As summarized by James C. Stadler of 

Duquesne University, “The results of our national poll indicate that 

average American investors, in fact, overwhelmingly support the 

need for some new rulemaking in this area.” He further stated, 

“The survey results confirm what most practitioners have felt for 

decades -- that large consulting engagements for audit clients can 

raise serious concerns regarding audit independence” 

(Footnotes deleted.) 

145. As a result of its longstanding relationship with Tyco and the nature of the 

auditing and consulting services rendered to the Company, PwC’s personnel were regularly 

present at Tyco’s corporate headquarters throughout the year and had continual access to, and 

knowledge of, Tyco’s internal accounting records and confidential corporate financial and 

business information through conversations with employees of Tyco and through review of 

Tyco’s non-public documents. 

146. In fact, according to the Company’s 2001 Proxy Statement, the Tyco Audit 

Committee was asked to: 

• Determine whether based on the review and discussion of the audited 

financial statements with management and independent accountants, if the 

Committee should recommend to the Board that the audited financial 

statements be included in the Company’s Annual Report on Form 10-K 

for the last fiscal year for filing with the Securities and Exchange 

Commission; 

• Meet with management and the external auditors to discuss the results of 

the annual audit, including any significant changes in accounting 

principles and any serious difficulties or disputes with management 
52 

encountered during the audit; 

• Review with management and the external auditors the interim financial 

statements prior to filing; 

• Periodically consult with independent accountants, without the presence of 

management, about internal controls and the fullness and accuracy of the 

Company’s financial statements; 

• Review the Company’s financial reporting process, both internal and 

external, in consultation with the independent accountants; 

• Consider the independent accountants’ judgments about the quality and 

appropriateness of the Company’s accounting principles applied, including 

management’s handling of proposed audit adjustments identified by 

external auditors; 

• Consider suggestions made by independent accountants, management, or 

internal audit, regarding the Company’s accounting principles and 

practices; 

• Establish regular and separate systems of reporting to the Committee by 

management, independent accountants and internal audit regarding any 

significant judgments made in management’s preparation of the financial 

statements and the view of each as to the appropriateness of such 

judgments; 

• Review with management, independent accountants and internal audit 

difficulties encountered during the course of the annual audit, including 

any restrictions on the scope of work or access to required information and 

any other significant disagreements in connection with preparing the 

financial statements; and 

• Discuss with management, independent accountants and internal audit the 

extent to which changes or improvements in financial or accounting 

practices, as approved by the Committee, have been implemented. 

147. Given the nature of the auditing and consulting services rendered to the Company, 

and the fact that PwC’s personnel were regularly present at Tyco and had intimate knowledge of 

Tyco’s financial reporting practices based on its access to internal accounting records and Tyco 

employees, PwC knew of or recklessly disregarded adverse facts concerning the Company’s 

improper financial reporting during the Relevant Period, including the Company’s 1999, 2000, 
53 

and 2001 year-end financial statements and PwC’s unqualified audit opinions thereon. 

Nonetheless, PwC knowingly, or recklessly, issued false unqualified audit opinions during the 

Relevant Period. 

148. PwC issued its audit opinion, dated October 21, 1999, except as to “Revision” in 

Note 1, which is as of June 12, 2000, on Tyco’s 1999 year-end financial statements. PwC’s 

opinion falsely stated that such Tyco financial statements were presented in conformity with 

GAAP and that PwC’s audit was performed in accordance with GAAS: 

In our opinion, based upon our audits and the reports of other 

auditors, the accompanying consolidated balance sheets and the 

related consolidated statements of operations, shareholders’ equity 

and cash flows present fairly, in all material respects, the financial 

position of Tyco International Ltd and its subsidiaries at September 

30, 1999 and 1998, and the results of their operations and their 

cash flows for the years ended September 30, 1999 and 1998, and 

the nine months ended September 30, 1997, in conformity with 

accounting principles generally accepted in the United States. In 

addition, in our opinion, the accompanying financial statement 

schedule presents fairly, in all material respects, the information 

set forth therein when read in conjunction with the related 

consolidated financial statements. These consolidated financial 

statements and financial statement schedule are the responsibility 

of the Company’s management; our responsibility is to express an 

opinion on these consolidated financial statements and financial 

statement schedule based on our audits. . . . We conducted our 

audits of these statements in accordance with auditing standards 

generally accepted in the United States, which require that we plan 

and perform the audit to obtain reasonable assurance about 

whether the financial statements are free of material misstatement. 

An audit includes examining, on a test basis, evidence supporting 

the amounts and disclosures in the financial statements, assessing 

the accounting principles used and significant estimates made by 

management, and evaluating the overall financial statement 

presentation. We believe that our audits and the reports of other 

auditors provide a reasonable basis for the opinion expressed 

above. 

As discussed under the heading “Revision” in Note 1, the 

accompanying consolidated financial statements for the fiscal yearended September 30, 1999 have been revised to adjust merger, 

restructuring and other non-recurring charges and charges for the 
54 

impairment of long-lived assets for the timing and classification of 

certain charges. 

149. PwC issued its audit opinion, dated October 24, 2000 (except as to Note 25, 

which is as of December 4, 2000), on Tyco’s 2000 and 1999 financial statements. PwC’s 

opinion stated that such Tyco financial statements were presented in conformity with GAAP and 

that PwC’s audit was performed in accordance with GAAS: 

In our opinion, based upon our audits and the report of other 

auditors, the accompanying consolidated balance sheets and the 

related consolidated statements of operations, shareholders’ equity 

and cash flows present fairly, in all material respects, the financial 

position of Tyco International Ltd. and its subsidiaries at 

September 30, 2000 and 1999, and the results of their operations 

and their cash flows for each of the three years in the period ended 

September 30, 2000, in conformity with accounting principles 

generally accepted in the United States of America. In addition, in 

our opinion, the accompanying financial statement schedule 

presents fairly, in all material respects, the information set forth 

therein when read in conjunction with the related consolidated 

financial statements. The financial statements and financial 

statement schedule are the responsibility of the Company’s 

management; our responsibility is to express an opinion on the 

financial statements and financial statement schedule based on our 

audits. . . . We conducted our audits of the statements in 

accordance with auditing standards generally accepted in the 

United States of America, which require that we plan and perform 

the audit to obtain reasonable assurance about whether the 

financial statements are free of material misstatement. An audit 

includes examining, on a test basis, evidence supporting the 

amounts and disclosures in the financial statements, assessing the 

accounting principles used and significant estimates made by 

management, and evaluating the overall financial statement 

presentation. We believe that our audits and the report of other 

auditors provide a reasonable basis for our opinion.

150. PwC issued its audit opinion, dated October 18, 2001 (except as to Note 31, 

which is as of December 18, 2001), on Tyco’s 2001 and 2000 financial statements, which it 

stated were presented in conformity with GAAP and that PwC’s audit was performed in 

accordance with GAAS: 
55 

In our opinion, based upon our audits, the accompanying 

consolidated balance sheets and the related consolidated statements 

of operations, of shareholders’ equity and of cash flows present 

fairly, in all material respects, the financial position of Tyco 

International Ltd. and its subsidiaries at September 30, 2001 and 

2000, and the results of their operations and their cash flows for 

each of the three years in the period ended September 30, 2001, in 

conformity with accounting principles generally accepted in the 

United States of America. In addition, in our opinion, the 

accompanying financial statement schedule presents fairly, in all 

material respects, the information set forth therein when read in 

conjunction with the related consolidated financial statements. 

These financial statements and financial statement schedule are the 

responsibility of the Company’s management; our responsibility is 

to express an opinion on these financial statements and financial 

statement schedule based on our audits. We conducted our audits 

of the statements in accordance with auditing standards generally 

accepted in the United States of America, which require that we 

plan and perform the audit to obtain reasonable assurance about 

whether the financial statements are free of material misstatement. 

An audit includes examining, on a test basis, evidence supporting 

the amounts and disclosures in the financial statements, assessing 

the accounting principles used and significant estimates made by 

management, and evaluating the overall financial statement 

presentation. We believe that our audits provide a reasonable basis 

for our opinion. As described in Note 18, the Company changed 

its method of revenue recognition and changed its method of 

accounting for derivative instruments and hedging activities. 

151. PwC also issued a number of Consent Letters during the Relevant Period that 

permitted Tyco to incorporate by reference PwC’s materially false and misleading reports in the 

Company’s Registration Statements. These Consent Letters are discussed below. 

152. In issuing such audit opinions, PwC turned a blind eye to Tyco’s myriad of 

improper accounting practices as described above and issued unqualified audit opinions on 

Tyco’s 2001, 2000, and 1999 financial statements, even though PwC knew or recklessly 

disregarded that: (i) the financial statements had not been prepared in conformity with GAAP in 

numerous respects and did not present fairly, in all material respects, the financial position, the 

results of operations, and cash flow of Tyco and its subsidiaries as of September 30, 2001, 2000, 
56 

and 1999; and (ii) PwC had not audited Tyco’s 2001, 2000, and 1999 financial statements in 

accordance with GAAS. 

153. Among other things, PwC knew or recklessly disregarded that Tyco’s 2001, 2000, 

and 1999 year-end financial statements violated numerous provisions of GAAP and were 

materially false and misleading. Tyco’s violations of GAAP during the Relevant Period include, 

among other things: 

• the improper accounting for acquisitions; 

• the manipulation of accounting reserves for the purpose of inflating the 

Company’s reported operating results; 

• the failure to timely recognize expenses, including impairments in the 

value of the Company’s assets; 

• the failure to disclose material related party transactions; 

• engaging in “aggressive” accounting for the purpose of inflating the 

Company’s reported results; 

• the failure to appropriately restate previously issued and materially 

misstated financial statements; 

• the improper recognition of “reimbursements” from independent dealers; 

• the failure to disclose accounting policies in accordance with GAAP; and 

• the failure to disclose material contingent liabilities and significant risks 

and uncertainties. 

154. In certifying Tyco’s 2001, 2000, and 1999 year-end financial statements, PwC 

also falsely represented that its examination was made in accordance with GAAS. These 

statements were materially false and misleading because the audits conducted by PwC were 

knowingly or recklessly not performed in accordance with GAAS in the following respects: 

a. PwC violated GAAS Standard of Reporting No. 1 requires the audit 

report to state whether the financial statements are presented in accordance with GAAP. 

PwC’s opinion falsely represented that Tyco’s 2001, 2000, and 1999 financial statements were 

presented in conformity with GAAP when they were not for the reasons herein alleged. 
57 

b. PwC violated GAAS Standard of Reporting No. 2 which requires that, 

when an opinion on the financial statements as a whole cannot be expressed, the reasons 

therefore must be stated. PwC should have stated that no opinion could be issued by it on 

Tyco’s 2001, 2000, or 1999 financial statements or issued an adverse opinion stating that the 

2001, 2000, and 1999 financial statements were not fairly presented. 

c. PwC violated GAAS General Standard No. 2 which requires that an 

independence in mental attitude is to be maintained by the auditor in all matters related to the 

assignment. 

d. PwC violated SAS No. 82 by failing to adequately consider the risk that 

the audit financial statements of Tyco were free from material misstatement, whether caused by 

errors or fraud. PwC knew or recklessly ignored numerous events and conditions that occurred 

or existed at Tyco during the Relevant Period, which events and conditions are specifically 

identified in SAS No. 82 as being “risk factors relating to misstatements arising from fraudulent 

financial reporting.” These risk factors include but are not limited to: 

• An excessive interest by management in maintaining or increasing 

the entity’s stock price or earnings trend through the use of unusually 

aggressive accounting practices; 

• A failure by management to display and communicate an appropriate 

attitude regarding internal control and the financial reporting process; 

• Management displaying a significant disregard for regulatory authorities; 

• Management continuing to employ an ineffective accounting, 

information technology, or internal auditing staff; 

• Significant related-party transactions not in the ordinary course of 

business or with related entities not audited or audited by another firm; 

and 

• Significant bank accounts or subsidiary or branch operations in taxhaven jurisdictions for which there appears to be no clear business 

justification. 

e. PwC violated SAS No. 54 in that PwC failed to perform the audit 
58 

procedures required in response to possible improper acts by Tyco in connection with its audit 

of Tyco’s 2001, 2000, and 1999 year-end financial statements. PwC knew or recklessly 

disregarded that Tyco engaged in numerous improper acts. In fact, on September 30, 2002, 

The Wall Street Journal reported: 

New York prosecutors are investigating whether Tyco 

International Ltd.’s outside auditor, PricewaterhouseCoopers LLP, 

knew about secret bonuses paid to former Tyco executives as well 

as accounting practices that regulators have charged were used to 

hide the payments, according to people with knowledge of the 

matter. 

* * * 

Prosecutors’ level of interest in PricewaterhouseCoopers suggest 

they now may be attempting to make a criminal case against the 

nation’s largest accounting firm, which so far hasn’t been ensnared 

in the widening Tyco scandal. One focus of the probe is whether 

PricewaterhouseCoopers uncovered the secret bonuses in the 

course of its audit work, the people with knowledge of the matter 

said. The people said prosecutors also are seeking to determine 

whether PricewaterhouseCoopers was aware of the improper 

accounting techniques that the Securities and Exchange 

Commission alleges Tyco used to “bury” the bonus payments. 

Moreover, Tyco has now admitted that it engaged in “a pattern of 

using aggressive accounting that, even when not erroneous, was, 

undertaken with the purpose and effect of increasing reported 

results,” and that it put “pressure on,” and gave “inducements to, 

segment and unit managers to increase current earnings, including 

by decisions as to what accounting treatment to employ.” 

f. PwC violated GAAS and the standards set forth in SAS No. 1 and SAS 

No. 53 by, among other things, failing to adequately plan its audit and properly supervise the 

work of assistants and to establish and carry out procedures reasonably designed to search for 

and detect the existence of errors and irregularities that would have a material effect upon the 

financial statements. PwC knew, or recklessly ignored, that it failed to adequately plan its 

audits or supervise its staff in a manner designed to reasonably identify Tyco’s manipulation of 
59 

accounting reserves, prematurely recognized fees on dealer contracts and unreported reported 

related party transactions. 

g. PwC violated GAAS General Standard No. 3 which requires that due 

professional care must be exercised by the auditor in the performance of the audit and the 

preparation of the report. 

h. PwC violated GAAS Standard of Field Work No. 2, which requires the 

auditor to make a proper study of existing internal controls, including accounting, financial, and 

managerial controls, to determine whether reliance thereon was justified, and if such controls 

are not reliable, to expand the nature and scope of the auditing procedures to be applied. The 

standard provides that a sufficient understanding of an entity’s internal control structure be 

obtained to adequately plan the audit and to determine the nature, timing, and extent of tests to 

be performed. AU § 150.02. In all audits, the auditor should perform procedures to obtain a 

sufficient understanding of three elements of an entity’s internal control structure: the control 

environment, the accounting system, and control procedures. AU § 319.02. The control 

environment, which includes management’s integrity and ethical values, is the foundation of 

internal control and provides discipline, and structure, and sets the tone of an organization. 

After obtaining an understanding of an entity’s internal control structure, the auditor assesses 

the entity’s control risk. AU § 319.02. Control risk is the risk that a material misstatement in an 

assertion by management contained in a company’s financial statements will not be prevented or 

detected on a timely basis by an entity’s internal control structure policies or procedures. AU § 

319.29. The ultimate purpose of assessing control risk is to aid the auditor in evaluating the risk 

that material misstatements exist in the financial statements. AU § 319.61. 

In the course of auditing Tyco’s 2001, 2000, and 1999 financial statements, PwC 
60 

either knew or recklessly disregarded facts that evidenced that it either failed to sufficiently 

understand Tyco’s internal control structure and/or it disregarded weaknesses and deficiencies in 

Tyco’s internal control structure. These deficiencies, each of which Tyco has now admitted, 

include: (i) “the failure to document decisions contemporaneously”, (ii) documentation that was 

“not always available” or “dispersed,” (iii) “poor” documentation, (iv) “inadequate policies and 

procedures to prevent misconduct of senior executives,” (v) “inadequate approval procedures and 

documentation,” (vi) “a lack of oversight by senior management,” (vii) “serious abuses of trust 

and self-dealing by the highest officers of Tyco,” and (viii) “a lack of a stated and demonstrable 

commitment by former senior corporate management to set appropriate standards of ethics, 

integrity, accounting, and corporate governance.” 

i. PwC violated Standard of Field Work No. 3, which requires sufficient 

competent evidential matter to be obtained through inspection, observation, inquires, and 

confirmations to afford a reasonable basis for an opinion regarding the financial statements 

under audit. PwC knew or recklessly disregarded that it did not obtain sufficient competent 

evidential matter concerning the myriad of material transactions Tyco admittedly has 

improperly recorded. 

j. PwC also violated AU § 334, which requires auditors to identify, 

examine, and determine that financial statements disclose related party transactions. As stated 

above, Tyco’s financial statements failed to provide the disclosure required by GAAP 

concerning the transactions between it and its officers and directors. 

k. In fact, Mark Belnick, in his Memorandum of Law in Support of 

Omnibus Retrial Motion filed in the Supreme Court of the State of New York on or about 

October 18, 2002, asserts that, as early as August 25, 1999, he “fully disclosed” to and 
61 

“personally confirmed” with PwC the loans that Plaintiff now alleges that Tyco’s financial 

statements, in violation of GAAP, improperly failed to disclose. 

155. As a result of its failure to accurately report on Tyco’s 2001, 2000, and 1999 

financial statements, PwC utterly failed in its role as an auditor as defined by the SEC. SEC 

Accounting Series Release No. 296, Relationships Between Registrants and Independent 

Accountants, Securities Act Release No. 6341, Exchange Act Release No. 18044, states in part: 

Moreover, the capital formation process depends in large part on 

the confidence of investors in financial reporting. An investor’s 

willingness to commit his capital to an impersonal market is 

dependent on the availability of accurate, material and timely 

information regarding the corporations in which he has invested or 

proposes to invest. The quality of information disseminated in the 

securities markets and the continuing conviction of individual 

investors that such information is reliable are thus key to the 

formation and effective allocation of capital. Accordingly, the 

audit function must be meaningfully performed and the 

accountants’ independence not compromised. The auditor must be 

free to decide questions against his client’s interests if his 

independent professional judgment compels that result. 

156. In addition, PwC violated the requirements of Section 10A of the Securities 

Exchange Act, which requires auditors of public companies to design procedures to provide 

reasonable assurance of detecting illegal acts and to identify material related party transactions. 

Section 10A of the Securities Exchange Act requires an auditor to notify the SEC if he or she 

becomes aware of information indicating that an illegal act has, or may have occurred, if 

management or the Board of the company fails to take appropriate remedial actions with respect 

to the illegal acts. PwC knew or recklessly ignored that it violated Section 10A of the Securities 

Exchange Act in the performance its “audits” of Tyco’s 2001, 2000, and 1999 year-end financial 

statements. 

157. In fact, Charles Mulford, an accounting professor at Georgia Institute of 

Technology in Atlanta, when asked of certain of the accounting reserve manipulations noted 
62 

herein stated, in a September 30, 2002 The Wall Street Journal article, that “it would be very 

surprising if it wasn’t picked up by the auditors.” 

158. In addition, the same The Wall Street Journal article reported: 

Lynn Turner, a former chief accountant at the Securities and 

Exchange Commission who also reviewed [Tyco’s September 

Report], went even further, saying “this is called fraud.” As for the 

auditors, he asked: “How the hell do you do that and not have 

PricewaterhouseCoopers find it?” 

159. PwC’s opinions, which represented that Tyco’s 2001, 2000, and 1999 year-end 

financial statements were presented in conformity with GAAP, were materially false and 

misleading because PwC knew or was reckless in not knowing that Tyco’s 2001, 2000, and 1999 

year-end financial statements violated the principles of fair reporting and GAAP. In the course 

of rendering its unqualified audit certification on Tyco’s 2001, 2000, and 1999 year-end financial 

statements, PwC knew it was required to adhere to each of the herein described standards and 

principles of GAAS, including the requirement that the financial statements comply in all 

material respects with GAAP. PwC, in issuing its unqualified opinions, knew or recklessly 

disregarded that by doing so it was engaging in gross departures from GAAS, thus making its 

opinions false, and issued such certifications knowing or recklessly disregarding that GAAS had 

been violated. 

160. PwC knew or recklessly disregarded facts that indicated that it should have: (i) 

disclaimed or issued adverse opinions on Tyco’s 2001, 2000, and 1999 year-end financial 

statements; or (ii) withdrawn, corrected, or modified its opinion for the years ended September 

30, 2001, 2000, and 1999 to recognize Tyco’s improper accounting and financial reporting 

alleged herein. 
63 

B. Material Omitted Information Concerning Looting of the Company by Its Senior 

Executives Who Were Conducting Tyco as a Criminal Enterprise 

161. The Tyco Defendants and other 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 by the Tyco Defendants to incentivize Tyco’s management to 

participate in the scheme, including the falsification of Tyco’s financial reporting. 

162. The Tyco Defendants did not disclose their looting to investors during the 

Relevant Period. Rather, the Tyco Defendants 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, all of the Tyco Defendants’ Relevant Period 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. 

163. 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, its CFO, and its Chief 

Corporate Counsel -- 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 recently admitted in its 

December Report that senior management’s stewardship of Tyco, both prior to and during the 

Relevant Period, “was characterized by serious abuses of trust and self-dealing by the highest 

officers of Tyco.” 

164. The Tyco Defendants were obligated to disclose this information to investors. 

For example, Regulation S-K sets forth instructions for filing forms under the 1933 and 1934 
64 

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 . . . . 

165. 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 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): 
65 

(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; 

(3) Any member of the immediate family of the persons specified in 

paragraph (c)(l) 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. 
66 

166. As set forth below, the Tyco Defendants failed to comply with these disclosure 

requirements. 

1. Relocation Programs 

167. The September Report admits that the Individual Defendants “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 the Individual Defendants with an additional method to steal from the 

Company. 

a. L. Dennis Kozlowski 

168. According to the September Report, Defendant 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.” 

169. The table attached hereto as Exhibit B is from the September Report and sets forth 

undisclosed interest-free “relocation loans” improperly taken by Defendant Kozlowski since the 

inception of his relocation program account, including loans and charges reflected in the 

Company’s records for Kozlowski’s relocation account. 

170. 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 

• “$24,922,849 in interest free loans was borrowed by Mr. 
67 

Kozlowski for the acquisitions of other properties that were not 

authorized by any relocation program.” 

171. Of Defendant 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 

172. As set forth above, Defendant Swartz was Tyco’s CFO from 1995 through August 

2002, and a Tyco director from February 2001 through August 2002. The table attached hereto 

as Exhibit C is from the September Report and sets forth undisclosed interest free “relocation 

loans” improperly taken by Defendant Swartz since the inception of his relocation program 

account, including loans and charges reflected in the Company’s records for Defendant Swartz’s 

relocation account. 

173. 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.” 

174. Of Defendant 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”; 

• “$9,792,000 was repaid through forgiveness that Mr. Kozlowski was not 
68 

authorized to bestow and” 

• “$12,518,948 was reclassified to other Mr. Swartz loan accounts that he 

maintained with the Company.” 

c. Other Executive Officers 

175. Mark A. 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.” 

176. 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 

Belnick was not requested to relocate to Utah. 

177. 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.” 

178. 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 during the Relevant Period). Many (if not all) of these 

loans were given as pay-offs for participating in the Tyco Defendants’ fraudulent scheme to 

manipulate the Company’s financial results. For example, almost $12 million was loaned to 
69 

senior executives to incentivize them to participate in the Tyco Defendants’ fraudulent scheme to 

manipulate Tyco’s financial results: 

• Jerry R Boggess. Mr. Boggess was 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 hereafter, which also had not been 

approved by the Compensation Committee. Mr. Boggess also 

borrowed an additional amount which was purportedly forgiven by 

Defendant 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 in 2000. 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. 

179. 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 

180. The September Report also admits that in September 2000, Defendant 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 Defendant 

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 
70 

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.” 

181. Listed below are key managers of Tyco — other than Defendants Kozlowski and 

Swartz — who received unauthorized loan forgiveness and “gross-up” bonuses pursuant to the 

September 2000 program that, according to the September Report, was “conceived and 

implemented by Mr. Kozlowski”: 

NAME LOAN BALANCES 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 

182. 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. 
71 

183. 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 [Defendants Kozlowski and Swartz] in the 

year 2000.” 

3. The “ADT Automotive Bonus” Misappropriations 

184. The September Report also states that Defendant 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 grossedup 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.”

185. According to the September Report, Defendant 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.” 

186. 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 
72 

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 

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 

187. 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 

188. 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 Tyco 

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 
73 

resultant tax liability. 

189. 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.” 

a. L. Dennis Kozlowski 

190. According to the Company’s September Report, throughout the Relevant Period 

Defendant 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.” 

191. According to the September Report, Defendant 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. 

192. 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.” 

193. The September Report sets forth some of Defendant Kozlowski’s KEL loans, 
74 

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 $25 million 

unauthorized credit that has been reversed by Tyco and all balances thereafter should be adjusted 

accordingly. See Exhibit D. 

194. The September Report also concludes that Defendant 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).” 

195. Defendant 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 Defendant 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 

196. As Tyco’s Chief Financial Officer, Defendant Swartz was responsible for 

approving and monitoring the KEL loans of senior management, including Defendant 

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 Defendant 

Swartz was also “responsible for reporting any issues relating to those loans to the Compensation 

Committee.” 

197. 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 
75 

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. 

198. The Company’s September Report sets forth some of Defendant 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 

non-program 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. See Exhibit E. 

199. 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 

program.” As explained above, Defendant Swartz was indicted on September 12, 2002 for 

conspiring with Defendant Kozlowski to use the KEL loan program as a vehicle for 

misappropriating millions of dollars from Tyco. The September Report states that Defendant 

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.” 

5. Attempted Unauthorized Credits to Key Employee Loan Accounts 

200. The September Report admits that in August 1999, at the direction of Defendants 

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 
76 

Committee” 

201. 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 

forgiven indebtedness with interest.” Thus, Tyco has stated that it has “reversed these 

unauthorized entries, after notice to investigating authorities.” 

6. Self-Dealing Transactions and Other Misuses of Corporate Trust 

202. 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 

203. 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 Fraudulent New York Home Purchase 

204. 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.” 
77 

c. Concealed, Fraudulent Overpayment to Kozlowski for New 

Hampshire Property 

205. The September Report also admits that Defendant 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 

206. The Company’s September Report also admits that Defendant Kozlowski “used 

millions of dollars of Company funds to pay for his other personal interests and activities” prior 

to and during the Relevant Period, “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 called 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 

207. Also prior to and throughout the Relevant Period, as set forth in the Company’s 

September Report, Defendant 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 
78 

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. 

208. In addition, Defendant 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: 

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 . . . 

209. 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 

210. 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 
79 

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. 

211. 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. 

212. 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. 

213. 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 
80 

are appropriate based on the results of that investigation. 

g. Swartz Breach of Nominee Agreement 

214. According to the September Report, Defendant Swartz lived in a Tyco-owned 

apartment at 30 E. 85th Street, New York since April 2000. On May 6, 2002, he caused the 

Company to enter a notation in its books and records purporting to transfer title to that 

apartment, including fixtures and furniture, to himself at its depreciated book value of 

$9,646,975, which Swartz paid in cash. No appraisal was performed in connection with this 

transfer. On July 18, 2002, Defendant Swartz agreed to reverse that transaction. The Company 

stated in its report that Swartz’s KEL, account has been credited $9,646,975 to reflect this 

reversal. 

h. Swartz Personal Expense Reimbursement 

215. The Company admitted in its September Report that Defendant Swartz caused 

Tyco to pay him a reimbursement of $1.2 million on March 1, 2002 to cover lost deposits on 

personal real estate transactions involving apartments in Trump Tower on Fifth Avenue in New 

York. 

i. Compensation Committee Deceptions 

216. 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 

individuals.13 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 

 

13 For example, defendant Kozlowski received 155,000 shares with a vesting value of $8,219,650 

and defendant Swartz received 77,500 shares with a vesting value of $4,109,825. 
81 

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 Defendants 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 Defendants 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 self-dealing and serious breaches of fiduciary duties owed to Tyco by 

Defendant 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 farther detailed in that complaint.

j. Other Undisclosed Transactions Between Tyco and Its Directors 

217. Following the Tyco/ADT merger in 1997, Lord Ashcroft KCMG, a Tyco director 

and the former Chief Executive Officer of ADT, offered for sale his residential property in Boca 

Raton, Florida. According to news reports, on October 27, 1997, Ashcroft sold his Royal Palm 

Yacht and Country Club home to his wife for $100. On the same day, she sold it to Byron 

Kalogerou, who was then Tyco’s vice-president and general counsel, for $2.5 million. 

According to a June 10, 2002 article in The Wall Street Journal, the house was purchased with 
82 

Tyco funds, without input from the Tyco Board, and placed in Kalogerou’s name. According to 

the article, Kalogerou did not use the home — Kozlowski did. 

7. Kozlowski and Swartz Engage in Short Swing Trading 

218. According to a complaint filed by Tyco against both Kozlowski and Swartz in 

December 2002, between August 1, 2000 and January 30, 2002, while Kozlowski served as a 

director and Chief Executive Officer of Tyco, he bought and sold a number of Tyco equity 

securities within a six-month period in violation of 15 U.S.C. § 78p(b). Tyco’s complaint also 

alleges that between August 1, 2000 and April 26, 2002, while Swartz served as an executive 

vice president and Chief Financial Officer of Tyco, he bought and sold a number of Tyco equity 

securities within a six-month period in violation of 15 U.S.C. § 78p(b). Tyco estimates 

Kozlowski and Swartz’s profits from these short swing trades exceed $40 million. 

VI. THE DEFENDANTS’ MATERIALLY FALSE AND 

MISLEADING STATEMENTS DURING THE RELEVANT PERIOD 

A. Materially False and Misleading Statements Throughout the Relevant Period That 

Acquisitions Will Be Immediately “Positive” or “Accretive” 

219. Throughout the Relevant Period, in a series of press releases, the Tyco Defendants 

repeatedly touted the “positive” or “accretive” impact of its disclosed acquisitions on the 

Company’s free cash flow and earnings. As the Tyco Defendants either knew or were reckless 

in not knowing, each of these statements when made was materially false and misleading and 

omitted material information for the reasons set forth above in Section(s) V.A, A.1.a, and A.1.c. 

220. For example, on May 7, 2000, Tyco announced its acquisition of the Thomas & 

Betts Electronic OEM Business. The press release headline stated that the acquisition would be 

immediately accretive to earnings. According to the press release: 

“This acquisition offers significant cost saving opportunities 

through manufacturing synergies, rationalization of R&D and 

efficiencies through combined product marketing, distribution and 
83 

purchasing,” Mr. Kozlowski stated. Mr. Kozlowski also noted that 

the addition of this business would provide an immediate positive 

contribution to Tyco’s earnings. 

“Our previous acquisitions in Tyco Electronics have achieved 

strong top line growth and exceeded cost reduction targets. We 

expect that the acquisition of the Electronic OEM Business of 

Thomas & Betts will also provide positive benefits to Tyco 

shareholders,” Mr. Kozlowski concluded. 

221. On June 28, 2000, Tyco announced the acquisition of Mallinckrodt. The 

Company’s press release stated: 

Acquisition Will Have Immediate Positive Impact on Earnings; 

Strengthens Tyco Healthcare’s Leading Positions in Medical 

Devices 

* * * 

“The Mallinckrodt acquisition will be immediately accretive to 

Tyco’s earnings,” Mr. Kozlowski stated. “It offers consolidation 

opportunities as well as significant manufacturing, purchasing and 

distribution synergies. Our past acquisitions in Tyco Healthcare 

have achieved strong top line growth and operating efficiencies. 

We expect that the acquisition of Mallinckrodt also will provide 

ongoing positive benefits to Tyco shareholders. 

222. On October 17, 2000, Tyco announced the completion of the Mallinckrodt 

purchase. According to the Company’s press release: 

“The Mailinckrodt acquisition will be immediately accretive to 

Tyco’s earnings,” according to L. Dennis Kozlowski, Tyco’s 

Chairman and Chief Executive Officer. “It offers consolidation 

opportunities as well as significant manufacturing, purchasing and 

distribution synergies. Our past acquisitions in Tyco Healthcare 

have achieved strong top line growth and operating efficiencies. 

The acquisition of Mallinckrodt also will provide ongoing positive 

benefits to Tyco shareholders. 

223. On November 13, 2000, Tyco announced that it had agreed to acquire Lucent’s 

Power Systems Business. As set forth in the Company’s press release: 

Acquisition Provides Excellent Strategic Fit for Tyco Electronics 

and TyCom, Will be Immediately Accretive to earnings. . . . Tyco 
84 

International Ltd. ..., today announced that it has agreed to acquire 

Lucent Technologies’ Power Systems business unit (“LPS”) from 

Lucent Technologies Inc. (NYSE: LU) for $2.5 billion in cash. . . . 

According to L. Dennis Kozlowski, Chairman and Chief Executive 

Officer of Tyco international Ltd., “We expect that the acquisition 

of LPS, like previous acquisitions, will be immediately accretive to 

Tyco’s earnings. Previous acquisitions in Tyco Electronics 

continue to achieve strong top line growth and exceed cost 

reduction targets.” 

224. On December 4, 2000, Tyco announced that it would acquire Simplex Time 

Recorder Co. According to the Company’s press release: 

According to L. Dennis Kozlowski, Tyco’s Chairman and Chief 

Executive Officer, “This transaction meets all of Tyco’s 

acquisition criteria. The transaction will be immediately accretive 

to Tyco’s earnings per share and generate positive operating cash 

flows. In addition, Simplex is a leader in the markets it serves, 

provides a strong recurring revenue stream and is an excellent 

complement to Tyco’s existing Fire and Security Services product 

offering, capabilities and geographic reach. The combination of 

Simplex with Tyco Fire and Security Services will provide 

excellent manufacturing and service synergies, allowing for 

immediate positive benefits for Tyco shareholders.” 

225. On December 29, 2000, Tyco announced that it had completed its acquisition of 

Lucent’s Power Systems Business. According to the press release: 

According to L. Dennis Kozlowski, Chairman and Chief Executive 

Officer of Tyco International Ltd., “This business is an excellent fit 

for Tyco Electronics. We expect that the acquisition of LPS will 

be immediately accretive to Tyco’s earnings. Previous 

acquisitions in Tyco Electronics continue to achieve strong top line 

growth and exceed expected earnings targets.” 

226. On February 5, 2001, Tyco announced that it would acquire Scott Technologies. 

The press release stated: 

Acquisition Will Have Immediate Positive Impact on Tyco’s 

Earnings . . . 

According to L. Dennis Kozlowski, Tyco’s Chairman and Chief 

Executive Officer, “This transaction will be immediately accretive 
85 

to Tyco’s earnings per share and will generate positive operating 

cash flows. Scott Technologies, which is a leader in its markets, 

will add significant recurring revenue to Tyco Fire & Security 

Services. Scott’s equipment is sold to many customers of the Tyco 

Fire & Security Services group, providing complementary products 

through a common distribution channel.” 

227. On March 28, 2001, Tyco issued a press release announcing that it had been 

named the “number one performing company of 2000 by BusinessWeek magazine.” According 

to the press release: 

Tyco is the top performer based on its revenue growth, earnings 

growth, return to shareholders, profit margins and return on equity, 

tallied for both one year and three years. . . . L. Dennis Kozlowski, 

Chairman and CEO of Tyco, commented, “Tyco is delighted to 

receive this recognition from BusinessWeek. Tyco’s ‘growth on 

growth’ strategy has been designed to deliver ongoing solid, 

sustainable organic growth coupled with growth through 

acquisitions. Our strategy has positioned Tyco as the leader in our 

markets and as the high-quality, low-cost producer in the industries 

in which we operate.”. . . In addition, Tyco has made and 

integrated more than 118 acquisitions, all of them accretive to 

shareholders. 

228. On May 3, 2001, Tyco announced the completion of the acquisition of Scott 

Technologies. As set forth in the press release: 

According to L. Dennis Kozlowski, Tyco’s Chairman and Chief 

Executive Officer, “This acquisition will be immediately accretive 

to Tyco’s earnings per share and will generate positive operating 

cash flows. Scott Technologies, which is a leader in its markets, 

will add significant recurring revenue to Tyco Fire & Security 

Services. 

229. On May 17, 2001, Tyco announced the acquisition of SecurityLink. As stated in 

the Company press release: 

Tyco International Ltd. to Acquire SecurityLink and Other 

Businesses Of Cambridge Protection Industries L.L.C.; 

Acquisition Will Have Immediate Positive Impact on Tyco’s 

Earnings . . . 

Also, as with our existing ADT operations, we expect this business 
86 

to generate healthy organic growth with attractive incremental 

margins. Cooling at the near-term, we expect the transaction will 

be immediately accretive to Tyco’s earnings per share and free 

cash flow per share. The integration of the Cambridge businesses 

with ADT will provide product, service and operational synergies, 

which will result in ongoing positive benefits to Tyco 

shareholders.” 

230. On May 30, 2001, Tyco announced the acquisition of C. R. Bard. As stated in the 

Company press release: 

Tyco International to Acquire C. R. Bard; Provides New Product 

Platforms for International Growth Of Tyco Healthcare’s Medical 

Devices Business; Acquisition Will Be Immediately Accretive to 

Tyco Earnings and Cash Flow. . . 

Mr. Kozlowski added: “Bard also offers substantial cost synergies 

through leveraging administrative costs as well as gaining 

efficiencies in manufacturing, distribution and purchasing. The 

transaction will be immediately accretive to Tyco’s earnings and 

free cash flow per share. The acquisition will provide ongoing 

benefit to our customers and shareholders.” 

231. On July 5, 2001, Tyco announced the completion of the SecurityLink acquisition. 

According to the Company’s press release: 

Tyco International Ltd. Completes Purchase Of SecurityLink and 

Other Businesses of Cambridge Protection Industries LLC; 

Acquisition Expected To Be Immediately Accretive to Tyco’s 

Earnings 

According to Tyco’s Chairman and Chief Executive Officer L. 

Dennis Kozlowski: “We expect this transaction will be 

immediately accretive to Tyco’s earnings per share and free cash 

flow.” 

232. On August 3, 2001, Tyco announced another acquisition: 

Tyco International to Acquire Sensormatic; Provides 

Comprehensive Range of New Products and Services Within Tyco 

Fire & Security; Acquisition will be Immediately Accretive to 

Tyco Cash Flow and Earnings 

According to Mr. Kozlowski: “This transaction will provide 

excellent, ongoing value to our customers and shareholders. It will 
87 

be immediately accretive to Tyco’s earnings and free cash flow per 

share. We see significant cost savings and synergistic 

opportunities in the areas of sales, administration, manufacturing 

and distribution.” 

233. On December 3, 2001, Tyco announced the acquisition of Paragon Trade Brands. 

In the Company press release headline Tyco stated, “Acquisition Will Be Immediately Accretive 

to Tyco Earnings and Cash Flow.”

234. On December 20, 2001, Tyco announced the acquisition of McGrath RentCorp. 

According to the Company’s press release: 

Tyco International to Acquire McGrath RentCorp; Acquisition 

Expands Tyco Capital’s Product Portfolio and Recurring Revenue 

Base; Immediately Accretive to Tyco Earnings and Cash Flow 

According to L. Dennis Kozlowski . . . “As is the case with all 

Tyco acquisitions, the transaction will be immediately accretive to 

both Tyco’s earnings and cash flow.” 

B. 1999 Materially False and Misleading Statements and Omissions 

235. Even before the Relevant Period began on December 13, 1999, when the Tyco 

Defendants filed the Company’s Form 10-K for the fiscal year-ended September 30, 1999, the 

SEC had begun a nonpublic, informal inquiry relating to charges and reserves taken in 

connection with the Company’s acquisitions. In a press release dated December 9, 1999, only 

four days before the start of the Relevant Period, the Tyco Defendants denied any impropriety, 

quoting Defendant Kozlowski: “we welcome the opportunity to respond to [the SEC’s] request. 

We remain confident of our accounting methodology, our public disclosures and the continuing 

strength of our business”14 This statement was materially false and misleading for the reasons 

specified above in Section(s) V.A, A.1.a, A.1.c, and A.3. It remained uncorrected through the 

ensuing Relevant Period, and was reinforced throughout the Relevant Period by other similar 

 

14 The press release was subsequently filed with the SEC on December 9, 1999 in a Form 8-K, 

signed by defendant Swartz. 
88 

statements by the Tyco Defendants falsely denying the scheme of accounting manipulation in 

which they were continuously engaged throughout the Relevant Period. 

236. The price of Tyco stock closed at $28.25 on December 9, 1999, the first day of 

the Relevant Period. 

1. The 1999 10-K Filed on December 13, 1999 

237. On December 13, 1999, the first day of the Relevant Period, the Tyco Defendants 

filed Tyco’s 10-K for the fiscal year-ended September 30, 1999 (the “1999 10-K”), signed by 

Defendants Swartz and Kozlowski. In it, the Tyco Defendants set out numerous statements that 

were materially false and misleading and that omitted material information, as evidenced by 

(among other things) the Tyco Defendants’ restatement of its operating results in a June 26, 2000 

10-K/A for fiscal year-ended September 30, 1999 (discussed below). These false and misleading 

statements addressed a variety of topics, including the following: 

a. Tyco’s “Strategy” 

238. The 1999 10-K purports to set forth Tyco’s “strategy,” which the Tyco 

Defendants later repeated verbatim in filings with the SEC throughout the Relevant Period. 

According to the 1999 10-K: 

Tyco’s strategy is to be the low-cost, high quality producer and 

provider in each of its markets. It promotes its leadership position 

by investing in existing businesses, developing new markets and 

acquiring complementary businesses and products. Combining the 

strengths of its existing operations and its business acquisitions, 

Tyco seeks to enhance shareholder value through increased 

earnings per share and strong cash flows. 

As the Tyco Defendants either knew or were reckless in not knowing, this statement of strategy 

when made was materially false and misleading and omitted material information for the reasons 

set forth above in Section(s) V.A, A.1.a, and A.1.c.
89 

b. Tyco’s Manipulation of Purchase Accounting Reserves 

239. The 1999 10-K sets forth statements that were materially false and misleading 

concerning Tyco’s manipulation of purchase accounting reserves: 

In Fiscal 1999, the Company made acquisitions that were 

accounted for under the purchase accounting method at an 

aggregate cost of $6,923.3 million. Of this amount, $4,546.8 

million was paid in cash (net of cash acquired), $1,449.6 million 

was paid in the form of Tyco common shares, and the Company 

assumed $926.9 million in debt. In connection with these 

acquisitions, the Company established purchase accounting 

reserves of $525.4 million for transaction and integration costs. At 

the beginning of Fiscal 1999, purchase accounting reserves were 

$505.6 million as a result of purchase accounting transactions 

made in prior years. During Fiscal 1999, the Company paid out 

$354.4 million in cash and incurred $16.3 million in non-cash 

charges against the reserves established during and prior to Fiscal 

1999. Also in Fiscal 1999, the Company determined that $90.0 

million of purchase accounting reserves related to acquisitions 

prior to Fiscal 1999 were not needed and reversed that amount 

against goodwill. At September 30, 1999, there remained $570.3 

million in purchase accounting reserves on the Company’s 

Consolidated Balance sheet, of which $408.0 is included in current 

liabilities and $162.3 million is included in long-term liabilities. 

The Company expects to pay out approximately $350.0 million in 

cash in Fiscal 2000 that will be charged against the purchase 

accounting reserves. 

As the Tyco Defendants either knew or were reckless in not knowing, these statements when 

made were materially false and misleading and omitted material information for the reasons set 

forth above in Section(s) V.A, A.l.a, and A.1.c. 

240. The 1999 10-K also provides information about specific acquisitions, including 

Tyco’s merger with AMP Inc. (“AMP”) and U.S. Surgical Corp. (“US Surgical’) in “pooling of 

interests” transactions, but fails to acknowledge either the Tyco Defendants’ practice of 

aggressive accounting (through the manipulation of accounting reserves, inter alia) or their 

practice of incentivizing executives at acquiree companies to manipulate the acquiree’s financial 

reporting before the acquisition to create the false appearance of superior earnings for Tyco after 
90 

the acquisition. According to the 1999 10-K:

In Fiscal 1999, the Company consummated two mergers that were 

accounted for under the pooling of interests method of accounting. 

The merger with United States Surgical Corporation closed on 

October 1, 1998, and the merger with AMP Incorporated closed on 

April 2, 1999. As required by generally accepted accounting 

principles, the Company restated its financial statements as if 

USSC and AMP had always been a part of the Company. The 

Company recorded as expenses during Fiscal 1999 costs directly 

associated with the USSC and AMP mergers and the costs of 

terminating employees and closing or consolidating facilities as a 

result of the mergers. The Company also expensed in Fiscal 1999 

the costs of staff reductions and facility closings that AMP 

undertook as part of a plan to improve its profitability unrelated to 

the Company’s merger with AMP. In Fiscal 1998, the Company 

expensed charges for staff reductions and facility closings under 

the AMP profit improvement plan and charges that USSC incurred 

to exit certain of its businesses. These are discussed in more detail 

under “Liquidity and Capital Resources” below. 

As the Tyco Defendants either knew or were reckless in not knowing, these statements when 

made were materially false and misleading and omitted material information for the reasons set 

forth above in Section(s) V.A, A.l.a, and A.1.c. 

241. As the December Report states in the case of AMP: “the recorded quarterly 

results for AMP show a decline in profits prior to the acquisition by Tyco and an increase in 

profits following the acquisition.” Similarly, the December Report says of US Surgical: 

“Surgical’s reported results also declined during the quarter immediately prior to the merger, as 

compared with quarters prior to and after the consummation of the merger.” 

c. Tyco’s Operating Results 

242. The 1999 10-K also gives favorable, purportedly accurate information concerning 

Tyco’s operating results. For example, the Tyco Defendants provide the following summary 

information: 
91 

FISCAL 1999 FISCAL 1998 

(UNAUDITED) 

TWELVE MONTHS 

ENDED 

SEPTEMBER 30, 1997 

 (IN MILLIONS) 

Pre-tax income before extraordinary items and 

cumulative effect of accounting changes 

1,651.2 1,702.8 79.0 

Income taxes (620.2) (534.2) (379.5) 

Income (loss) before extraordinary items and 

cumulative effect of accounting changes 

1,031.0 1,168.6 (300.5) 

Extraordinary items, net of taxes (45.7) (2.4) (60.9) 

Cumulative effect of accounting changes, net of 

taxes 

-- -- 15.5 

Net Income (loss) $985.3 $1,166.2 $(345.9) 

As the Tyco Defendants either knew or were reckless in not knowing, these statements when 

made were materially false and misleading and omitted material information for the reasons set 

forth above in Section(s) V.A, A.1.a, and A.1.c. 

243. In addition, these operating 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 

1999 10-K: 

Operating profits improved in all segments in each of Fiscal 1999 

and Fiscal 1998, with the exception of the Healthcare and 

Specialty Products segment in Fiscal 1998 for reasons that are 

discussed below. The operating improvements are the result of 

both increased revenues and enhanced margins. Increased 

revenues result from organic growth and from acquisitions that are 

accounted for under the purchase method of accounting. 

Similarly, regarding the AMP and US Surgical mergers, the 1999 10-K states: “[b]y integrating 

merged companies with the Company’s existing businesses, the Company expects to realize 

operating synergies and long-term cost savings.” And concerning profits in Tyco’s electrical 

business, Defendant states: 

The 40.5% increase in operating profits in Fiscal 1999 compared 
92 

with Fiscal 1998 was due to improved margins at AMP, the 

acquisition of Raychem, and higher sales volume at TSSL and the 

Tyco Printed Circuit Group. The improved operating margins 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. For 

information on the implementation of the AMP profit improvement 

plan and the cost reduction programs related to the AMP merger, 

see Note 16 (1999 Charges and 1998 Charges) to the Consolidated 

Financial Statements. These improvements were partially offset 

by $253.4 million of certain costs in Fiscal 1999 at AMP prior to 

the merger with Tyco, including costs to defend the AlliedSignal 

Inc. tender offer, the write-off of inventory and other balance sheet 

write-offs and adjustments. 

As the Tyco Defendants either knew or were reckless in not knowing, these statements when 

made were materially false and misleading and omitted material information for the reasons set 

forth above in Section(s) V.A, A.1.a, and A.l.c. 

d. Management Remuneration 

244. The 1999 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 1999 10-K incorporates Tyco’s Proxy Statement, 

filed on March 1, 2000, by reference, the 1999 10-K contains the same materially false and 

misleading statements set forth therein, as described below. 

245. The 1999 10-K also gives limited information concerning loans taken by senior 

management under Tyco’s KEL, 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 

1999, the maximum amount outstanding under the program was $91.6 million.” As the Tyco 

Defendants either knew or were reckless in not knowing, this statement when made was 
93 

materially false and misleading and omitted material information for the reasons set forth above 

in Section(s) V.A, A.1.a, A.1.b, B, and B.4. 

246. On December 14, 1999, J.P. Morgan, reporting materially false and misleading 

information received from the Tyco Defendants, issued an analyst report entitled, “Long Awaited 

10K Provides Full Disclosure and Reinforces Accounting Confidence.” The report stated: 

Tyco’s recently filed 10-K provides unprecedented disclosure and 

reinforces our confidence that the Company has not misrepresented 

its financial picture. 

2. The 1999 10-K/A Filed on 1/28/00 

247. On January 28, 2000, the Tyco Defendants filed Tyco’s 10-K/A for the fiscal 

year-ended September 30, 1999 (the “1/28/00 10-K/A”), signed by Defendant Swartz. The 

1/28/00 10-K/A provides additional information about the remuneration of top management at 

Tyco. For example, the Tyco Defendants submitted the following information concerning the 

compensation of Defendants Kozlowski and Swartz: 

Annual Compensation(2) Long-Term Compensation 

Name & Principal Position YEAR SALARY 

CASH 

BONUS (3) 

STOCK 

BONUS (4) 

RESTRICIED 

STOCK 

AWARD(S)(5) 

SHARES 

UNDERLY

ING 

STOCK 

OPTIONS 

LONG-TERM 

INCENTIVE 

PAYOUTS 

ALL 

OTHER 

COMPENS

ATION (6) 

L. DENNIS KOZLOWSKI 1999 $1,350,000 $3,200,000 $25,707,178 6,621,834 $387,001 

1998 1,250,000 2,500,000 20,140,000 3,832,000 901,002 

1997 1,250,000 2,544,260 6,600,000 $6,508,125 108,125 

CHAIRMAN & CHIEF 

EXECUTIVE OFFICER, TYCO 

INTERNATION LTD 

* * * 

MARK H. SWARTZ 1999 750,000 1,600,000 12,029,641 2,976,480 150,014 

1998 559,500 1,250,000 10,070,000 2,764,666 256,878 

1997 559,500 1,272,130 2,200,000 2,169,375 31,994 

EXECUTIVE VICE PRESIDENT 

AND CHIEF FINANCIAL 

OFFICER, TYCO INTERNATION 

LTD. 

As the Tyco Defendants either knew or were reckless in not knowing, these statements when 

made were materially false and misleading and omitted material information for the reasons set 
94 

forth above in Section(s) V.B, B.1.a-b, B.4.a-b, B.5, and B.6.15

248. And the 1/28/00 10-K/A contains the following materially false and misleading 

statement concerning Tyco’s KEL program: 

At September 30, 1999, the amount of loans outstanding under the 

loan program totaled $18,569,137, of which $0 was loaned to Mr. 

Kozlowski . . . and $0 to Mr. Swartz. The largest amount of 

indebtedness since October 1, 1998 incurred by each of the Named 

Officers was: $52,688,249 for Mr. Kozlowski . . . . 

As the Tyco Defendants either knew or were reckless in not knowing, the statements when made 

were materially false and misleading and omitted material information for the reasons set forth 

above in Section(s) V.B, B.1.a-b, B.5, and B.6. 

3. The 1999 10-K/A Filed on 6/26/00 

249. On June 26, 2000, the Tyco Defendants filed another 10-K/A for the fiscal yearended September 30, 1999 (the “6/26/00 10-K/A”), signed by Defendant Swartz. At the same 

time, Tyco restated its operating results for the first two quarters of fiscal 2000 (as discussed 

below). The Tyco Defendants announced the restatement in a release issued over the PR 

NEWSWIRE on June 26, 2000, which said that the restatement was in response to a “limited 

review” of a single Tyco registration statement for a debt exchange offer filed in December 

1999, and that the review included “those portions of Tyco’s financial statements principally 

relating to charges and reserves reported in connection with Tyco’s acquisition activity.” 

250. In the 6/26/00 10-K/A, the Tyco Defendants gave the following explanation for 

the need to restate Tyco’s operating results: 

The amendment to the financial statements is being filed to 

 

15 On February 1, 2000, the Tyco Defendants filed a 10-K/A for the fiscal year ended 

September 30, 1999 (the “2/1/00 10-K/A”), signed by defendant Swartz. The 2/1/00 10-K/A 

simply corrects a formatting error in the chart above. The corrected information from the 2/1/00 

10-K/A, rather than the version in the 1999 10-K, is used in the chart as quoted. 
95 

reclassify certain charges and to adjust merger, restructuring and 

other non-recurring charges between periods due to the timing of 

the underlying events as follows: 

- To reclassify $172.5 million of charges, incurred by AMP prior 

to its merger with Tyco, related to the write-off of goodwill and 

fixed assets of exited businesses in the Consolidated Statement of 

Operations out of the “merger, restructuring and other nonrecurring charges’’ line and into the “charge for the impairment of 

long-lived assets” line;;

- To reclassify $27.5 million of inventory related restructuring 

costs in the Consolidated Statement of Operations out of the 

“merger, restructuring and other non-recurring charges” line and 

into the “cost of sales” line; 

- To eliminate $26.0 million of merger, restructuring and other 

non-recurring charges which were originally recorded in fiscal 

1999 related primarily to severance and facility closings and the 

subsequent reversal of such charge recorded as a credit to merger, 

restructuring and other non-recurring (credits) charges taken in the 

first quarter of fiscal 2000; 

- To record a credit in fiscal 1999 for the reversal of $16.9 million 

of merger, restructuring and other non-recurring charges which 

were originally recorded in fiscal 1997 related primarily to facility 

closings and lease termination costs (this credit was previously 

recorded in the first quarter of fiscal 2000); 

- To report certain non-recurring costs related to the integration of 

the USSC suture business originally recorded in the first quarter of 

fiscal 1999 as costs in later periods when such activity was 

completed (deferring $11.1 million of merger, restructuring and 

other non-recurring charges originally recorded in fiscal 1999 until 

fiscal 2000); and 

- To update various disclosures primarily related to purchase 

accounting liabilities and merger, restructuring and other nonrecurring charges. 

251. Although Tyco’s filing of an amended 10-K was in effect an admission that it had 

materially misstated its operating results during the Relevant Period, the Tyco Defendants 

attempted to downplay that admission by restating its results only minimally, by denying that 

there were any materially false statements in its previously filed 10-K, and by denying any 
96 

involvement in a scheme, later admitted in the December Report, to manipulate its acquisition 

accounting. This scheme, described in detail above in Section(s) V.A, A.1.a, and A.1.c, included 

the Tyco Defendants’ practice of aggressive accounting (through the manipulation of accounting 

reserves, inter alia), and their practice of incentivizing executives at acquired companies to 

manipulate the acquired company’s financial reporting before the acquisition to create the false 

appearance of superior earnings for Tyco after the acquisition.

252. The 6/26/00 10-K/A itself contains numerous materially false and misleading 

statements on a variety of topics, including the following: 

a. Tyco’s Operating Results 

253. The 6/26/00 10-K/A also gives favorable, purportedly accurate information 

concerning Tyco’s operating results. For example, the Tyco Defendants provide the following 

summary information: 

FISCAL 1999 FISCAL 1998 

(UNAUDITED) 

TWELVE MONTHS 

ENDED 

SEPTEMBER 30, 1997 

 (IN MILLIONS) 

Pre-tax income before extraordinary 

items and cumulative effect of accounting 

changes 

1,705.2 1,702.8 79.0 

Income taxes (637.5) (534.2) (379.5) 

Income (loss) before extraordinary items 

and cumulative effect of accounting 

changes 

1,067.7 1,168.6 (300.5) 

Extraordinary items, net of taxes (45.7) (2.4) (60.9) 

Cumulative effect of accounting changes, 

net of taxes 

-- -- 15.5 

Net income (loss) $1,022.0 $1,166.2 $(345.9) 

As the Tyco Defendants either knew or were reckless in not knowing, the statements when made 

were materially false and misleading and omitted material information for the reasons set forth 

above in Section(s) V.A, A.l.a, and A.1.c. 
97 

254. 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), and instead attribute Tyco’s favorable results to organic 

growth and synergies resulting from Tyco’s acquisitions: 

Operating income improved in all segments in each of Fiscal 1999 

and Fiscal 1998, with the exception of the Healthcare and 

Specialty Products segment in Fiscal 1998 for reasons that are 

discussed below. The operating improvements are the result of 

both increased revenues and enhanced margins. Increased 

revenues result from organic growth and from acquisitions that are 

accounted for under the purchase method of accounting. 

As the Tyco Defendants either knew or were reckless in not knowing, these statements when 

made were materially false and misleading and omitted material information for the reasons set 

forth above in Section(s) V.A, A.l.a, and A.1.c. 

4. 12/21/99 S-8 

255. On December 21, 1999, the Tyco Defendants filed a Form S-8 for the registration 

of 10,000,000 shares of Tyco common stock (the “12/21/99 S-8”), signed by Defendants Swartz, 

Kozlowski, and Walsh. Because the 12/21/99 S-8 incorporates Tyco’s 1999 10-K by reference, 

it contains the same materially false and misleading statements set forth in the 1999 10-K, as 

described above. 

256. The 12/21/99 S-8 also sets forth the Consent of PwC, dated December 17, 1999, 

permitting the incorporation by reference of its materially false and misleading report, dated 

October 21, 1999, quoted in the 1999 10-K and discussed above. 

5. 12/21/99 S-4 (and Related S-4/A and Prospectus) 

257. On December 21, 1999, the Tyco Defendants filed with the SEC a Form S-4 

relating to Tyco’s proposed offer to exchange up to $1,000,000,000 aggregate principal amount 

of new 6 7/8% notes due 2002 for any and all of its outstanding 6 7/8% notes due 2002 (the 
98 

“12/21/99 S-4”). The 12/21/99 S-4 was signed by Defendants Swartz, Kozlowski, and Walsh. 

Because the 12/21/99 S-4 incorporates Tyco’s 1999 10-K by reference, the S-4 contains the same 

materially false and misleading statements set forth in the 1999 10-K, as described above. 

258. Like the 1999 10-K and many of Tyco’s other flings with the SEC throughout the 

Relevant Period, the 12/2I/99 S-4 recites Tyco’s purported strategy, quoted and discussed above 

in paragraph 238. As the Tyco Defendants either knew or were reckless in not knowing, this 

statement of strategy when made was materially false and misleading and omitted material 

information for the reasons set forth above in Section(s) V.A, A.1.a, and A.1.c. 

259. In addition, the 12/21/99 S-4 sets forth the Consent of PwC, dated December 17, 

1999, permitting the incorporation by reference of its materially false and misleading report, 

dated October 21, 1999, quoted in the 1999 10-K and discussed above. 

260. On June 26, 2000, the Tyco Defendants filed with the SEC a Form S-4/A (the 

“6/26/00 S-4/A”), amending the 12/21/99 S-4. The 6/26/00 S-4/A was signed by Defendant 

Swartz for himself and for Defendants Kozlowski, and Walsh. Because the 6/26/00 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 Forms 10-K and 10-K/A for the fiscal year-ended September 30, 1999; (ii) Tyco’s 

Quarterly Reports on Forms 10-Q and 10-Q/A for the quarters ended December 31, 1999 and 

March 31, 2000; and (iii) Tyco’s Current Reports on Form 8-K filed on December 9, 1999 and 

January 20, 2000. 

261. Like the 1999 10-K and many of Tyco’s other filings with the SEC throughout the 

Relevant Period, the 6/26/00 S-4/A recites Tyco’s purported strategy, quoted and discussed 

above in paragraph 238. As the Tyco Defendants either knew or were reckless in not knowing, 
99 

this statement of strategy when made was materially false and misleading and omitted material 

information for the reasons set forth above in Section(s) V.A, A.1.a, and A.1.c. 

262. In addition, the 6/26/00 S-4/A sets forth the Consent of PricewaterhouseCoopers, 

dated June 26, 2000, permitting the incorporation by reference of its materially false and 

misleading report, dated October 21, 1999, quoted in the 1999 10-K and discussed above, and 

other materially false and misleading materials discussed herein. 

6. 1999 Annual Report to Shareholders 

263. On or about March 14, 2000, Tyco released its 1999 Annual Report to 

Shareholders (the “1999 Annual Report”). The 1999 Annual Report falsely and misleadingly 

states on its first page that “we have grown our earnings at a 35% compounded rate for the past 

five years.” As the Tyco Defendants either knew or were reckless in not knowing, this statement 

when made was materially false and misleading and omitted material information for the reasons 

set forth above in Section(s) V.A, A.l.a, and A.1.c above. 

264. The 1999 Annual Report also included a letter to Tyco shareholders from 

Defendant Kozlowski, which states: 

- - Fiscal 1999 was an excellent year for Tyco International. We 

exceeded our corporate goals and continued to build on our 

recurring revenue be and forge strong partnerships with our 

customers. We also acquired many fine companies that will 

provide an immediate boost to our already strong profit and cash 

flow and become an additional source of sustainable growth well 

into the future. 

For the sixth consecutive year, we increased revenues and earnings 

substantially. Revenues rose 18 percent to $22.5 billion and 

earnings grew $1.15 billion to $2.56 billion, an 82 percent increase 

over the prior year. 

Fiscal 2000, which began for Tyco on October 1, 1999, is off to a 

good start. We expect sales to exceed $26 billion and free cash 

flow -- an important measure of our underlying business 

performance -- to nearly double, from $1.7 billion to over $3.0 
100 

billion. This free cash flow figure is after the reinvestment of $1.6 

billion in capital expenditures to strengthen our position in each of 

our four business areas. 

Today, Tyco is healthier than ever. 

* * * 

We aim for sustained earnings growth in excess of 20 percent, 

powered by increased revenues and margin expansion. We 

achieve this by: the elimination of overhead and burdensome 

bureaucracy, economies of scale; a relentless focus on costs, 

productivity improvements and quality; and an increase in growth 

in the higher-margin service components of our business. Where 

growth, margin improvement and cost reduction are concerned, 

Tyco has no finish line. This model has produced consistently 

strong results for well over a decade. 

* * * 

Although we have successfully integrated our major acquisitions, 

we never assume such success will automatically be ours. Indeed, 

we know the corporate landscape is littered with failed marriages, 

that the hope of wondrous synergies is often a mirage. Therefore, 

we spend hundreds of hours assessing the benefits and risks of 

each transaction we consider. We always ask: What’s the worstcase scenario? 

We perform thorough due diligence every time, and we walk away 

from nine out of every ten transactions we evaluate. Even when 

we decide that the rewards significantly outweigh the risks, we 

spend a great deal of time planning the integration process to 

minimize the difficulties inherent in each acquisition. 

265. The 1999 Annual Report also provided investors with a false overview of the 

Company’s operations: 

Overview 

Sales increased 18.0% during Fiscal 1999 to $22,496.5 million 

from $19,061.7 million in Fiscal 1998. Sales in Fiscal 1998 

increased 14.4% compared to the twelve months ended September 

30, 1997. Income (loss) before extraordinary items and cumulative 

effect of accounting changes was $1,031.0 million in Fiscal 1999, 

as compared to $1,168.6 million in Fiscal 1998 and ($300.5) 

million in the twelve months ended September 30, 1997. Income 

before extraordinary items for Fiscal 1999 included an after-tax 
101 

charge of $1,341.5 million ($1,596.7 million pre-tax) 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) primarily related to AMP’s profit improvement 

plan and costs incurred by USSC to exit certain businesses. Loss 

before extraordinary items and cumulative effect of accounting 

changes for the twelve months ended September 30, 1997 included 

an after-tax charge of $1,485.5 million ($1,670.4 million pretax) 

for merger and transaction costs, write-offs and integration costs 

primarily associated with the mergers of ADT, Former Tyco, 

Keystone and Inbrand. 

As the Tyco Defendants either knew or were reckless in not knowing, these statements made 

were materially false and misleading and omitted material information for the reasons set forth 

above in Section(s) V.A, A.1.a, and A.1.c. 

266. The 1999 Annual Report also gives limited information concerning loans taken by 

senior management under Tyco’s KEL, which was instituted to encourage ownership of the 

Company’s common stock by executives and other key employees. According to the 1999 

Annual Report: 

Loans are made to employees of the Company under the Former 

Tyco 1983 Key Employee Loan Program for the payment of taxes 

on the vesting of shares granted under Former Tyco’s Restricted 

Stock Ownership Plans. The loans are unsecured and bear interest, 

payable annually, at a rate which approximates the Company’s 

incremental short-term borrowing rate. Loans are generally 

repayable in ten years, except that earlier payments are required 

under certain circumstances. During Fiscal 1999, the maximum 

amount outstanding under this program was $91.6 million. Loans 

receivable under this program were $18.6 million and $22.2 

million at September 30, 1999 and 1998, respectively. 

As the Tyco Defendants either knew or were reckless in not knowing, this statement when made 

was materially false and misleading and omitted material information for the reasons set forth 

above in Section(s) V.A, A.1.a, and B.4. 
102 

C. 2000 Materially False and Misleading Statements and Omissions 

1. 1/18/00 Conference Call 

267. On January 18, 2000, Tyco held a conference call to discuss, among other things, 

its earnings during the first quarter of fiscal 2000. Defendants Kozlowski and Swartz also 

addressed the informal inquiry begun by the SEC the month before into potential accounting 

improprieties at Tyco. During the call both Kozlowski and Swartz falsely reassured investors 

and analysts that there had been no improprieties at Tyco, and that Tyco was looking forward to 

a very profitable future: 

SWARTZ: Since we disclosed last month, when the SEC 

informed us about the informal inquiry being 

performed, we ended up making the submissions as 

expected, beginning in January and will continue to 

provide the information that’s being requested by 

the SEC. What’s extremely important to realize 

though is that we have gone through this 

information, reviewed the materials going back 

three years; we at the company remain very 

comfortable and confident that our accounting was 

appropriate for reserves as our auditors also remain 

confident with the accounting that we performed for 

those acquisitions. We will continue to make the 

submissions as requested by the SEC and move as 

quickly as possible in providing it to them so that 

we can get this behind us; however, we continue, as 

I said, to remain very comfortable with our 

accounting. 

* * * 

KOZLOWSKI: So with that, these are the reasons why I say 

prospects have never been better here, the core 

businesses are great, the undersea fiber optic cable 

network appears to be great for us, our cash flow is 

terrific, we believe we have no issues with the SEC 

from everything we’ve seen but, you know, we’re 

still going through this informal inquiry and we will 

fully cooperate with the SEC and we’re looking 

forward to having a very, very good and exciting 

year here, and there are some acquisitions on the 
103 

horizon for us. 

* * * 

. . . we’re looking at a company that, you know, will 

have strong organic growth for us, and we’re 

looking at a company that should be enjoying 

organic growth in double figures going forward. 

* * * 

Just to quickly reiterate, we’re very pleased with 

where we are at Tyco, we had strong revenue 

growth of some 27% of which about 16% of it was 

organic growth . . . you can see our results have 

never been better and our prospects have never 

seemed stronger to us . . . . 

As the Tyco Defendants either knew or were reckless in not knowing, these statements when 

made were materially false and misleading and omitted material information for the reasons set 

forth above in Section(s) V.A, A.1.a, and A.1.c. 

2. 1/20/00 8-K 

268. On January 20, 2000, the Tyco Defendants filed a Form 8-K announcing that 

diluted earnings per share for the first quarter of fiscal 2000 (ending December 31, 1999), before 

non-recurring charges and credits and extraordinary items, were 46 cents per share, a 48 percent 

increase over the previous year’s 31 cents per share. In the attached press release Defendant 

Kozlowski is quoted as saying: “Organic growth across each of our four business segments and 

all geographies drove Tyco’s performance in the first quarter. . . . Free cash flow was improved 

as well. The strength of our core businesses combined with strong cash flows are indicative of 

another strong year for Tyco.” As the Tyco Defendants either knew or were reckless in not 

knowing, these statements when made were materially false and misleading and omitted material 

information for the reasons set forth above in Section(s) V.A, A.l.a, and A.1.c. 
104 

3. 1/28/00 S-8 

269. On January 28, 2000, Tyco filed a Form S-8 for the registration of 10,000,000 

shares of Tyco common stock (the “1/28/00 S-8”), signed by Defendants Swartz, Kozlowski, and 

Walsh. Because the 1/28/00 S-8 incorporates Tyco’s 1999 10-K by reference, the S-8 contains 

the same materially false and misleading statements set forth in the 1999 10-K, as described 

above. 

270. In addition, the 1/28/00 S-8 sets forth the Consent of PwC, dated January 27, 

2000, permitting the incorporation by reference of its materially false and misleading report 

dated October 21, 1999, quoted in the 1999 10-K and discussed above. 

4. 2/11/00 10-Q for Quarter Ended 12/31/99 

271. On February 11, 2000, the Tyco Defendants filed Tyco’s Form 10-Q for the 

quarter ended December 31, 1999 (the “2/11/00 10-Q”), signed by Defendant Swartz. In it, the 

Tyco Defendants set out numerous materially false and misleading statements, as evidenced by 

(among other things) the Tyco Defendants’ restatement of its operating results in a June 26, 2000 

10-Q/A for the same period (discussed below). These false and misleading statements addressed 

a variety of topics, including the following: 

a. Tyco’s Operating Results 

272. The 2/11/00 10-Q also gives favorable, purportedly accurate information 

concerning Tyco’s operating results. For example, the Tyco Defendants provide the following 

summary information: 

(UNAUDITED) 

FOR THE QUARTERS 

 1999 1998 

(IN MILLIONS) 

Pre-tax income (loss) before extraordinary items 

 1,069.9 (74.4) 
105 

Income taxes (278.5) (33.3) 

Income (loss) before extraordinary items 791.4 (107.7) 

Extraordinary items net of taxed (0.2) (2.4) 

Net income (loss) $791.2 $(110.1) 

As the Tyco Defendants either knew or were reckless in not kowing, these statements when 

made were materially false and misleading and omitted material information for the reasons set 

forth above in Section(s) V.A, A.1.a, and A.l.c. 

273. 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), and instead attribute Tyco’s favorable results to organic 

growth and synergies resulting from Tyco’s acquisitions: 

Operating income improved in all segments in the quarter ended 

December 31, 1999 as compared to the quarter ended December 

31, 1998. The operating improvements are the result of both 

increased revenues and enhanced margins. Increased revenues 

resulted from organic growth and from acquisitions. 

As the Tyco Defendants either knew or were reckless in not knowing, these statements when 

made were materially false and misleading and omitted material information for the reasons set 

forth above in Section(s) V.A, A.l.a, and A.1.c. 

b. Tyco’s Charges and Reserves 

274. The 2/11/00 10-Q also gives materially false and misleading information 

regarding Tyco’s reserves. For example: 

In the quarter ended December 31, 1999, the Company established 

restructuring and other non-recurring reserves of $14.4 million 

primarily related to the exiting of USSC’s interventional 

cardiology business and the restructuring of AMI’s Brazilian 

operations. At September 30, 1999, there existed merger, 

restructuring and other non-recurring reserves of $453.3 million. 

During the quarter ended December 31, 1999, the Company paid 

out $58.3 million in cash and incurred $19.9 million in non-cash 
106 

charges that were charged against these reserves. Also in the 

quarter ended December 31, 1999, the Company determined that 

$137.6 million of merger, restructuring and other non-recurring 

reserves established in prior years was not needed and recorded a 

credit to the merger, restructuring and other non-recurring charges 

line item in the Consolidated Statement of Operations. The 

changes in estimates of the restructuring plan at AMP were 

attributable primarily to increased demand for certain of AMP’s 

products which was not anticipated at the time of the merger and to 

recent acquisitions such as Siemens EC. Therefore, the Company 

has determined not to close several facilities and not to terminate 

approximately 3,000 employees, whose costs were provided for in 

previous AMP restructuring plans. In addition, certain 

restructuring activities at AMP were completed for amounts lower 

than originally anticipated. The changes in estimates of the 

Company’s 1997 restructuring plans and the USSC restructuring 

plans were due primarily to the completion of activities for 

amounts lower than originally recorded. At December 31, 1999, 

there remained $251.9 million of merger, restructuring and other 

non-recurring reserves on the Company’s Consolidated Balance 

Sheet, of which $207.7 million is included in current liabilities and 

$44.2 million is included in long-term liabilities. 

As the Tyco Defendants either knew or were reckless in not knowing, these statements when 

made were materially false and misleading and omitted material information for the reasons set 

forth above in Section(s) V.A, A.1.a, and A.1.c. 

275. During this same period, The New York Times reported in an article entitled 

“Cashing in Gets Tougher at Tyco” (2/13/00) an announcement by Defendant Kozlowski that, 

“after questions about his company’s accounting practices and a big stock drop, . . . Tyco would 

have to hit impressive financial targets for executives to exercise future stock options.” As 

Defendant Kozlowski either knew or was reckless in not knowing, this statement when made 

was materially false and misleading and omitted material information for the reasons set forth 

above in Section(s) V.A.l.b, A.3, and B. 

276. Nonetheless, the Tyco Defendants continued to tout Tyco’s “strategy” of 

aggressive acquisition. According to an article in The Wall Street Journal entitled “Lion’s 
107 

Share: For Plastic Hangers, You Almost Need to Go to Tyco International” (2/15/00), executives 

of Tyco “have said the acquisitions frequently allow them to bring leadership to fragmented, 

inefficient industries. Purchased firms are melded with Tyco units and the overlap eliminated. 

Profit margins of acquisitions often double in just a year, the company says.” As the Tyco 

Defendants either knew or were reckless in not knowing, this statement when made was 

materially false and misleading and omitted material information for the reasons set forth above 

in Section(s) V.A, A.1.a, and A.1.c. 

5. 3/1/00 Proxy Statement for 2000 Annual meeting 

277. On March 1, 2000, the Tyco Defendants filed with the SEC Tyco’s Proxy 

Statement for the 2000 annual meeting (the “2000 Proxy Statement”). The 2000 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. 

a. Management Remuneration 

278. Concerning Tyco’s executive compensation program generally, the 2000 Proxy 

Statement states: 

Tyco’s executive compensation program [offers] significant 

financial rewards when the Company and the individual achieve 

superior results (as exemplified in the above chart), but 

significantly lower compensation is paid if performance goals are 

not met. Specifically, if the compensation targets are not achieved, 

the Company’s 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 1999, cash income and 

operating cash flow growth of a minimum of 15% over fiscal 1998 

performance was required, and before they could earn shares in 

fiscal 1999, an increase in earnings per share of at least 17.5% 

growth over fiscal 1998 was required. . . 

As the Tyco Defendants either knew or were reckless in not knowing, these statements when 
108 

made were materially false and misleading and omitted material information for the reasons set 

forth above in Section(s) V.B. 

279. The 2000 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 approves 

all of the policies under which compensation is paid or awarded to 

the Company’s executive officers and key managers and oversees 

the administration of executive compensation programs. The 

Compensation Committee is composed solely of independent 

directors, none of whom has any interlocking relationships with the 

Company that are subject to disclosure under rules of the SEC 

relating to proxy statements. 

As the Tyco Defendants either knew or were reckless in not knowing, the statements when made 

were materially false and misleading and omitted material information for the reasons set forth 

above in Section(s) V.B. 

280. The 2000 Proxy Statement contains the following specific information concerning 

the compensation of Defendants Kozlowski and Swartz: 

 Annual Compensation (2) Long-Term Compensation 

Name & Principal 

Position Year Salary 

Cash Bonus 

(3) 

Stock 

Bonus (4) 

Restricted 

Stock 

Award(S) 

(5) 

Shares 

Underlying 

Stock 

Options 

Long-Term 

Incentive 

Payouts 

All Other 

Compensation (6) 

1999 $1,350,000 $3,200,000 $25,707,178 6,621,834 $387,001 

1998 1,250,000 2,500,000 20,140,000 3,832,800 901,002 

L. Dennis Kozlowski 

Chairman & Chief 

Executive officer Tyco 

International LTD. 1997 1,250,000 2,544,260 6,600,000 $6,508,125 108,125 

* * * 

1999 750,000 1,600,000 12,029,641 2,976,480 150,014 

1998 559,500 1,250,000 10,070,000 2,764,666 256,878 

Mark H. Swartz 

Executive Vice 

President and Chief 

Financial Officer, Tyco 

International Ltd. 1997 559,500 1,272,130 2,200,000 2,169,375 31,994 

As the Tyco Defendants either knew or were reckless in not knowing, these statements when 
109 

made were materially false and misleading and omitted material information for the reasons set 

forth above in Section(s) V.B, B.1, B.4, B.5, and B.6. 

281. The 2000 Proxy Statement also failed to disclose and misrepresented the actual 

compensation of Defendant Kozlowski: 

For fiscal 1999, Mr. Kozlowski received a base salary of $1.35 

million and a cash bonus in the amount of $3.2 million, as shown 

in the SUMMARY COMPENSATION TABLE on page 12. Mr. 

Kozlowski was also granted 624,000 shares of restricted stock on 

October 18, 1999. Mr. Kozlowski’s eligibility for the cash bonus 

was conditioned on the Company’s experiencing minimum growth 

in pre-tax income and operating cash flow of 15% over fiscal 1998 

and his eligibility for the stock award was conditioned upon an 

increase in earnings per share of at least 17.5% over fiscal 1998. 

The Company’s performance substantially exceeded these 

benchmarks. These shares were granted based on achievement of 

fiscal 1999 performance criteria and vested on January 5, 2000. 

While Mr. Kozlowski did not receive any new stock option awards 

during fiscal 1999, he did receive restoration options. The 

restoration provision enables executive officers to use their earned 

equity award to repay indebtedness owed to the Company or to use 

option proceeds for tax planning purposes while maintaining their 

equity position in the Company. 

As the Tyco Defendants either knew or were reckless in not knowing, these statements when 

made were materially false and misleading and omitted material information for the reasons set 

forth above in Section(s) V.B, B.1.a, B.4.a, B.5, and B.6. 

282. In an effort to justify this astronomical compensation, the 2000 Proxy Statement 

describes fiscal 1999 as Tyco’s “most successful year ever,” 

with increases over fiscal 1998 in earnings per share before nonrecurring items of 51%, net income before non-recurring items of 

117%, and net sales of 83%, prior to the restatement of 1998 

results for the pooling of interests with United States Surgical 

Corporation and AMP Incorporated. Executive compensation was 

directly tied to, and is reflective of, this performance. 

It attributes that success to Kozlowski: 

Mr. Kozlowski also led the Company in making strategic 
110 

acquisitions that, along with the organic growth of the Company, 

laid the groundwork for continued growth and performance. 

As the Tyco Defendants either knew or were reckless in not knowing, these statements when 

made were materially false and misleading and omitted material information for the reasons set 

forth above in Section(s) V.A, A.l.a, and A.1.c. 

b. Key Employee Loan Program 

283. The 2000 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 under any regulation of the United States 

Treasury or other applicable statute or regulation. Loans may be 

required to be secured by Tyco common shares owned by the 

employee or may be unsecured. Loans generally bear interest at 

Tyco’s incremental short-term borrowing rate (5.5% for 1999). 

Loans 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 the Company 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. 

As the Tyco Defendants either knew or were reckless in not knowing, these statements when 

made were materially false and misleading and omitted material information for the reasons set 

forth above, in Section(s) V.B.4 and B.5. 

284. The 2000 Proxy Statement also falsely and misleadingly states: 

At September 30, 1999, the amount of loans outstanding under the 

[Key Employee Corporate Loan Program] totaled $18,569,137, of 

which $0 was loaned to Mr. Kozlowski . . . and $0 to Mr. Swartz. 

The largest amount of indebtedness since October 1, 1998 incurred 

by each of the Named Officers was: $52,688,249 for Mr. 

Kozlowski . . . . 

As the Tyco Defendants either knew or were reckless in not knowing, these statements when 
111 

made were materially false and misleading and omitted material information for the reasons set 

forth above in Section(s) V.B, B.1.a-b, B.4.a-b, B.5, and B.6. 

c. Allegations of Misconduct Against Tyco 

285. Finally, the 2000 Proxy Statement addresses the informal SEC investigation, and 

characterizes allegations that the Tyco Defendants engaged in improper acquisition accounting 

as mere “rumors”: 

As shareholders are aware, certain recent rumors and allegations, 

which we believe to be unfounded, have adversely affected Tyco’s 

stock price. Shareholders are also aware that the SEC is 

conducting an inquiry and that shareholder lawsuits have been 

filed against the Company in various courts across the country. . . 

We continue to have complete confidence in the senior 

management team and feel the fundamentals driving the company 

have not changed. As indicated earlier, our philosophy is to 

reward stellar performances, which is what we did for fiscal 1999. 

As the Tyco Defendants either knew or were reckless in not knowing, these statements when 

made were materially false and misleading and omitted material information for the reasons set 

forth above in Section(s) V.A.1 and A.3. 

6. 4/18/00 Earnings Announcement 

286. On April 18, 2000, Tyco released its financial results for the quarter ending 

March 31, 2000: 

Tyco International Ltd. . . . reported today that diluted earnings per 

share before non-recurring charges and credits and extraordinary 

item, for its second quarter ended March 31, 2000 were 50 cents 

per share, a 47 percent increase over 34 cents per share for the 

same quarter last year. Net income rose to $853.6 million, an 

increase of 50 percent compared to $567.8 million last year. Sales 

for the quarter rose 35 percent to $7.07 billion compared with last 

year’s $5.24 billion. The results for last year have been restated to 

reflect the merger with AMP, which occurred on April 2, 1999 and 

was accounted for as a pooling of interests, and are before 

acquisition-related and non-recurring charges and extraordinary 

item. After giving effect to acquisition related and other nonrecurring charges and credits, and extraordinary item, diluted 
112 

earnings per share were 50 cents, or $855.9 million, in fiscal 2000 

compared to 7 cents, or $119.5 million, in fiscal 1999. 

Income before non-recurring charges an credits and extraordinary 

items for the first half of fiscal 2000 rose to $1.64 billion, or 96 

cents per diluted share, a 48 percent increase over last year’s 

diluted per share earnings of 65 cents. After giving effect to 

acquisition related and other non-recurring charges and credits, 

and extraordinary item, diluted earnings per share were 96 cents, or 

$1.65 billion for the first half of fiscal 2000 compared to 1 cent, or 

$9.4 million, in fiscal 1999. Revenues for the first half increased 

to $13.7 billion, 31 percent higher than last year’s $10.5 billion. 

“Each of our four businesses had strong organic growth and 

generated positive free cash flow in the second quarter,” said L. 

Dennis Kozlowski, Tyco’s Chairman and Chief Executive Officer. 

“Our core businesses are well positioned to continue that trend for 

the remainder of the year.” 

287. As Defendants knew or recklessly disregarded, these statements were materially 

false and misleading for the reasons set forth in Sections V.A.1 and A.3. 

7. 4/18/00 Conference Call 

288. On April 18, 2000, Tyco held a conference call to discuss, among other things, its 

earnings during the second quarter of fiscal 2000. Defendants Kozlowski and Swartz also 

addressed the SEC’s informal investigation of the Tyco Defendants’ acquisition accounting. 

During the call, Defendant Swartz falsely stated: 

SWARTZ: . . . we continue to be confident with the financial 

results we’ve reported previously and the personnel 

working on that, we continue to provide the 

information to the SEC that was requested and 

we’re really not in a position to give any update in 

far as timing in that we don’t control that. What we 

do control though is getting the information to them 

and seeing what’s going in and we continue to 

remain very confident with the financial results 

we’ve reported.

* * * 

Q: But when. . . when you’re saying you’re happy with 

the way things are going, what . . . what is it that 
113 

you’re looking at that makes you happy? 

SWARTZ: That we’re . . . that we’re in a situation that we’re 

able to produce the information to them quickly on 

what had been requested and based on the 

additional review that we’ve gone through as well 

as outside advisors that we’ve brought in, to be. . . 

continue to be very comfortable with the financial 

results.

As the Tyco Defendants either knew or were reckless in not knowing, these statements when 

made were materially false and misleading and omitted material information for the reasons set 

forth above in Section(s) V.A.1 and A.3. 

289. During the call, Defendant Kozlowski also emphasized the financial health of the 

Company. 

KOZLOWSKI: . . .we’re very pleased with our quarter, with the 

strong outlook we have going forward but the fact 

that our organic growth for the company has been 

some 19% that our earnings are up some 47%,

 and 

then the prospects and outlook for a very strong 

cash flow. 

As The Wall Street Journal quoted Kozlowski the following day in an article entitled “Tyco’s 

Profit Surged in Fiscal 2nd Quarter, Helped by Sales Gain” (4/19/00): “Each of our four 

businesses had strong organic growth and generated positive free cash flow in the second quarter 

. . . Our core businesses are well-positioned to continue that trend for the remainder of the year.” 

As Defendant Kozlowski either knew or was reckless in not knowing, these statements when 

made were materially false and misleading and omitted material information for the reasons set 

forth above in Section(s) V.A, A.l.a, and A.1.c. 

290. On May 12, 2000, J.P. Morgan, reporting materially false and misleading 

information received from the Tyco Defendants, issued an upbeat analyst report, entitled 

“Business Review Delivers Message of Powerful Fundamentals and On Track.” The report 
114 

stated: 

CFO Mark Swartz made an interesting observation about things we 

haven’t seen with Tyco that are almost always associated with 

companies that have real accounting concerns: (1) [t]here have 

been no management departures, (2) [t]he auditors have not backed 

away from the opinion in the least (and the external forensic 

accountants remain very comfortable the accounting is clean), and 

(3) [i]n the 7 months since the negative allegations have been 

made, business results have not deteriorated - - to the contrary they 

have accelerated. These are simply not characteristics of a 

company that has been cooking its books. 

* * * 

A healthy acquisition pipeline and plenty of available cash should 

lead to stepped up deal flow. 

As Defendant Swartz either knew or was reckless in not knowing, the statements when made 

were materially false and misleading and omitted material information for the reasons set forth 

above in Section(s) V.A.1 and A.3. 

8. 5/15/00 10-Q for Quarter Ended 3/31/00 

291. On May 15, 2000, the Tyco Defendants filed Tyco’s Form 10-Q for the quarter 

ended March 31, 1999 (the “5/15/00 10-Q”), signed by Defendant Swartz. In it, the Tyco 

Defendants set out numerous materially false and misleading statements, as evidenced by 

(among other things) the Tyco Defendants’ restatement of its operating results in a June 26, 2000 

10-Q/A for the same period (discussed below). These false and misleading statements addressed 

a variety of topics, including the following: 

a. Tvco’s Operating Results 

292. The 5/15/00 10-Q also gives favorable, purportedly accurate information 

concerning Tyco’s operating results. For example, the Tyco Defendants provide the following 

summary information: 
115 

 (Unaudited) 

For The Quarters Ended March 31, For The Six Months Ended March 31, 

2000 1999 2000 1999 

 (IN MILLIONS) 

Pre-Tax income 

before extraordinary 

items 

1,140.4 308.2 2,210.4 233.8 

Income taxes (284.5) (146.2) (563.1) (179.5) 

Income before 

extraordinary items 

855.9 162.0 1,647.3 54.3 

Extraordinary items, 

net of taxes 

-- (42.5) (0.2) (44.9) 

Net income $855.9 $119.5 $1,647.1 $9.4 

As the Tyco Defendants either knew or were reckless in not knowing, these statements when 

made were materially false and misleading and omitted material information for the reasons set 

forth above in Section(s) V.A, A.1.a, and A.l.c. 

293. 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), and instead attribute Tyco’s favorable results to organic 

growth and synergies resulting from Tyco’s acquisitions: 

Operating income improved in all segments in the six months 

ended March 31, 2000 as compared to the six months ended March 

31, 1999. The operating improvements are the result of both 

increased revenues and enhanced margins. Increased revenues 

resulted from organic growth and from acquisitions. 

As the Tyco Defendants either knew or were reckless in not knowing, these statements when 

made were materially false and misleading and omitted material information for the reasons set 

forth above in Section(s) V.A, A.l.a, and A.1.c.

b. Tyco’s Charges and Reserves 

294. The 5/15/00 10-Q also gives materially false and misleading information 

regarding Tyco’s reserves. For example: 

In the six months ended March 31, 2000, the Company established 

restructuring and other non-recurring reserves of $24.8 million, of 

which $7.3 million is included in cost of sales, primarily related to 
116 

the exiting of USSC’s interventional cardiology business and the 

restructuring activities in AMP’s Brazilian operations and wireless 

communications business. At September 30, 1999, there existed 

merger, restructuring and other non-recurring reserves of $453.3 

million. During the six months ended March 31, 2000, the 

Company paid out $92.4 million in cash and incurred $45.5 million 

in non-cash charges that were charged against the reserves. Also 

in the six months ended March 31, 2000, the Company determined 

that $150.3 million of merger, restructuring and other nonrecurring reserves established in prior years was not needed and 

recorded a credit of $144.0 million to the merger, restructuring and 

other non-recurring charges line item and a credit of $6.3 million 

to the cost of sales line item in the Consolidated Statement of 

Operations. The changes in estimates of the restructuring plan at 

AMP were attributable primarily to increased demand for certain 

of AMP’s products which was not anticipated at the time of the 

merger and to recent acquisitions such as Siemens EC. Therefore, 

the Company has determined not to close several facilities and not 

to terminate approximately 3,000 employees, the costs of which 

were provided for in previous AMP restructuring plans. In 

addition, certain restructuring activities at AMP were completed 

for amounts lower than originally anticipated. The changes in 

estimates of the Company’s 1997 restructuring plans and the 

USSC restructuring plans were due primarily to the completion of 

activities for amounts lower than originally recorded. At March 

31, 2000, there remained $189.9 million of merger, restructuring 

and other non-recurring reserves on the Company’s Consolidated 

Balance Sheet, of which $147.6 million is included in current 

liabilities and $42.3 million is included in long-term liabilities. 

Similarly: 

The Company has taken recent merger, restructuring and other 

non-recurring charges and charges for the impairment of long-lived 

assets with respect to AMP and USSC. 

As the Tyco Defendants either knew or were reckless in not knowing, these statements when 

made were materially False and misleading and omitted material information for the reasons set 

forth above in Section(s) V.A and A.1.c. 

295. Tyco’s share price closed at $50.75 in May 15, 2000. 

9. 6/26/00 10-Q/A Filed for Quarter Ended 12/31/99 

296. On June 26, 2000, the Tyco Defendants filed another 10-Q/A for the quarter 
117 

ended December 31, 1999 (the “6/26/00 10-Q/A(1)”), signed by Defendant Swartz. According 

to the 6/26/00 10-Q/A(1), the restatement was in response to a “limited review” by the SEC. 

297. In the 6/26/00 10-Q/A(1), the Tyco Defendants gave the following explanation for 

the need to restate Tyco’s operating results: 

The amendment to the financial statements herein is being filed to 

reclassify certain charges and to adjust merger, restructuring and 

other non-recurring charges between periods due to the timing of 

the underlying events as follows: 

- To reclassify $65.6 million of charges, incurred by AMP during 

the quarter ended December 31, 1998 prior to its merger with 

Tyco, related to the write-off of goodwill and fixed assets of exited 

businesses in the Consolidated Statements of Operations out of the 

“merger, restructuring and other non-recurring (credits) charges, 

net” line and into the “charge for the impairment of long-lived 

assets” line; 

- To eliminate $26.0 million of merger, restructuring and other 

non-recurring credits recorded to merger, restructuring and other 

non-recurring (credits) charges in the first quarter of fiscal 2000 

related to charges which were originally recorded in fiscal 1999 

related primarily to severance and facility closings; 

- To reverse a $16.9 million credit previously recorded in the 

quarter ended December 31, 1999, related to merger, restructuring 

and other non-recurring charges which were originally recorded in 

fiscal 1997 related primarily to facility closings and lease 

termination costs, and to record $3.0 million of that credit in the 

quarter ended December 31, 1998; 

- To reclassify $15.0 million of inventory related restructuring 

costs, incurred during the quarter ended December 31, 1998, in the 

Consolidated Statements of Operations out of the “merger, 

restructuring and other non-recurring (credits) charges, net” line 

and into the “cost of sales” line; 

- To report certain non-recurring costs related to the integration of 

the USSC suture business originally recorded in the first quarter of 

fiscal 1999 as costs in later periods when such activity was 

completed (reversing a $22.3 million charge in the quarter ended 

December 31, 1998 and recording $7.7 million of that charge in 

the quarter ended December 31, 1999); and 
118 

- To update various disclosures primarily related to the above 

adjustments. 

298. Although Tyco’s filing of an amended 10-Q was in effect an admission that it had 

materially misstated its operating results during the Relevant Period, the Tyco Defendants 

attempted to downplay that admission by restating its results only minimally, by denying that 

there were any materially false statements in its previously filed 10-Q, and by denying any 

involvement in a scheme, later admitted in the December Report, to manipulate its acquisition 

accounting. This scheme, described in detail above, included the Tyco Defendants’ practice of 

aggressive accounting (through the manipulation of accounting reserves, inter alia), and their 

practice of incentivizing executives at acquired companies to manipulate the acquired company’s 

financial reporting before the acquisition to create the false appearance of superior earnings for 

Tyco after the acquisition. 

299. The 6/26/00 10-Q/A(1) itself contains numerous materially false and misleading 

statements on a variety of topics, including the following: 

a. Tyco’s Operating Results 

300. The 6/26/00 10-Q/A(l) also gives favorable, purportedly accurate information 

concerning Tyco’s operating results. For example, the Tyco Defendants provide the following 

summary information: 

Unaudited for the Quarters 

Ended December 31, 

1999 1998 

(In Millions) 

Pre-tax income (loss) before extraordinary items 1,019.3 (49.1) 

Income taxes (262.1) (40.5) 

Income (loss) before extraordinary items 757.2 (89.6) 

Extraordinary items, net of taxes (0.2) (2.4) 

Net Income (loss) $757.0 $(92.0) 

As the Tyco Defendants either knew or were reckless in not knowing, these statements when 

made were materially false and misleading and omitted material information for the reasons set 
119 

forth above in Section(s) V.A, A.1.a, and A.1.c. 

301. 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), and instead attribute Tyco’s favorable results to organic 

growth and synergies resulting from Tyco’s acquisitions: 

Operating income improved in all segments in the quarter ended 

December 31, 1999 as compared to the quarter ended December 

31, 1998. The operating improvements are the result of both 

increased revenues and enhanced margins. Increased revenues 

resulted from organic growth and from acquisitions. 

As the Tyco Defendants either knew or were reckless in not knowing, these statements when 

made were materially false and misleading and omitted material information for the reasons set 

forth above in Section(s) V.A, A.1.a, and A.1.c. 

b. Tyco’s Charges and Reserves 

302. The 6/26/00 10-Q/A(1) also gives materially false and misleading information 

regarding Tyco’s reserves: 

In the quarter ended December 31, 1999, the Company established 

restructuring and other non-recurring reserves of $22.1 million 

primarily related to the exiting of USSC’s interventional 

cardiology business, charges associated with USSC’s suture 

business and the restructuring of AMP’s Brazilian operations. At 

September 30, 1999, there existed merger, restructuring and other 

non-recurring reserves of $399.3 million. During the quarter 

ended December 31, 1999, the Company paid out $58.3 million in 

cash and incurred $19.9 million in non-cash charges that were 

charged against these reserves. Also in the quarter ended 

December 31, 1999, the Company determined that $94.7 million of 

merger, restructuring and other non-recurring reserves established 

in prior years was not needed and recorded a credit to the merger, 

restructuring and other non-recurring charges line item in the 

Consolidated Statement of Operations. The changes in estimates 

of the restructuring plan at AMP were attributable primarily to 

increased demand for certain of AMP’s products which was not 

anticipated at the time of the merger and to recent acquisitions 

such as Siemens EC. Therefore, the Company has determined not 
120 

to close several facilities and not to terminate approximately 3,000 

employees, whose costs were provided for in previous AMP 

restructuring plans. In addition, certain restructuring activities at 

AMP were completed for amounts lower than originally 

anticipated. The changes in estimates of the Company’s 1997 

restructuring plans and the USSC restructuring plans were due 

primarily to the completion of activities for amounts lower than 

originally recorded. At December 31, 1999, there remained $248.5 

million of merger, restructuring and other non-recurring reserves 

on the Company’s Consolidated Balance Sheet, of which $204.3 

million is included in current liabilities and $44.2 million is 

included in long-term liabilities. 

As the Tyco Defendants either knew or were reckless in not knowing, these statements when 

made were materially false and misleading and omitted material information for the reasons set 

forth above in Section(s) V.A and A.1.c. 

10. 6/26/00 10-Q/A filed for Quarter Ended 3/31/00 

303. On June 26, 2000, the Tyco Defendants filed another 10-Q/A for the quarter 

ended March 31, 1999 (the “6/26/00 10-Q/A(2)”), signed by Defendant Swartz. According to 

the 6/26/00 10-Q/A(2), the restatement was in response to a “limited review” by the SEC. 

304. In the 6/26/00 10-Q/A(2), the Tyco Defendants gave the following explanation for 

the need to restate Tyco’s operating results: 

The amendment to the financial statements herein is being filed to reclassify certain charges and 

to adjust merger, restructuring and other non-recurring charges between periods due to the timing 

of the underlying events as follows: 

- To reclassify $103.5 million of charges, incurred by AMP during 

the quarter ended March 31, 1999 prior to its merger with Tyco, 

related to the write-off of goodwill and fixed assets of exited 

businesses in the Consolidated Statement of Operations out of the 

“merger, restructuring and other non-recurring charges (credits), 

net” line and into the “charge for the impairment of long-lived 

assets” line; 

- To record a credit in the quarter ended March 31, 1999 for the 

reversal of $5.3 million of merger, restructuring and other nonrecurring charges which were originally recorded in fiscal 1997 

related primarily to facility closings and lease termination costs 
121 

(this credit was previously recorded in the first quarter of fiscal 

2000); 

- To reclassify $1.9 million of inventory related restructuring costs, 

incurred during the quarter ended March 3,1 1999, in the 

Consolidated Statement of Operations out of the “merger, 

restructuring and other non-recurring charges (credits), net” line 

and into the “cost of sales” line; 

- To report certain non-recurring costs related to the integration of 

the USSC suture business originally recorded in the first quarter of 

fiscal 1999 as costs in later periods when such activity was 

completed (recording $2.0 million of that charge in the quarter 

ended March 31, 1999 and $0.5 million in the quarter ended March 

31, 2000); and 

- To update various disclosures primarily related to the above 

adjustments. 

305. Although Tyco’s filing of an amended 10-Q was in effect an admission that it had 

materially misstated its operating results during the Relevant Period, the Tyco Defendants 

attempted to downplay that admission by restating its results only minimally, by denying that 

there were any materially false statements in its previously filed 10-Q, and by denying any 

involvement in a scheme, later admitted in the December Report, to manipulate its acquisition 

accounting. This scheme, described in detail above, included the Tyco Defendants’ practice of 

aggressive accounting (through the manipulation of accounting reserves, inter alia), and their 

practice of incentivizing executives at acquired companies to manipulate the acquired company’s 

financial reporting before the acquisition to create the false appearance of superior earnings for 

Tyco after the acquisition.

306. The 6/26/00 10-Q/A(2) itself contains numerous materially false and misleading 

statements on a variety of topics, including the following: 

a. Tyco’s Operating Results

307. The 6/26/00 10-Q/A(2) also gives favorable, purportedly accurate information 
122 

concerning Tyco’s operating results. For example, the Tyco Defendants provide the following 

summary information: 

(UNAUDITED) 

FOR THE QUARTERS 

ENDED MARCH 31, 

FOR THE SIX MONTHS 

ENDED MARCH 31, 

2000 1999 2000 1999 

(In Millions) 

Pre-tax income (loss) before extraordinary items 1,139.9 311.5 2,159.3 262.4 

Income taxes (284.4) (147.2) (546.6) (187.7) 

Income (loss) before extraordinary items 855.5 164.3 1,612.7 74.7 

Extraordinary items, net of taxes -- (42.5) (0.2) (44.9) 

Net Income (loss) $855.5 $121.8 $1,612.5 $29.8 

As the Tyco Defendants either knew or were reckless in not knowing, these statements when 

made were materially false and misleading and omitted material information for the reasons set 

forth above in Section(s) V.A, A.l.a, and A.l.c. 

308. In addition, the 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 improved in all segments in the six months 

ended March 31, 2000 as compared to the six months ended March 

31, 1999. The operating improvements are the result of both 

increased revenues and enhanced margins. Increased revenues 

resulted from organic growth and from acquisitions. The 

Company enhances its margins through improved productivity and 

cost reductions in the ordinary cause of business, unrelated to 

acquisition or divestiture activities. The Company regards charges 

that it incurs to reduce costs in the ordinary course of business as 

recurring charges, which are reflected in cost of sales and in 

selling, general and administrative expenses in the Consolidated 

Statements of Operations. 

As the Tyco Defendants either knew or were reckless in not knowing, these statements when 

made were materially false and misleading and omitted material information for the reasons set 

forth above in Section(s) V.A, A.l.a, and A.1.c. 
123 

b. Tyco’s Charges and Reserves 

309. The 6/26/00 10-Q/A(2) also gives materially false and misleading information 

regarding Tyco’s reserves: 

In the six months ended March 31, 2000, the Company established 

restructuring and other non-recurring reserves of $33.0 million, of 

which $7.3 million is included in cost of sales, primarily related to 

the exiting of USSC’s interventional cardiology business, charges 

associated with USSC’s suture business and the restructuring 

activities in AMP’S Brazilian operations and wireless 

communications business. At September 30, 1999, there existed 

merger, restructuring and other non-recurring reserves of $399.3 

million. During the six months ended March 31, 2000, the 

Company paid out $92.4 million in cash and incurred $45.5 million 

in non-cash charges that were charged against the reserves. Also 

in the six months ended March 31, 2000, the Company determined 

that $107.4 million of merger, restructuring and other nonrecurring reserves established in prior years was not needed and 

recorded a credit of $101.1 million to the merger, restructuring and 

other non-recurring charges line item and a credit of $6.3 million 

to the cost of sales line item in the Consolidated Statement of 

Operations. The changes in estimates of the restructuring plan at 

AMP were attributable primarily to increased demand for certain 

of AMP’s products which was not anticipated at the time of the 

merger and to recent acquisitions such as Siemens EC. Therefore, 

the Company has determined not to close several facilities and not 

to terminate approximately 3,000 employees, the costs of which 

were provided for in previous AMP restructuring plans. In 

addition, certain restructuring activities at AMP were completed 

for amounts lower than originally anticipated. The changes in 

estimates of the Company’s 1997 restructuring plans and the 

USSC restructuring plans were due primarily to the completion of 

activities for amounts lower than originally recorded. At March 

31, 2000, there remained $187.0 million of merger, restructuring 

and other non-recurring reserves on the Company’s Consolidated 

Balance Sheet, of which $144.7 million is included in current 

liabilities and $42.3 million is included in long-term liabilities. 

As the Tyco Defendants either knew or were reckless in not knowing, these statements when 

made were materially false and misleading and omitted material information for the reasons set 

forth above in Section(s) V.A and A.1.c. 

310. On June 26, 2000, UBS Warburg, reporting materially false and misleading 
124 

information received from the Tyco Defendants, issued an analyst report entitled, “TYC: SEC 

Review = Positive Outcome . . . Overhang Lifted.” The report stated: 

Magnitude of SEC Accounting Requests Is Insignificant, in our 

view. 

* * * 

Management also expressed comfort with consensus estimates for 

the second quarter, $0.57, and 2000, $2.16. . . We remain 

extremely bullish on TYC. 

* * * 

[W]e are looking for $3.3 billion in free cash flow generation this 

fiscal year, which along with the company’s unlevered balance 

sheet, afford ample powder for acquisitions - implying our 

earnings estimates are conservative. 

As the Tyco Defendants either knew or were reckless in not knowing, these statements when 

made were materially false and misleading and omitted material information for the reasons set 

forth above in Section(s) V.A.1 and A.3. 

311. On June 27, 2000, the day after the Tyco Defendants filed the 6/26/00 10-K/A the 

6/26/00 10-Q/A (1), and the 6/26/00 10-Q/A (2), The Wall Street Journal reported that, with the 

filing of the restatements, the SEC’s informal inquiry was effectively put to rest (“Tyco’s Shares 

Rise 13% After Concern Restates Results Following SEC Review”). Analyst response was 

favorable. According to the article: “Michael Holton, analyst at T. Rowe Price Associates in 

Baltimore . . . said the results of the inquiry ‘put to rest any lurking fears about the company’s 

accounting and the credibility of its management.’ He called the announcement ‘positive across 

the board.’” 

312. That same day, Defendant Kozlowski was cited by the Financial Times as saying 

that “the changes [reflected in the restatements] only affected the timing of non-recurring 

charges at Tyco.” According to the June 27 article (“Tyco Lifted by Conclusion of SEC 
125 

Review”), Kozlowski said that “[t]he company has ‘the financial resources and flexibility to 

continue to pursue acquisitions that will have an immediate positive impact on our earnings per 

share.”‘ As Defendant Kozlowski either knew or was reckless in not knowing, these statements 

when made were materially false and misleading and omitted material information for the 

reasons set forth above in Section(s) V.A.l and A.3. 

11. 6/28/00 Conference Call 

313. On June 28, 2000, Tyco held a conference call to discuss, among other things, its 

acquisition of Mallinckrodt and its projections for the quarter. During the call, Defendant 

Kozlowski continued to falsely predict a favorable quarter: 

KOZLOWSKI: To begin with, first of all we are confident of our 

quarter and our year at Tyco. Business continues to 

be good. Our organic growth continues to go well. 

We expect we will have a strong quarter. . . . 

We are still projecting our $33 billion of free cash 

this year. 

314. About the Malluackrodt acquisition and other acquisitions he stated: 

KOZLOWSKI: Mallinckrodt fits all the criteria that we often talk 

about for a Tyco acquisition. It will be immediately 

accretive to the company. It has strong growth. As 

a matter of fact, the growth of the Mallinckrodt 

businesses markets are even better than the strong 

growth that we’re experiencing in current Tyco 

Healthcare markets. 

* * * 

But as we said back in May, you’re seeing good 

strong organic growth from us. We do anticipate 

real good organic growth out for the next 12-24 

months in all of our businesses, from everything we 

see and we’re well positioned. And we will be 

adding to that with these selective acquisitions that 

make a whole lot of sense. That are immediately 

accretive, give us good strong cash flows and fit 

right within to what we’re doing. 
126 

As Defendant Kozlowski either knew or was reckless in not knowing, these statements when 

made were materially false and misleading and omitted material information for the reasons set 

forth above in Section(s) V.A, A.1.a, and A.1.c. 

12. 7/12/00 S-4 (and Related S-4/A and Prospectus) 

315. On July 12, 2000, Tyco filed with the SEC a Form S-4 relating to a proposed 

merger between Mallinckrodt Inc. and a subsidiary of Tyco (the “7/12/00 S-4”). The 7/12/00 S4 was signed by Defendants Swartz, Kozlowski, and Walsh. Because the 7/12/00 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 Forms 10-K and 10-K/A for the fiscal year-ended September 30, 1999; (ii) Tyco’s 

Quarterly Reports on Forms 10-Q and 10-Q/A for the quarters ended December 31, 1999 and 

March 31, 2000; and (iii) Tyco’s Current Reports on Form 8-K filed on December 9, 1999 and 

January 20, 2000. 

316. Like the 1999 10-K and many of Tyco’s other filings with the SEC throughout the 

Relevant Period, the 7/12/00 S-4 recites Tyco’s purported strategy, quoted and discussed above 

in paragraph 238. It also reiterates its so-called strategy in its discussion of Tyco’s acquisition of 

Mallinckrodt: 

At a meeting held on June 22, 2000, Tyco’s Board of Directors 

determined that the acquisition of Mallinckrodt was in keeping 

with its corporate strategy of complementing its internal growth 

with acquisitions that are likely to benefit from cost reductions and 

synergies when combined with Tyco’s existing operations and that 

are expected to be accretive to earnings per share. 

As the Tyco Defendants either knew or were reckless in not knowing, these statements when 

made were materially false and misleading and omitted material information for the reasons set 

forth above in Section(s) V.A, A.1.a, and A.1.c. 
127 

317. In addition, the 7/12/00 S-4 sets forth the Consent of PwC, dated July 10, 2000, 

permitting the incorporation by reference of its materially false and misleading report, dated 

October 21, 1999, quoted in the 1999 10-K and discussed above, and other materially false and 

misleading materials discussed herein. 

318. On August 9, 2000, the Tyco Defendants filed with the SEC a Form S-4/A (the 

“8/9/00 S-4/A”), amending the 7/12/00 S-4. The 8/9/00 S-4/A was signed by Defendant Swartz 

for himself and for Defendants Kozlowski, and Walsh. Because the 8/9/00 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 Forms 

10-K and 10-K/A for the fiscal year-ended September 30, 1999; (ii) Tyco’s Quarterly Reports on 

Forms 10-Q and 10-Q/A for the quarters ended December 31, 1999 and March 31, 2000; and (iii) 

Tyco’s Current Reports on Form 8-K filed on December 9, 1999, January 20, 2000, and July 14, 

2000.

319. Like the 1999 10-K and many of Tyco’s other filings with the SEC throughout the 

Relevant Period, the 8/9/00 S-4/A recites Tyco’s purported strategy, quoted and discussed above 

in paragraph 238. It also reiterates its so-called strategy in its discussion of Tyco’s acquisition of 

Mallinckrodt, using precisely the same language quoted from the 7/12/00 S-4 above. As the 

Tyco Defendants either knew or were reckless in not knowing, these statements when made were 

materially false and misleading and omitted material information for the reasons set forth above 

in Section(s) V.A, A.1.a, and A.l.c. 

320. In addition, the 8/9/00 S-4/A sets forth the Consent of PricewaterhouseCoopers, 

dated August 8, 2000, permitting the incorporation by reference of its materially false and 

misleading report, dated October 21, 1999, quoted in the 1999 10-K and discussed above, and 
128 

other materially false and misleading materials discussed herein. 

321. On August 11, 2000, the Tyco Defendants filed with the SEC a Prospectus 

relating to the proposed merger between Mallinckrodt Inc. and a subsidiary of Tyco (the 

“8/11/00 Prospectus”). Because the 8/11/00 Prospectus incorporates the following documents by 

reference, it contains the same materially false and misleading statements set forth in those 

documents, as described above: (i) Tyco’s Annual Report on Forms 10-K and 10-K/A for the 

fiscal year-ended September 30, 1999; (ii) Tyco’s Quarterly Reports on Forms 10-Q and 10-Q/A 

for the quarters ended December 31, 1999 and March 31, 2000; and (iii) Tyco’s Current Reports 

on Form 8-K filed on December 9, 1999, January 20, 2000, and July 14, 2000. 

322. Like the 1999 10-K and many of Tyco’s other filings with the SEC throughout the 

Relevant Period, the 8/11/00 Prospectus recites Tyco’s purported strategy, quoted and discussed 

above in paragraph 238. It also reiterates its so-called strategy in its discussion of Tyco’s 

acquisition of Mallinckrodt, using precisely the same language quoted from the 7/12/00 S-4 

above. As the Tyco Defendants either knew or were reckless in not knowing, the statements 

when made were materially false and misleading and omitted material information for the 

reasons set forth above in Section(s) V.A, A.l.a, and A.l.c. 

13. 7/13/00 Press Release 

323. On July 13, 2000, Tyco issued a press release, filed with the SEC in a Form 8-K 

the following day, announcing that the SEC had terminated its informal inquiry into Tyco’s 

accounting practices without recommending an enforcement action. According to the press 

release: “As Tyco has previously stated, the Company has at all times been confident with 

respect to the propriety of its accounting and its previously issued financial statements.” As the 

Tyco Defendants either knew or were reckless in not knowing, this statement when made was 

materially false and misleading and omitted material information for the reasons set forth in 
129 

Section(s) V.A.1 and A.3. 

14. 7/19/00 Earnings Announcement 

324. On July 19, 2000, Tyco issued a press release announcing Tyco’s financial results 

for the quarter ended June 30, 2000: 

Tyco . . . reported today that diluted earnings per share before nonrecurring charges and credits and extraordinary item, for its third 

quarter ended June 30, 2000 were 58 cents per share, a 38 percent 

increase over 42 cents per share for the same quarter last year. Net 

income rose to $992.1 million, an increase of 42 percent compared 

to $699.4 million last year. Sales for the quarter rose 27 percent to 

$7.42 billion compared with last year’s $5.82 billion. The results 

for last year are before restructuring and non-recurring charges and 

extraordinary item. After giving effect to restructuring and other 

non-recurring charges and credits, diluted earnings per share 

before extraordinary items were 58 cents, or $997.3 million, in 

fiscal 2000 compared to 13 cents or $212.2 million, in fiscal 1999. 

Income before non-recurring charges and credits and extraordinary 

items for the nine months of fiscal 2000 rose to $2.63 billion, or 

$1.54 per diluted share, a 44 percent increase over last year’s 

diluted per share earnings of $1.07. After giving effect to 

acquisition related and other non-recurring charges and credits, 

diluted earnings per share before extraordinary item were $1.52, or 

$2.61 billion for the first nine months of fiscal 2000 compared to 

17 cents, or $286.9 million, in fiscal 1999. Revenues for the nine 

months increase to $21.13 billion, 30 percent higher than last 

year’s $16.27 billion. 

“The results we reported for our third quarter reflected some solid 

organic revenue growth and strong operating margins in each of 

our business segments. This has created free cash flow of over 

$900 million in the quarter. Free cash flow in the first nine months 

of fiscal 2000 was $1.9 billion, which exceeds the free cash flow 

generated for all of fiscal year 1999,” said L. Dennis Kozlowski, 

Tyco’s Chairman and Chief Executive. 

“The integration of the acquisitions we completed this year have 

served to enhance our performance, and will provide for continued 

improvements as we complete this fiscal year and move into fiscal 

year 2001. The completion of the acquisition of the Electronics 

OEM business of Thomas & Betts in July and the announced 

acquisition of Mallinckrodt will create additional positive impact 

going forward. In addition, our balance sheet will be enhanced by 
130 

the closing of the ADT Automotive divestiture, expected to be 

completed in mid-August, and the completion of the Mallinckrodt 

acquisition, expected in October,” he added. 

325. As Defendants knew or recklessly disregarded, these statements were materially 

false and misleading when made for the reasons set forth in Sections V.A., A.1, and A.1.c. 

15. 7/19/00 Conference Call 

326. On July 19, 2000, Tyco held a conference call to discuss, among other things, its 

earnings during the third quarter of fiscal 2000. Defendant Kozlowski falsely stated: 

KOZLOWSKI: Revenue was up 27% versus last year to 7.4 billion 

with strong organic growth. We had organic 

growth of over 17% this quarter. . . We here at Tyco 

continue to see strong performance across all 

business segments, we anticipate a good fourth 

quarter and our fiscal year 2001 which begins on 

October 1st looks very good to us at this time. . .We 

are very comfortable with the estimates for next 

quarter. . . . 

As Defendant Kozlowski either knew or was reckless in not knowing, these statements when 

made were materially false and misleading and omitted material information for the reasons set 

forth above in Section(s) V.A, A.1.a, and A.1.c. 

327. Kozlowski also addressed the termination of the SEC’s inquiry into Tyco’s 

accounting practices. Reiterating the message of Tyco’s recent press release, Defendant 

Kozlowski stated: “the company has at all times been confident with respect to the propriety of 

its accounting and its previously issued financial statements. I hope with that we will not deal 

with accounting questions or accounting inquiries here at Tyco.” When asked whether he was 

“aware of any new negative news articles or anything that happens to be coming out,” Kozlowski 

responded: “Not at all.” As Defendant Kozlowski either knew or was reckless in not knowing, 

this statement when made was materially false and misleading and omitted material information 

for the reasons set forth above in Section(s) V.A.l and A.3. 
131 

16. 7/24/00 S-4 (and related S-4/A, Prospectuses, and Post-Effective Amendment) 

328. On July 24, 2000, Tyco filed with the SEC a Form S-4 relating to Tyco’s proposal 

to exchange up to Euro 600,000,000 aggregate principal amount of new 6 1/8% notes due 2007 

for any and all of its outstanding 6 1/8% Notes due 2007 (the “7/24/00 S-4”). The 7/24/00 S-4 

was signed by Defendants Swartz, Kozlowski, and Walsh. Because the 7/24/00 S-4 incorporates 

the following documents by reference, it contains the same materially false and misleading 

statements set forth in those documents, as described above: (i) Tyco’s Annual Report on Forms 

10-K and 10-K/A for the fiscal year-ended September 30, 1999; (ii) Tyco’s Quarterly Reports on 

Forms 10-Q and 10-Q/A for the quarters ended December 31, 1999 and March 31, 2000; and (iii) 

Tyco’s Current Reports on Form 8-K filed on December 9, 1999 and January 20, 2000. 

329. Like the 1999 10-K and many of Tyco’s other filings with the SEC throughout the 

Relevant Period, the 7/24/00 S-4 recites Tyco’s purported strategy, quoted and discussed above 

in paragraph 238. As the Tyco Defendants either knew or were reckless in not knowing, this 

statement of strategy when made was materially false and misleading and omitted material 

information for the reasons set forth above in Section(s) V.A, A.1.a, and A.1.c. 

330. In addition, the 7/24/00 S-4 sets forth the Consent of PricewaterhouseCoopers, 

dated July 21, 2000, permitting the incorporation by reference of its materially false and 

misleading report, dated October 21, 1999, quoted in the 1999 10-K and discussed above, and 

other materially False and misleading materials discussed herein. 

331. On August 3, 2000, Tyco filed with the SEC a Form S-4/A (the “8/3/00 S-4/A”), 

amending its 7/24/00 S-4. The 8/3/00 S-4/A was signed by Defendant Swartz for himself and for 

Defendants Kozlowski, and Walsh. Because the 8/3/00 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 above: (i) Tyco’s Annual Report on Forms 10-K and 10-A for 
132 

the fiscal year-ended September 30, 1999; (ii) Tyco’s Quarterly Reports on Forms 10-Q and 10-

Q/A for the quarters ended December 31, 1999 and March 31, 2000; and (iii) Tyco’s Current 

Reports on Form 8-K filed on December 9, 1999, January 20, 2000, and July 14, 2000. 

332. Like the 1999 10-K and many of Tyco’s other filings with the SEC throughout the 

Relevant Period, the 8/3/00 S-4/A recites Tyco’s purported strategy, quoted and discussed above 

in paragraph 238. As the Tyco Defendants either knew or were reckless in not knowing, this 

statement of strategy when made was materially false and misleading and omitted material 

information for the reasons set forth above in Section(s) V.A, A.l.a, and A.1.c. 

333. Under the heading “Recent Developments,” the 8/3/00 S-4/A states as follows: 

On July 19, 2000, Tyco announced its results for the third quarter 

of fiscal 2000, the three and nine months ended June 30, 2000. 

Tyco reported that diluted earnings per share before non-recurring 

charges and credits and extraordinary item, for its third quarter 

ended June 30, 2000 were 58 cents per share, a 38 percent increase 

over 42 cents per share for the same quarter last year. Net income 

rose to $992.1 million, an increase of 42 percent compared to 

$699.4 million last year. Sales for the quarter rose 27 percent to 

$7.42 billion compared with last year’s $5.82 billion. The results 

for last year are before restructuring and non-recurring charges and 

extraordinary item. After giving effect to restructuring and other 

non-recurring charges and credits, diluted earnings per share 

before extraordinary item were 58 cents, or $997.3 million, in 

fiscal 2000 compared to 13 cents, or $212.2 million, in fiscal 1999. 

Income before non-recurring charges and credits and extraordinary 

items for the nine months of fiscal 2000 rose to $2.63 billion, or 

$1.54 per diluted share, a 44 percent increase over last year’s 

diluted per share earnings of $1.07. After giving effect to 

acquisition related and other non-recurring charges and credits, 

diluted earnings per share before extraordinary item were $1.52, or 

$2.61 billion for the first nine months of fiscal 2000 compared to 

17 cents, or $286.9 million, in fiscal 1999. Revenues for the nine 

months increased to $21.13 billion, 30 percent higher than last 

year’s $16.27 billion. 

As the Tyco Defendants either knew or were reckless in not knowing, these statements when 

made were materially false and misleading and omitted material information for the reasons set 
133 

forth above in Section(s) V.A, A.l.a, and A.1.c. 

334. In addition, the 8/3/00 S-4/A sets forth the Consent of PwC, dated August 2, 

2000, permitting the incorporation by reference of its materially false and misleading report, 

dated October 21, 1999, quoted in the 1999 10-K and discussed above, and other materially false 

and misleading materials discussed herein. 

335. On August 11, 2000, Tyco filed with the SEC a Prospectus relating to Tyco’s 

proposed offer to exchange up to Euro 600,000,000 aggregate principal amount of new 6 1/8% 

notes due 2007 for any and all of its outstanding 6 1/8% Notes due 2007 (the “8/11/00 

Prospectus”). Because the 8/11/00 Prospectus incorporates by reference the same documents 

that were incorporated by reference in the 8/3/00 S-4/A, it contains the same materially false and 

misleading statements set forth in those documents, as described herein. 

336. Like the 1999 10-K and many of Tyco’s other filings with the SEC throughout the 

Relevant Period, the 8/11/00 Prospectus recites Tyco’s purported strategy, quoted and discussed 

above in paragraph 238. As the Tyco Defendants either knew or were reckless in not knowing, 

this statement of strategy when made was materially false and misleading and omitted material 

information for the reasons set forth above in Section(s) V.A, A.l.a, and A.1.c. 

337. Under the heading “Recent Developments,” the 8/11/00 Prospectus uses precisely 

the same language quoted from the 8/3/00 S-4/A above. As the Tyco Defendants either knew or 

were reckless in not knowing, these statements when made were materially false and misleading 

and omitted material information for the reasons set forth above in Section(s) V.A, A.1.a, and 

A.1.c. 

338. On November 29, 2000, Tyco filed with the SEC a Post-Effective Amendment to 

the 7/24/00 S-4 and the 8/3/00 S-4/A discussed above (the “11/20/00 Post-Effective 
134 

Amendment”). The 11/20/00 Post-Effective Amendment was signed by Defendant Swartz for 

himself and for Defendants Kozlowski and Walsh. Because the 11/20/00 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 above: (i) Tyco’s 

Annual Report on Forms 10-K and 10-K/A for the fiscal year-ended September 30, 1999; (ii) 

Tyco’s Quarterly Reports on Forms 10-Q and 10-Q/A for the quarters ended December 31, 1999, 

March 31, 2000, and June 30, 2000; and (iii) Tyco’s Current Reports on Form 8-K filed on 

December 9, 1999, January 20, 2000, July 14, 2000, November 1, 2000, and November 15, 

2000. 

339. Like the 1999 10-K and many of Tyco’s other filings with the SEC throughout the 

Relevant Period, the 11/20/00 Post-Effective Amendment recites Tyco’s purported strategy, 

quoted and discussed above in paragraph 238. As the Tyco Defendants either knew or were 

reckless in not knowing, this statement of strategy when made was materially false and 

misleading and omitted material information for the reasons set forth above in Section(s) V.A, 

A.1.a, and A.l.c. 

340. In addition, the 11/20/00 Post-Effective Amendment contains materially false and 

misleading statements about Tyco under the heading “Current Developments.” For example: 

On October 24, 2000, Tyco announced its results for the fourth 

quarter of fiscal 2000, the three months ended September 30, 2000. 

For the fiscal 2000 fourth quarter, income before restructuring and 

other non-recurring credits, charges, gain and extraordinary items 

was $1.10 billion, or $0.64 per diluted share, as compared to 

$782.7 million, or $0.46 per diluted share, for the quarter ended 

September 30, 1999. After giving effect to restructuring and other 

non-recurring credits, charges, gain and extraordinary items, net 

income for the fourth quarter of fiscal 2000 was $1.91 billion, or 

$1.12 per diluted share, compared to $780.5 million, or $0.46 per 

diluted share, in the fourth quarter of fiscal 1999. Results in the 

fourth quarter of fiscal 2000 included a $1.76 billion pretax gain 
135 

from the initial public offering of TyCom Ltd. Fourth quarter sales 

rose 25% to $7.81 billion, up from $6.22 billion a year ago. 

As the Tyco Defendants either knew or were reckless in not knowing, these statements when 

made were materially false and misleading and omitted material information for the reasons set 

forth above in Section(s) V.A, A.l.a, and A.l.c. 

341. Further: 

For fiscal 2000, revenues increased to $28.93 billion, up 29% from 

revenues of $22.50 billion in fiscal 1999. Income before 

restructuring and other nonrecurring credits, charges, gain and 

extraordinary items rose to $3.73 billion, or $2.18 per diluted 

share, a 42% increase over $1.53 per diluted share in fiscal 1999. 

After giving effect to restructuring and other non-recurring credits, 

charges, gain and extraordinary items, net income for fiscal 2000 

was $4.52 billion, or $2.64 per diluted share, compared to $1.02 

billion or $0.61 per diluted share, in fiscal 1999.

As the Tyco Defendants either knew or were reckless in not knowing, these statements when 

made were materially false and misleading and omitted material information for the reasons set 

forth above in Section(s) V.A, A.l.a, and A.1.c. 

342. The 11/20/00 Post-Effective Amendment also gives favorable, purportedly 

accurate information concerning Tyco’s operating results. For example, the Tyco Defendants 

provide the following summary information: 

 Nine Months Ended 

June 30, 2000 

Year-ended 

September 30, 1999 

Earnings: 

Income (loss) before extraordinary 

items and cumulative effect of 

accounting changes $2,610.0 $1,067.7 

Income taxes 878.9 637.5 

 3,448.9 1,705.2 

As the Tyco Defendants either knew or were reckless in not knowing, these statements when 

made were materially false and misleading and omitted material information for the reasons set 

forth above in Section(s) V.A, A.1.a, and A.1.c. 
136 

343. The 11/20/00 Post-Effective Amendment also includes information on charges 

included in earnings: 

Earnings for the nine months ended June 30, 2000, the years ended 

September 30, 1999 and 1998, the nine months ended September 

30, 1997 and the years ended December 31, 1996 and 1995 include 

net merger, restructuring and other non-recurring (credits) charges 

of $(81.3) million (of which net charges of $1.0 million are 

included in cost of sales), $1,035.2 million (of which $106.4 

million is included in cost of sales), $256.9 million, $947.9 

million, $344.1 million and $97.1 million, respectively. Earnings 

also include charges for the impairment of long-lived assets of 

$99.0 million, $507.5 million, $148.4 million, $744.7 million and 

$8.2 million in the nine months ended June 30, 2000, the yearended September 30, 1999, the nine months ended September 30, 

1997 and the years ended December 31, 1996 and 1995, 

respectively. 

As the Tyco Defendants either knew or were reckless in not knowing, these statements when 

made were materially false and misleading and omitted material information for the reasons set 

forth above in Section(s) V.A, A.1.a, and A.1.c. 

344. In addition, the 11/20/00 Post-Effective Amendment sets forth the Consent of 

PwC, dated November 27, 2000, permitting the incorporation by reference of its materially false 

and misleading report, dated October 21, 1999, quoted in the 1999 10-K and discussed above, 

and other materially false and misleading materials discussed herein. 

17. 12/15/00 Prospectus 

345. On December 15, 2000, Tyco filed with the SEC a Prospectus relating to the 

proposed offer by Tyco International Group S.A. to exchange up to (Euro) 26,885,000 aggregate 

principal amount of new 6 1/8% notes due 2007 for any and all of its outstanding 6 1/8% notes 

due 2007 not heretofore exchanged (the “12/15/00 Prospectus”). Because the 12/15/00 

Prospectus incorporates by reference the same documents that were incorporated by reference in 

the 11/20/00 Post-Effective Amendment, it contains the same materially false and misleading 
137 

statements set forth in those documents, as described herein. 

346. Like the 1999 10-K and many of Tyco’s other filings with the SEC throughout the 

Relevant Period, the 12/15/00 Prospectus recites Tyco’s purported strategy, quoted and discussed 

above in paragraph 238. As the Tyco Defendants either knew or were reckless in not knowing, 

this statement of strategy when made was materially false and misleading and omitted material 

information for the reasons set forth above in Section(s) V.A, A.l.a, and A.1.c. 

347. In addition, the 12/15/00 Prospectus contains materially false and misleading 

statements about Tyco under the heading “Current Developments.” These statements .

are 

identical to those quoted above from the 11/29/00 Post-Effective Amendment under the same 

heading, and are materially false and misleading for the same reasons. 

348. The 12/15/00 Prospectus also contains information on charges included in 

earnings that is identical to that quoted above from the 11/29/00 Post-Effective Amendment. 

That information, too, is materially false and misleading for the same reasons given above. 

18. 8/14/00 10-Q for Quarter Ended 6/30/00 

349. On August 14, 2000, the Tyco Defendants filed Tyco’s Form 10-Q for the quarter 

ended June 30, 2000 (the “8/14/00 10-Q”), signed by Defendant Swartz. In it, the Tyco 

Defendants set out numerous materially false and misleading statements addressing a variety of 

topics, including the following: 

a. Tyco’s Operating Results 

350. The 8/14/00 10-Q also gives favorable, purportedly accurate information 

concerning Tyco’s operating results. For example, the Tyco Defendants provide the following 

summary information: 
138 

FOR THE QUARTERS 

ENDED JUNE 30, 

FOR THE NINE MONTHS 

ENDED JUNE 30, 

2000 1999 2000 1999 

 (UNAUDITED) 

 (IN MILLIONS) 

Pre-tax income before extraordinary items 1,329.7 399.2 3,488.9 661.5 

Income taxes (332.4) (187.0) (878.9) (374.6)

Income before extraordinary items 997.3 212.2 2,610.0 286.9 

Extraordinary items, net of taxes -- (0.5) (0.2) (45.4)

Net Income $997.3 $211.7 $2,609.8 $241.5 

As the Tyco Defendants either knew or were reckless in not knowing, these statements when 

made were materially false and misleading and omitted material information for the reasons set 

forth above in Section(s) V.A, A.1.a, and A.1.c. 

351. 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 the quarter and nine months ended June 30, 2000 as 

compared to the quarter and nine months ended June 30, 1999. 

The operating improvements are the result of increased revenues 

and enhanced margins in certain segments. Increased revenues 

resulted from organic growth and from acquisitions. 

As the Tyco Defendants either knew or were reckless in not knowing, these statements when 

made were materially false and misleading and omitted material information for the reasons set 

forth above in Section(s) V.A, A.l.a, and A.1.c. 

b. Tyco’s Charges and Reserves 

352. The 8/14/00 10-Q also gives materially false and misleading information 

regarding Tyco’s reserves, such as: 

In the nine months ended June 30, 2000, the Company established 

restructuring and other non-recumng reserves of $35.9 million, of 
139 

which $7.3 million is included in cost of sales, primarily related to 

the restructuring activities in AMP’s Brazilian operations and 

wireless communications business, charges associated with 

USSC’s suture business and the exiting of USSC’s interventional 

cardiology business. At September 30, 1999, there existed merger, 

restructuring and other non-recurring reserves of $399.3 million. 

During the nine months ended June 30, 2000, the Company paid 

out $116.4 million in cash and incurred $50.5 million in non-cash 

charges that were charged against the reserves. Also in the nine 

months ended June 30, 2000, the Company determined that $117.2 

million of merger, restructuring and other non-recurring reserves 

established in prior years was not needed and recorded a credit of 

$110.9 million to the merger, restructuring and other non-recurring 

charges line item and a credit of $6.3 million to the cost of sales 

line item in the Consolidated Statement of Operations. The 

changes in estimates of the restructuring plan at AMP were 

attributable primarily to increased demand for certain of AMP’s 

products which was not anticipated at the time of the merger and to 

recent acquisitions such as Siemens EC. Therefore, the Company 

has determined not to close several facilities and not to terminate 

approximately 3,000 employees, the costs of which were provided 

for in previous AMP restructuring plans. In addition, certain 

restructuring activities at AMP were completed for amounts lower 

than originally anticipated. The changes in estimates of the 

Company’s 1997 restructuring plans and the USSC restructuring 

plans were due primarily to the completion of activities for 

amounts lower than originally recorded. At June 30, 2000, there 

remained $151.1 million of merger, restructuring and other nonrecurring reserves on the Company’s Consolidated Balance Sheet, 

of which $117.6 million is included in accrued expenses and other 

current liabilities and $33.5 million is included in other long-term 

liabilities. 

As the Tyco Defendants either knew or were reckless in not knowing, these statements when 

made were materially false and misleading and omitted material information for the reasons set 

forth above in Section(s) V.A, A.1.a, and A.1.c. 

19. 8/18/00 S-3 (and Related Prospectus) 

353. On August 18, 1999, Tyco filed a Form S-3 relating to the public offering and 

sale of 4,703,999 shares of Tyco common stock issuable upon exercise of stock options held by 

Kozlowski and the KMS Family Partnership L.P. (the “8/18/00 S-3(1)”). The 8/18/00 S-3(1) 
140 

was signed by Defendants Swartz, Kozlowski, and Walsh. Because the 8/18/00 S-3(1) 

incorporates the following documents by reference, it contains the same materially false and 

misleading statements set forth in those documents, as described above: (i) Tyco’s Annual 

Report on Forms 10-K and 10-K/A for the fiscal year-ended September 30, 1999; (ii) Tyco’s 

Quarterly Reports on Forms 10-Q and 10-Q/A for the quarters ended December 31, 1999, March 

31, 2000, and June 30, 2000; and (iii) Tyco’s Current Reports on Form 8-K filed on December 9, 

1999, January 20, 2000, and July 14, 2000. 

354. Like the 1999 10-K and many of Tyco’s other filings with the SEC throughout the 

Relevant Period, the 8/18/00 S-3(1) recites Tyco’s purported strategy, quoted and discussed 

above in paragraph 238. As the Tyco Defendants either knew or were reckless in not knowing, 

this statement of strategy when made was materially false and misleading and omitted material 

information for the reasons set forth above in Section(s) V.A, A.1.a, and A.1.c. 

355. In addition, the 8/18/00 S-3(1) sets forth the Consent of PricewaterhouseCoopers, 

dated August 16, 2000, permitting the incorporation by reference of its materially false and 

misleading report, dated October 21, 1999, quoted in the 1999 10-K and discussed above, and 

other materially false and misleading materials discussed herein. 

356. On September 12, 2000, Tyco filed with the SEC a Prospectus relating to the 

public offering and sale of 4,703,999 shares of Tyco common stock issuable upon exercise of 

stock options held by Kozlowski and the KMS Family Partnership L.P. (the “9/12/00 

Prospectus”). Because the 9/12/00 Prospectus incorporates by reference the same documents 

that were incorporated by reference in the 8/18/00 S-3, it contains the same materially false and 

misleading statements set forth in those documents, as described herein. 

357. Like the 1999 10-K and many of Tyco’s other filings with the SEC throughout the 
141 

Relevant Period, the 9/12/00 Prospectus recites Tyco’s purported strategy, quoted and discussed 

above in paragraph 238. As the Tyco Defendants either knew or were reckless in not knowing, 

this statement of strategy when made was materially false and misleading and omitted material 

information for the reasons set forth above in Section(s) V.A, A.1.a, and A.1.c. 

20. 8/18/00 S-3 

358. On August 18, 2000, Tyco filed a Form S-3 (the “8/18/00 S-3(2)”) for the 

registration of up to $2,500,000,000 of any of the following securities either separately or in 

units: debt securities, preference shares, depositary shares, and common shares. The 8/18/00 S3(2) was signed by Defendants Swartz, Kozlowski, and Walsh. Because the 8/18/00 S-3(2) 

incorporates the following documents by reference, it contains the same materially false and 

misleading statements set forth in those documents, as described above: (i) Tyco’s Annual 

Report on Forms 10-K and 10-K/A for the fiscal year-ended September 30, 1999; (ii) Tyco’s 

Quarterly Reports on Forms 10-Q and 10-Q/A for the quarters ended December 31, 1999, March 

31, 2000, and June 30, 2000; and (iii) Tyco’s Current Reports on Form 8-K filed on December 9, 

1999, January 20, 2000, and July 14, 2000. 

359. Like the 1999 10-K and many of Tyco’s other filings with the SEC throughout the 

Relevant Period, the 8/18/00 S-3(2) recites Tyco’s purported strategy, quoted and discussed 

above in paragraph 238. As the Tyco Defendants either knew or were reckless in not knowing, 

this statement of strategy when made was materially false and misleading and omitted material 

information for the reasons set forth above in Section(s) V.A, A.l.a, and A.1.c. 

360. The 8/18/00 S-3(2) also sets out the following operating information about the 

Company: 
142 

NINE MONTHS 

ENDED JUNE 30, 2000 

YEAR-ENDED 

SEPTEMBER 30, 1999 

Earnings: 

Income (loss) before extraordinary 

items and cumulative effect of 

accounting changes 

$2,610.0 $1,067.7 

Income taxes 878.9 637.5 

3,488.9 1,705.2 

As the Tyco Defendants either knew or were reckless in not knowing, these statements when 

made were materially false and misleading and omitted material information for the reasons set 

forth above in Section(s) V.A, A.1.a, and A.l.c. 

361. In addition, the 8/18/00 S-3(2) sets forth the Consent of PricewaterhouseCoopers, 

dated August 16, 2000, permitting the incorporation by reference of its materially false and 

misleading report, dated October 21, 1999, quoted in the 1999 10-K and discussed above, and 

other materially false and misleading materials discussed herein. 

21. 8/18/00 S-3 (and Related Prospectus and Prospectus Supplements) 

362. On August 18, 2000, Tyco filed a Form S-3 for the registration of $3,500,000,000 

in debt securities of Tyco International Group S.A. (the “8/18/00 S-3(3)”). The 8/18/00 S-3(3) 

was signed by Defendants Swartz, Kozlowski, and Walsh). Because the 8/18/00 S-3(3) 

incorporates the following documents by reference, it contains the same materially false and 

misleading statements set forth in those documents, as described above: (i) Tyco’s Annual 

Report on Forms 10-K and 10-K/A for the fiscal year-ended September 30, 1999; (ii) Tyco’s 

Quarterly Reports on Forms 10-Q and 10-Q/A for the quarters ended December 31, 1999, March 

31, 2000, and June 30, 2000; and (iii) Tyco’s Current Reports on Form 8-K filed on December 9, 

1999, January 20, 2000, and July 14, 2000. 

363. Like the 1999 10-K and many of Tyco’s other filings with the SEC throughout the 

Relevant Period, the 8/18/00 S-3(3) recites Tyco’s purported strategy, quoted and discussed 

above in paragraph 238. As the Tyco Defendants either knew or were reckless in not knowing, 
143 

this statement of strategy when made was materially false and misleading and omitted material 

information for the reasons set forth above in Section(s) V.A, A.l.a, and A.l.c. 

364. The 8/18/00 S-3(3) also sets out the following operating information about the 

Company: 

 NINE MONTHS ENDED JUNE 30, 

2000 

YEAR-ENDED 

SEPTEMBER 30, 1999 

Earnings: 

Income (loss) before extraordinary 

items and cumulative effect of 

accounting changes $2,610.0 $1,067.7 

Income taxes 878.9 637.5 

 3,488.9 1,705.2 

As the Tyco Defendants either knew or were reckless in not knowing, these statements when 

made were materially false and misleading and omitted material information for the reasons set 

forth above in Section(s) V.A, A.1.a, and A.1.c. 

365. In addition, the 8/18/00 S-3(3) sets forth the Consent of PricewaterhouseCoopers, 

dated August 16, 2000, permitting the incorporation by reference of its materially false and 

misleading report, dated October 21, 1999, quoted in the 1999 10-K and discussed above, and 

other materially false and misleading materials discussed herein. 

366. On September 18, 2000, Tyco filed with the SEC a Prospectus relating to the 

registration of $3,500,000,000 in debt securities of Tyco International Group S.A. (the “9/18/00 

Prospectus”). Because the 9/18/00 Prospectus incorporates by reference the same documents 

that were incorporated by reference in the 8/11/00 S-3(3), it contains the same materially false 

and misleading statements set forth in those documents, as described herein. 

367. Like the 1999 10-K and many of Tyco’s other filings with the SEC throughout the 

Relevant Period, the 9/18/00 Prospectus recites Tyco’s purported strategy, quoted and discussed 

above in paragraph 238. As the Tyco Defendants either knew or were reckless in not knowing, 

this statement of strategy when made was materially false and misleading and omitted material 
144 

information for the reasons set forth above in Section(s) V.A, A.1.a, and A.1.c. 

368. On February 20, 2001, the Tyco Defendants filed with the SEC a Prospectus 

Supplement (the “2/20/01 Prospectus Supplement”) to the 9/18/00 Prospectus. Because the 

2/20/01 Prospectus Supplement incorporates by reference the same documents that were 

incorporated by reference in the 8/11/00 S-3(3), it contains the same materially false and 

misleading statements set forth in those documents, as described herein. 

369. Like the 2000 10-K and many of Tyco’s other filings with the SEC throughout the 

Relevant Period, the 2/20/01 Prospectus Supplement recites Tyco’s purported strategy, quoted 

and discussed below in paragraph 430. As the Tyco Defendants either knew or were reckless in 

not knowing, this statement of strategy when made was materially false and misleading and 

omitted material information for the reasons set forth above in Section(s) V.A, A.l.a, and A.l.c. 

370. On June 5, 2001, the Tyco Defendants filed with the SEC a Prospectus 

Supplement to the 9/18/00 Prospectus (the “6/5/01 Prospectus Supplement”). Because the 6/5/01 

Prospectus Supplement 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 and 10-K/A for the fiscal year-ended September 30, 2000; 

(ii) Tyco’s Quarterly Reports on Form 10-Q for the quarters ended December 31, 1999, March 

31, 2000, and June 30, 2000; and (iii) Tyco’s Current Reports on Form 8-K filed on December 9, 

1999, January 20, 2000, and July 14, 2000. 

371. Like the 2000 10-K and many of Tyco’s other filings with the SEC throughout the 

Relevant Period, the 6/5/01 Prospectus Supplement recites Tyco’s purported strategy, quoted and 

discussed below in paragraph 430. As the Tyco Defendants either knew or were reckless in not 

knowing, this statement of strategy when made was materially false and misleading and omitted 
145 

material information for the reasons set forth above in Section(s) V.A, A.l.a, and A.1.c. 

372. On July 26, 2001, Tyco filed with the SEC a Prospectus Supplement (the “7/26/01 

Prospectus Supplement”) to the 9/18/00 Prospectus. Because the 7/26/01 Prospectus Supplement 

incorporates by reference the same documents that were incorporated by reference in the 8/11/00 

S-3(3), it contains the same materially false and misleading statements set forth in those 

documents, as described herein. 

373. Like the 2000 10-K and many of Tyco’s other filings with the SEC throughout the 

Relevant Period, the 7/26/01 Prospectus Supplement recites Tyco’s purported strategy, quoted 

and discussed below in paragraph 430. As the Tyco Defendants either knew or were reckless in 

not knowing, this statement of strategy when made was materially false and misleading and 

omitted material information for the reasons set forth above in Section(s) V.A, A.l.a, and A.1.c. 

374. The 7/26/01 Prospectus Supplement also states as follows: 

On July 18, 2001, Tyco announced its results for the third quarter 

of fiscal 2001, the three months ended June 30, 2001. 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 earnings of $0.58 per 

diluted share in the third quarter of fiscal 2000. 

As the Tyco Defendants either knew or were reckless in not knowing, the statements when made 

were materially false and misleading and omitted material information for the reasons set forth 

above in Section(s) V.A, A.1.a, and A.1.c. 

22. 10/18/00 Press Release 

375. In a press release dated October 18, 2000 (filed with a Form S-8 on November 1, 
146 

2000), Tyco announced that it had completed the acquisition of Mallinckrodt. The press release 

stated: 

“The Mallinckrodt acquisition will be immediately accretive to 

Tyco’s earnings,” according to L. Dennis Kozlowski, Tyco’s 

Chairman and Chief Executive Officer. “It offers consolidation 

opportunities as well as significant manufacturing, purchasing and 

distribution synergies. Our past acquisitions in Tyco Healthcare 

have achieved strong top line growth and operating efficiencies. 

The acquisition of Mallinckrodt also will provide ongoing positive 

benefits to Tyco shareholders. 

As the Tyco Defendants either knew or were reckless in not knowing, these statements when 

made were materially false and misleading and omitted material information for the reasons set 

forth above in Section(s) V.A, A.l.a, and A.1.c. 

23. 10/18/00 S-4 (and Related S-4/A’s) 

376. On October 18, 2000, Tyco filed with the SEC a Form S-4 relating to a proposed 

merger between InnerDyne and a subsidiary of Tyco (the “10/18/00 S-4”). The 10/18/00 S-4 

was signed by Defendants Swartz, Kozlowski, and Walsh. Because the 10/18/00 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 Forms 10-K and 10-K/A for the fiscal year-ended September 30, 1999; (ii) Tyco’s 

Quarterly Reports on Forms 10-Q and 10-Q/A for the quarters ended December 31, 1999, March 

31, 2000, and June 30, 2000; and (iii) Tyco’s Current Reports on Form 8-K filed on December 9, 

1999, January 20, 2000, and July 14, 2000. 

377. Like the 1999 10-K and many of Tyco’s other filings with the SEC throughout the 

Relevant Period, the 10/18/00 S-4 recites Tyco’s purported strategy, quoted and discussed above 

in paragraph 238. It also reiterates its so-called strategy in its discussion of Tyco’s acquisition of 

InnerDyne: 
147 

At a meeting of Tyco’s board of directors held on October 3, 2000, 

Tyco’s board determined that the acquisition of InnerDyne was in 

keeping with its corporate strategy of complementing its internal 

growth with acquisitions that are likely to benefit from cost 

reductions and synergies when combined with Tyco’s existing 

operations and that are expected to be accretive to earnings per 

share. 

As the Tyco Defendants either knew or were reckless in not knowing, these statements of 

strategy when made were materially false and misleading and omitted material information for 

the reasons set forth above in Section(s) V.A, A.1.a, and A.l.c. 

378. In addition, the 10/18/00 S-4 sets forth the Consent of PwC, dated October 16, 

2000, permitting the incorporation by reference of its materially false and misleading report, 

dated October 21, 1999, quoted in the 1999 10-K and discussed above, and other materially false 

and misleading materials discussed herein. 

379. On October 20, 2000, Tyco filed with the SEC a Form S-4/A (the “10/20/00 S4/A”), amending the 10/18/00 S-4. The 10/20/00 S-4/A was signed by Defendant Swartz for 

himself and for Defendants Kozlowski and Walsh. Because the 10/20/00 S-4/A incorporates by 

reference the same documents that were incorporated by reference in the 10/18/00 S-4, it 

contains the same materially false and misleading statements set forth in those documents, as 

described herein. 

380. Like the 1999 10-K and many of Tyco’s other filings with the SEC throughout the 

Relevant Period, the 10/20/00 S-4/A recites Tyco’s purported strategy, quoted and discussed 

above in paragraph 238. It also reiterates its so-called strategy in its discussion of Tyco’s 

acquisition of InnerDyne, using precisely the same language quoted from the 10/18/00 S-4 

above. As the Tyco Defendants either knew or were reckless in not knowing, these statements of 

strategy when made were materially false and misleading and omitted material information for 

the reasons set forth above in Section(s) V.A, A.1.a, and A.l.c. 
148 

381. In addition, the 10/20/00 S-4/A sets forth the Consent of PwC, dated October 16, 

2000, permitting the incorporation by reference of its materially false and misleading report, 

dated October 21, 1999, quoted in the 1999 10-K and discussed above, and other materially false 

and misleading materials discussed herein. 

382. On November 14, 2000, Tyco filed with the SEC a Form S-4/A (the “11/14/00 S4/A”), amending its S-4 filed on October 18, 2000 and S-4/A filed on October 20, 2000. The 

11/14/00 S-4/A was signed by Defendant Swartz for himself and for Defendants Kozlowski and 

Walsh. Because the 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 

above: (i) Tyco’s Annual Report on Forms 10-K and 10-K/A for the fiscal year-ended 

September 30, 1999; (ii) Tyco’s Quarterly Reports on Forms 10-Q and 10-Q/A for the quarters 

ended December 31, 1999, March 31, 2000, and June 30, 2000; and (iii) Tyco’s Current Reports 

on Form 8-K filed on December 9, 1999, January 20, 2000, July 14, 2000, and November 1, 

2000. 

383. Like the 1999 10-K and many of Tyco’s other filings with the SEC throughout the 

Relevant Period, the 11/14/00 S-4/A recites Tyco’s purported strategy, quoted and discussed 

above in paragraph 238. It also reiterates its so-called strategy in its discussion of Tyco’s 

acquisition of InnerDyne, using precisely the same language quoted from the 10/18/00 S-4 

above. As the Tyco Defendants either knew or were reckless in not knowing, these statements of 

strategy when made were materially false and misleading and omitted material information for 

the reasons set forth above in Section(s) V.A, A.1.a, and A.1.c. 

384. In addition, the 11/14/00 S-4/A contains materially false and misleading 

statements about Tyco under the heading “Recent Developments.” For example: 
149 

On October 24, 2000, Tyco announced its results for the fourth 

quarter of fiscal 2000, the three months ended September 30, 2000. 

For the fiscal 2000 fourth quarter, income before restructuring and 

other non-recurring credits, charges, gain and extraordinary items 

was $1.10 billion, or $0.64 per diluted share, as compared to 

$782.7 million, or $0.46 per diluted share, for the quarter ended 

September 30, 1999. After giving effect to restructuring and other 

non-recurring credits, charges, gain and extraordinary items, net 

income for the fourth quarter of fiscal 2000 was $1.91 billion, or 

$1.12 per diluted share, compared to $780.5 million, or $0.46 per 

diluted share, in the fourth quarter of fiscal 1999. Results in the 

fourth quarter of fiscal 2000 included a $ 1.76 billion pretax gain 

from the initial public offering of TyCom Ltd. Fourth quarter sales 

rose 25% to $7.81 billion, up from $6.22 billion a year ago. 

As the Tyco Defendants either knew or were reckless in not knowing, the statements when made 

were materially false and misleading and omitted material information for the reasons set forth 

above in Section(s) V.A, A.l.a, and A.1.c. 

385. Further Tyco stated: 

For fiscal 2000, revenues increased to $28.93 billion, up 29% from 

revenues of $22.50 billion in fiscal 1999. Income before 

restructuring and other non-recurring credits, charges, gain and 

extraordinary items rose to $3.73 billion, or $2.18 per diluted 

share, a 42% increase over $1.53 per diluted share in fiscal 1999. 

After giving effect to restructuring and other non-recurring credits, 

charges, gain and extraordinary items, net income for fiscal 2000 

was $4.52 billion, or $2.64 per diluted share, compared to $1.02 

billion, or $0.61 per diluted share, in fiscal 1999. 

As the Tyco Defendants either knew or were reckless in not knowing, these statements when 

made were materially false and misleading and omitted material information for the reasons set 

forth above in Section(s) V.A, A.l.a, and A.1.c. 

386. In addition, the 11/14/00 S-4/A S-3 sets forth the Consent of PwC, dated 

November 14, 2000, permitting the incorporation by reference of its materially false and 

misleading report, dated October 21, 1999, quoted in the 1999 10-K and discussed above, and 

other materially false and misleading materials discussed herein. 
150 

387. On March 15, 2001, the Tyco Defendants filed with the SEC a Prospectus 

Supplement relating to Tyco’s proposed offer of 31,085 common shares relating to a proposed 

merger between InnerDyne and a Tyco subsidiary (the “3/15/01 Prospectus Supplement”). 

Because the 3/15/01 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, and March 15, 2001. 

388. Like the 2000 10-K and many of Tyco’s other filings with the SEC throughout the 

Relevant Period, the 3/15/01 Prospectus Supplement recites Tyco’s purported strategy, quoted 

and discussed below in paragraph 430. As the Tyco Defendants either knew or were reckless in 

not knowing, this statement of strategy when made was materially false and misleading and 

omitted material information for the reasons set forth above in Section(s) V.A, A.l.a, and A.1.c.

24. 10/23/00 S-8 

389. On October 23, 2000, Tyco filed a Form S-8 for the registration of 1,000,000 

shares of Tyco common stock relating to the Investment Plan for Employees of Mallinckrodt Inc. 

(the “10/23/00 S-8”), signed by Defendants Swartz, Kozlowski, and Walsh. Because the 

10/23/00 S-8 incorporates the following documents by reference, it contains the same materially 

false and misleading statements set forth in those documents, as described above: (i) Tyco’s 

Annual Report on Forms 10-K and 10-10-K/A for the fiscal year-ended September 30, 1999; (ii) 

Tyco’s Quarterly Reports on Forms 10-Q and 10-Q/A for the quarters ended December 31, 1999, 

March 31, 2000, and June 30, 2000; and (iii) Tyco’s Current Reports on Form 8-K filed on 

December 9, 1999, January 20, 2000, and July 14, 2000. 
151 

390. In addition, the 10/23/00 S-8 sets forth the Consent of PwC, dated August 16, 

2000, permitting the incorporation by reference of its materially false and misleading report, 

dated October 23, 1999, quoted in the 1999 10-K and discussed above, and other materially false 

and misleading materials discussed herein. 

25. 10/24/00 Earnings Announcement 

391. On October 24, 2000, Tyco issued a press release announcing its financial results 

for the quarter ended September 30, 2000: 

Tyco . . . reported today that diluted earnings per share for its 

fourth quarter ended September 30, 2000 were 64 cents, a 39 

percent increase over earnings of 46 cents per share in its fourth 

quarter of 1999. Net income before extraordinary item rose to 

$1.10 billion, an increase of 40 percent compared to $782.7 million 

last year. Sales for the quarter rose 25 percent to $7.81 billion 

compared with last year’s $6.22 billion. These results are before 

restructuring and other non-recurring credits, charges, gain and 

extraordinary item. After giving effect to restructuring and other 

non-recurring credits, charges and gain, diluted earnings per share 

before extraordinary item for the fourth quarter of fiscal 2000 were 

$1.12, or $1.91 billion, compare to 46 cents, or $780.8 million, in 

the fourth quarter of fiscal 1999. 

For fiscal 2000, income before restructuring and other nonrecurring credits, charges, gain and extraordinary item rose to 

$3.73 billion, or $2.18 per diluted share, a 42 percent increase over 

last year’s diluted per share earnings of $1.53. After giving effect 

to restructuring and other non-recurring credits, charges and gain, 

diluted earnings per share before extraordinary item were $2.64, or 

$4.52 billion for fiscal 2000 compared to 64 cents, or $1.07 billion 

in fiscal 1999. Revenues for the twelve months increased to 

$28.93 billion, 29 percent higher than last year’s $22.50 billion. 

392. As the Tyco Defendants either knew or were reckless in not knowing, these 

statements when made were false and misleading and omitted material information for the 

reasons set forth in Sections V.A, A.1.a, and A.1.c. 

26. 10/24/00 Conference Call 

393. On October 24, 2000, Tyco held a conference call to discuss, among other things, 
152 

its earnings during the fourth quarter of fiscal 2000. Defendant Kozlowski touted Tyco’s 

performance for the quarter: “The organic growth for the entire fiscal year was in excess of 16% 

. . . [W]e detect no signs of weakness in any areas of any of our businesses.” He said also: “I 

hope you got the sense from our conference call here today that business is very good at Tyco, 

the outlook is quite strong. You will be seeing robust organic growth from us.” As Defendant 

Kozlowski either knew or was reckless in not knowing, these statements when made were 

materially false and misleading and omitted material information for the reasons set forth above 

in Section(s) V.A, A.l.a, and A.1.c. 

394. In addition, Defendant Kozlowski described Tyco’s strategy for acquiring other 

companies, emphasizing that each and every acquisition has to be “strongly accretive” to Tyco: 

KOZLOWSKI: . . . [I]rregardless of the size [all our acquisitions] 

have to meet the same criteria of being strongly 

accretive to us, and we get that accretion through 

cost reductions, we do not count revenue 

enhancements into any of that but we’ve push hard 

for revenue enhancement and we wouldn’t buy a 

company whose revenues we didn’t think we could 

enhance, we simply wouldn’t pay for it at the time it 

comes to a part of the company, it has to fit within 

the segments that we are in, it has to have 

management sponsorship here, and it has to be 

something that just makes a whole lot of sense. 

As Defendant Kozlowski either knew or was reckless in not knowing, these statements when 

made were materially false and misleading and omitted material information for the reasons set 

forth above in Section(s) V.A, A.1.a, and A.1.c. 

395. The following day, in an article entitled “Tyco’s Net Income More Than Doubles; 

Profit Before One-Time Items Rises 40%,” The Wall Street Journal quoted an “upbeat” 

Kozlowski as saying: “we detect no signs of weakness in any of our businesses,” and called the 

company’s outlook “quite strong.” As Defendant Kozlowski either knew or was reckless in not 
153 

knowing, these statements when made were materially false and misleading and omitted material 

information for the reasons set forth above in Section(s) V.A and B. 

27. 11/9/00 S-3 (and Related S-3/A and Prospectus) 

396. On November 9, 2000, Tyco filed a Form S-3 for the registration of 2,180,010 

shares of Tyco common stock relating to Tyco’s October 26, 2000 acquisition of CIGI 

Investment Group, Inc. (the “11/9/00 S-3”). The 11/9/00 S-3 was signed by Defendants Swartz, 

Kozlowski, and Walsh. Because the 11/9/00 S-3 incorporates the following documents by 

reference, it contains the same materially false and misleading statements set forth in those 

documents, as described above: (i) Tyco’s Annual Report on Forms 10-K and 10-K/A for the 

fiscal year-ended September 30, 1999; (ii) Tyco’s Quarterly Reports on Forms 10-Q and 10-Q/A 

for the quarters ended December 31, 1999, March 31, 2000, and June 30, 2000; and (iii) Tyco’s 

Current Reports on Form 8-K filed on December 9, 1999, January 20, 2000, July 14, 2000, and 

November 1, 2000. 

397. Like the 1999 10-K and many of Tyco’s other filings with the SEC throughout the 

Relevant Period, the 11/9/00 S-3 recites Tyco’s purported strategy, quoted and discussed above 

in paragraph 238. As the Tyco Defendants either knew or were reckless in not knowing, this 

statement of strategy when made was materially false and misleading and omitted material 

information for the reasons set forth above in Section(s) V.A, A.1.a, and A.1.c. 

398. In addition, the 11/9/00 S-3 contains materially false and misleading statements 

about Tyco under the heading “Current Developments.” For example: 

On October 24, 2000, Tyco announced its preliminary unaudited 

results for the fourth quarter of fiscal 2000, the three months ended 

September 30, 2000. For the fiscal 2000 fourth quarter, income 

before restructuring and other non-recurring credits, charges, gain 

and extraordinary item was $1.10 billion, or $0.64 per share on a 

fully diluted basis, as compared to $782.7 million, or $0.46 per 

share on a fully diluted basis, for the quarter ended September 30, 
154 

1999. After giving effect to restructuring and other non-recurring 

credits, charges, gain and extraordinary item, net income for the 

fourth quarter of fiscal 2000 was $1.91 billion, or $1.12 per diluted 

share, compared to $780.5 million, or $0.46 per diluted share, in 

the fourth quarter of fiscal 1999. Results in the fourth quarter 

included a $1.76 billion pretax gain from the initial public offering 

of TyCom Ltd. Fourth quarter sales rose 25% to $7.81 billion, up 

from $6.22 billion a year ago. 

As the Tyco Defendants either knew or were reckless in not knowing, the statements when made 

were materially false and misleading and omitted material information for the reasons set forth 

above in Section(s) V.A, A.1.a, and A.l.c. 

399. Further, the 11/30/00 S-3/A stated: 

For fiscal 2000, revenues increased to $28.93 billion, up 29% from 

revenues of $22.50 billion in fiscal 1999. Income before 

restructuring and other non-recurring credits, charges, gain and 

extraordinary items rose to $3.73 billion, or $2.18 per diluted 

share, a 42% increase over $1.53 in fiscal 1999. After giving 

effect to restructuring and other non-recurring credits, charges, 

gain and extraordinary item, net income for fiscal 2000 was $4.52 

billion, or $2.64 per diluted share, compared to $1.02 billion, or 

$0.61 per diluted share, in fiscal 1999. 

As the Tyco Defendants either knew or were reckless in not knowing, these statements when 

made were materially false and misleading and omitted material information for the reasons set 

forth above in Section(s) V.A, A.1.a, and A.l.c. 

400. In addition, the 11/9/00 S-3 sets forth the Consent of PwC, dated November 8, 

2000, permitting the incorporation by reference of its materially false and misleading report, 

dated October 21, 1999, quoted in the 1999 10-K and discussed above, and other materially false 

and misleading materials discussed herein. 

401. On November 14, 2000, Deutsche Banc Alex Brown, issued an analyst report 

entitled, “TYC Sees $0.05 FY01 LPS Accretion LPS - Buying Opportunity - Consensus EPS 

Should Rise.” The report stated, “[o]nce again, Tyco has made an acquisition that makes both 
155 

economic and strategic sense. We’ve come to expect nothing less from Tyco.” 

402. On November 30, 2000, Tyco filed a Form S-3/A (the “11/30/00 S-3/A”), 

amending the 11/9/00 S-3. The 11/30/00 S-3/A was signed by Defendant Swartz for himself and 

for Defendants Kozlowski and Walsh. Because the S-3/A incorporates the following documents 

by reference, it contains the same materially false and misleading statements set forth in those 

documents, as described above: (i) Tyco’s Annual Report on Forms 10-K and 10-A for the fiscal 

year-ended September 30, 1999; (ii) Tyco’s Quarterly Reports on Forms 10-Q and 10-Q/A for 

the quarters ended December 31, 1999, March 31, 2000, and June 30, 2000; and (iii) Tyco’s 

Current Reports on Form 8-K filed on December 9, 1999, January 20, 2000, July 14, 2000, 

November 1, 2000, and November 15, 2000. 

403. Like the 1999 10-K and many of Tyco’s other filings with the SEC throughout the 

Relevant Period, the 11/30/00 S-3/A recites Tyco’s purported strategy, quoted and discussed 

above in paragraph 238. As the Tyco Defendants either knew or were reckless in not knowing, 

this statement of strategy, when made, was materially false and misleading and omitted material 

information for the reasons set forth above in Section(s) V.A, A.l.a, and A.1.c. 

404. In addition, the 11/30/00 S-3/A contains materially false and misleading 

statements about Tyco under the heading “Current Developments.” For example: 

On October 24, 2000, Tyco announced its results for the fourth 

quarter of fiscal 2000, the three months ended September 30, 2000. 

For the fiscal 2000 fourth quarter, income before restructuring and 

other non-recurring credits, charges, gain and extraordinary items 

was $1.10 billion, or $0.64 per diluted share, as compared to 

$782.7 million, or $0.46 per diluted share, for the quarter ended 

September 30, 1999. After giving effect to restructuring and other 

non-recurring credits, charges, gain and extraordinary items, net 

income for the fourth quarter of fiscal 2000 was $1.91 billion, or 

$1.12 per diluted share, compared to $780.5 million, or $0.46 per 

diluted share, in the fourth quarter of fiscal 1999. Results in the 

fourth quarter of fiscal 2000 included a $1.76 billion pretax gain 
156 

from the initial public offering of TyCom Ltd. Fourth quarter sales 

rose 25% to $7.81 billion, up from $6.22 billion a year ago. 

As the Tyco Defendants either knew or were reckless in not knowing, these statements when 

made were materially false and misleading and omitted material information for the reasons set 

forth above in Section(s) V.A, A.1.a, and A.1.c. 

405. Further, the filing stated: 

For fiscal 2000, revenues increased to $28.93 billion, up 29% from 

revenues of $22.50 billion in fiscal 1999. Income before 

restructuring and other non-recurring credits, charges, gain and 

extraordinary items rose to $3.73 billion, or $2.18 per diluted 

share, a 42% increase over $1.53 per diluted share in fiscal 1999. 

After giving effect to restructuring and other non-recurring credits, 

charges, gain and extraordinary items, net income for fiscal 2000 

was $4.52 billion, or $2.64 per diluted share, compared to $1.02 

billion or $0.61 per diluted share, in fiscal 1999. 

As the Tyco Defendants either knew or were reckless in not knowing, these statements when 

made were materially false and misleading and omitted material information for the reasons set 

forth above in Section(s) V.A, A.1.a and A.1.c. 

406. In addition, the 11/30/00 S-3/A sets forth the Consent of PricewaterhouseCoopers, 

dated November 29, 2000, permitting the incorporation by reference of its materially false and 

misleading report, dated October 21, 1999, quoted in the 1999 10-K and discussed above, and 

other materially false and misleading materials discussed herein. 

407. On December 8, 2000, Tyco filed with the SEC a Prospectus in connection with 

the registration of 2,180,010 shares of Tyco common stock relating to Tyco’s October 26, 2000 

acquisition of CIGI Investment Group, Inc. (the “12/8/00 Prospectus”). Because the 12/8/00 

Prospectus incorporates by reference the same documents that were incorporated by reference in 

the 11/30/00 S-3/A, it contains the same materially false and misleading statements set forth in 

those documents, as described herein. 
157 

408. Like the 1999 10-K and many of Tyco’s other filings with the SEC throughout the 

Relevant Period, the 12/8/00 Prospectus recites Tyco’s purported strategy, quoted and discussed 

above in paragraph 238. As the Tyco Defendants either knew or were reckless in not knowing, 

this statement of strategy when made was materially false and misleading and omitted material 

information for the reasons set forth above in Section(s) V.A, A.l.a, and A.1.c. 

409. In addition, the 12/8/00 Prospectus contains materially false and misleading 

statements about Tyco under the heading “Current Developments.” These statements are 

identical to those quoted above from the 11/30/00 S-3/A under the same heading, and are 

materially false and misleading for the same reasons. 

28. 11/14/00 Conference Call 

410. On November 14, 2000, Tyco held a conference call to announce a deal to 

purchase a unit of Lucent. According to Defendant Kozlowski: 

KOZLOWSKI: The deal is very attractive financially in terms of 

earnings per share accretion and return. This is 

possible through some $385 million in synergies. . . 

About 60% of the synergies will be realized in the 

first full year we have the company and about 99% 

of the synergies will be realized in year 2. So 

therefore, as we pointed out, year one accretion will 

be about 6¢, year two and year three will be out 12 

and 15¢ respectively. . . . We believe we will have 

no problems meeting the goals, the financial goals 

that we have set out before your within this 

business. And overall we are pleased to also report 

that Tyco continues to function well. All of our 

businesses are operating at a high level. We’re very 

comfortable with the earnings estimates that we 

have out for the quarter and for the year and this 

deal will be accretive as we pointed out to those 

earnings estimates for the year. 

As Defendant Kozlowski either knew or was reckless in not knowing, these statements when 

made were materially false and misleading and omitted material information for the reasons set 
158 

forth above in Section(s) V.A, A.1.a, and A.l.c. 

29. 12/4/00 Simplex Acquisition 

411. On December 4, 2000, Tyco announced that it would acquire Simplex Time 

Recorder Co. The Company’s press release stated: 

According to L. Dennis Kozlowski, Tyco’s Chairman and Chief 

Executive Officer, “This transaction meets all of Tyco’s 

acquisition criteria. The transaction will be immediately accretive 

to Tyco’s earnings per share and generate positive operating cash 

flows.” 

412. Defendant’s December 4, 2000 statements were false and misleading because 

they failed to disclose the existence of the acquisitions scheme described in Section(s) V.A, 

A.1.a, and A.1.c, including but not limited to the fact that acquisition would be accretive because 

of Defendants’ erroneous and misleading accounting and manipulation of the acquired 

company’s financial statements and recording of excess goodwill. 

413. According to a December 5, 2000 The Wall Street Journal article (“Tyco Agrees 

to Buy Simplex Time Recorder”), Defendant Kozlowski said of the deal: “The combination of 

Simplex with Tyco Fire and Security Services will provide excellent manufacturing and service 

synergies, allowing for immediate benefits for Tyco shareholders.” As Defendant Kozlowski 

either knew or was reckless in not knowing, this statement when made was materially false and 

misleading and omitted material information for the reasons set forth above in Section(s) V.A, 

A.l.a, and A.1.c. 

30. 12/8/00 S-3 (and Related S-3/A and Prospectus) 

414. On December 8, 2000, Tyco filed a Form S-3 for the registration of 

$4,657,500,000 in Liquid Yield Option Notes due 2020 (the “12/8/00 S-3”). The 12/8/00 S-3 

was signed by Defendants Swartz, Kozlowski, and Walsh. Because the 12/8/00 S-3 incorporates 

the following documents by reference, it contains the same materially false and misleading 
159 

statements set forth in those documents, as described above: (i) Tyco’s Annual Report on Forms 

10-K and 10-K/A for the fiscal year-ended September 30, 1999; (ii) Tyco’s Quarterly Reports on 

Forms 10-Q and 10-Q/A for the quarters ended December 31, 1999, March 31, 2000, and June 

30, 2000; and (iii) Tyco’s Current Reports on Form 8-K filed on December 9, 1999, January 20, 

2000, July 14, 2000, November 1, 2000, and November 15, 2000. 

415. Like the 1999 10-K and many of Tyco’s other filings with the SEC throughout the 

Relevant Period, the 12/8/00 S-3 recites Tyco’s purported strategy, quoted and discussed above 

in paragraph 238. As the Tyco Defendants either knew or were reckless in not knowing, this 

statement of strategy when made was materially false and misleading and omitted material 

information for the reasons set forth above in Section(s) V.A, A.1.a, and A.l.c. 

416. In addition, the 12/8/00 S-3 contains materially false and misleading statements 

about Tyco under the heading “Current Developments.” For example, the filing states: 

On October 24, 2000, Tyco announced its results for the fourth 

quarter of fiscal 2000, the three months ended September 30, 2000. 

For the fiscal 2000 fourth quarter, income before restructuring and 

other non-recurring credits, charges, gain and extraordinary items 

was $1.10 billion, or $0.64 per diluted share, as compared to 

$782.7 million, or $0.46 per diluted share, for the quarter ended 

September 30, 1999. After giving effect to restructuring and other 

non-recurring credits, charges, gain and extraordinary items, net 

income for the fourth quarter of fiscal 2000 was $1.91 billion, or 

$1.12 per diluted share, compared to $780.5 million, or $0.46 per 

diluted share, in the fourth quarter of fiscal 1999. Results in the 

fourth quarter of fiscal 2000 included a $1.76 billion pretax gain 

from the initial public offering of TyCom Ltd. Fourth quarter sales 

rose 25% to $7.81 billion, up from $6.22 billion a year ago. 

As the Tyco Defendants either knew or were reckless in not knowing, these statements when 

made were materially false and misleading and omitted material information for the reasons set 

forth above in Section(s) V.A, A.1.a, and A.l.c. 

417. Further: 
160 

For fiscal 2000, revenues increased to $28.93 billion, up 29% from 

revenues of $22.50 billion in fiscal 1999. Income before 

restructuring and other non-recurring credits, charges, gain and 

extraordinary items rose to $3.73 billion, or $2.18 per diluted 

share, a 42% increase over $1.53 per diluted share in fiscal 1999. 

After giving effect to restructuring and other non-recurring credits, 

charges, gain and extraordinary items, net income for fiscal 2000 

was $4.52 billion, or $2.64 per diluted share, compared to $1.02 

billion or $0.61 per diluted share, in fiscal 1999. 

As the Tyco Defendants either knew or were reckless in not knowing, these statements when 

made were materially false and misleading and omitted material information for the reasons set 

forth above in Section(s) V.A, A.l.a, and A.1.c. 

418. The 12/8/00 S-3 also gives favorable, purportedly accurate information 

concerning Tyco’s operating results. For example, the Tyco Defendants provide the following 

summary information: 

 NINE MONTHS ENDED JUNE 30, 

2000 

YEAR-ENDED 

SEPTEMBER 30, 1999 

Earnings: 

Income (loss) before extraordinary 

items and cumulative effect of 

accounting changes $2,610.0 $1,067.7 

Income taxes 878.9 637.5 

 3,488.9 1,705.2 

As the Tyco Defendants either knew or were reckless in not knowing, these statements when 

made were materially false and misleading and omitted material information for the reasons set 

forth above in Section(s) V.A, A.l.a, and A.1.c. 

419. The 12/8/00 S-3 also includes information on charges included in earnings: 

Earnings for the nine months ended June 30, 2000, the years ended 

September 30, 1999 and 1998, the nine months ended September 

30, 1997 and the years ended December 31, 1996 and 1995 include 

net merger, restructuring and other non-recurring (credits) charges 

of $(81.3) million (of which net charges of $1.0 million are 

included in cost of sales), $1,035.2 million (of which $106.4 

million is included in cost of sales), $256.9 million, $947.9 

million, $344.1 million and $97.1 million, respectively. Earnings 
161 

also include charges for the impairment of long-lived assets of 

$99.0 million, $507.5 million, $148.4 million, $744.7 million and 

$8.2 million in the nine months ended June 30, 2000, the yearended September 30, 1999, the nine months ended September 30, 

1997 and the years ended December 31, 1996 and 1995, 

respectively. 

As the Tyco Defendants either knew or were reckless in not knowing, these statements when 

made were materially false and misleading and omitted material information for the reasons set 

forth above in Section(s) V.A, A.1.a, and A.l.c. 

420. In addition, the 12/8/00 S-3 sets forth the Consent of PricewaterhouseCoopers, 

dated December 8, 2000, permitting the incorporation by reference of its materially false and 

misleading report, dated October 21, 1999, quoted in the 1999 10-K and discussed above, and 

other materially false and misleading materials discussed herein. 

421. On December 15, 2000, Tyco filed a Form S-3/A (the “12/15/00 S-3/A”), 

amending the 12/8/00 S-3. The 12/15/00 S-3/A was signed by Defendant Swartz for himself and 

for Defendants Kozlowski and Walsh. Because the 12/15/00 S-3/A incorporates by reference the 

same documents that were incorporated by reference in the 12/8/00 S-3, it contains the same 

materially false and misleading statements set forth in those documents, as described herein. 

422. Like the 1999 10-K and many of Tyco’s other filings with the SEC throughout the 

Relevant Period, the 12/15/00 S-3/A recites Tyco’s purported strategy, quoted and discussed 

above in paragraph 238. 

423. In addition, the 12/15/00 S-3/A contains materially false and misleading 

statements about Tyco under the heading “Current Developments.” These statements are 

identical to those quoted above from the 12/8/00 S-3 under the same heading, and are materially 

false and misleading for the same reasons. 

424. The 12/15/00 S-3/A also includes information on charges included in earnings 
162 

that is identical to that quoted above from the 12/8/00 S-3. That information, too, is materially 

false and misleading for the same reasons given above. 

425. The 12/15/00 S-3/A also sets forth the Consent of PricewaterhouseCoopers, dated 

December 15, 2000, permitting the incorporation by reference of its materially false and 

misleading report, dated October 21, 1999, quoted in the 1999 10-K and discussed above, and 

other false and misleading materials discussed herein. 

426. On December 19, 2000, the Tyco Defendants filed with the SEC a Prospectus 

relating to the registration of $4,657,500,000 in Liquid Yield Option Notes due 2020 (the 

“12/19/00 Prospectus”). Because the 12/19/00 Prospectus incorporates by reference the same 

documents that were incorporated by reference in the 12/8/00 S-3, it contains the same materially 

false and misleading statements set forth in those documents, as described herein. 

427. Like the 1999 10-K and many of Tyco’s other filings with the SEC throughout the 

Relevant Period, the 12/19/00 Prospectus recites Tyco’s purported strategy, quoted and discussed 

above in paragraph 238. As the Tyco Defendants either knew or were reckless in not knowing, 

this statement of strategy when made was materially false and misleading and omitted material 

information for the reasons set forth above in Section(s) V.A, A.1.a, and A.1.c. 

428. In addition, the 12/19/00 Prospectus contains materially false and misleading 

statements about Tyco under the heading “Current Developments.” The statements are identical 

to those quoted above from the 12/8/00 S-3 under the same heading, and are materially false and 

misleading for the same reasons. 

31. The 2000 10-K Filed on 12/21/00 

429. On December 21, 2000, Tyco filed its 10-K for the fiscal year-ended September 

30, 2000 (the “2000 10-K”), signed by Defendants Swartz, Kozlowski, and Walsh. In it, the 

Tyco Defendants set out numerous materially false and misleading statements on a variety of 
163 

topics, including the following: 

a. Tyco’s “Strategy” 

430. Like the 1999 10-K and many of Tyco’s other filings with the SEC throughout the 

Relevant Period, 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. 

As the Tyco Defendants either knew or were reckless in not knowing, this statement of strategy 

when made was materially false and misleading and omitted material information for the reasons 

set forth above in Section(s) V.A, A.1.a, and A.1.c. 

b. Tyco’s Manipulation of Purchase Accounting Reserves 

431. 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 
164 

liabilities. 

As the Tyco Defendants either knew or were reckless in not knowing, the statements when made 

were materially false and misleading and omitted material information for the reasons set forth 

above in Section(s) V.A, A.1.a, and A.1.c. 

c. Tyco’s Operating Results 

432. The 2000 10-K also gives favorable, purportedly accurate information concerning 

Tyco’s operating results. For example, the Tyco Defendants provide 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 

As the Tyco Defendants either knew or were reckless in not knowing, these statements when 

made were materially false and misleading and omitted material information for the reasons set 

forth above in Section(s) V.A, A.1.a, and A.1.c. 

433. 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), and 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. 
165 

The Tyco Defendants also state: “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, the Tyco Defendants state: 

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 unproved 

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. 

As the Tyco Defendants either knew or were reckless in not knowing, these statements when 

made were materially false and misleading and omitted material information for the reasons set 

forth above in Section(s) V.A, A.1.a, and A.l.c. 

d. Management Remuneration and Related Transactions 

434. 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 at paragraphs 449-455. 

435. 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 
166 

materially false and misleading statements set forth therein, as described below at paragraphs 

449-455. 

32. 12/29/00 Lucent Acquisition Closes 

436. On December 29, 2000, Tyco announced that it had completed its acquisition of 

Lucent’s Power Systems Business. According to the press release, Kozlowski stated: 

This business is an excellent fit for Tyco Electronics. We expect 

that the acquisition of LPS will be immediately accretive to Tyco’s 

earnings. Previous acquisitions in Tyco Electronics continue to 

achieve strong top line growth and exceed expected earnings 

targets. 

437. 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.” 

As the Tyco Defendants either knew or were reckless in not knowing, this statement when made 

was materially false and misleading and omitted material information for the reasons set forth 

above in Section(s) V.A, A.l.a, and A.1.c, including that the acquisition would be “accretive” 

because of Defendants’ erroneous and misleading accounting and manipulation of the acquired 

company’s financial statements and recording of excess goodwill. 

33. 2000 Annual Report to Shareholders 

438. 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 

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 
167 

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. 

As the Tyco Defendants either knew or were reckless in not knowing, these statements, when 

made, were materially false and misleading and omitted material information for the reasons set 

forth above in Section(s) V.A, A.l.a, and A.1.c. 

439. 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. 

As the Tyco Defendants either knew or were reckless in not knowing, these statements, when 

made, were materially false and misleading and omitted material information for the reasons set 

forth above in Section(s) V.A, A.1.a, and A.1.c. 

440. 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. 

As the Tyco Defendants either knew or were reckless in not knowing, these statements, when 
168 

made, were materially false and misleading and omitted material information for the reasons set 

forth above in Section(s) V.A, A.1.a, and A.1.c. 

441. 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 with strategy involves acquisitions that 

add new products and businesses to complement our core groups. 

We seek to acquire companies with superior products that have 

long-term 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. 

As the Tyco Defendants either knew or were reckless in not knowing, these statements when 

made were materially false and misleading and omitted material information for the reasons set 

forth above in Section(s) V.A, A.l.a, and A.l.c. 

442. The 2000 Annual Report also included a letter to Tyco shareholders from 

Defendant 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 
169 

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 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. 

As the Tyco Defendants either knew or were reckless in not knowing, these statements when 

made were materially false and misleading and omitted material information for the reasons set 

forth above in Section(s) V.A, A.1.a, and A.1.c. 

443. 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 $28,496.5 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 
170 

$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 pre-tax) 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) 

primarily related to AMP’s profit improvement plan and costs 

incurred by USSC to exit certain businesses. 

As the Tyco Defendants either knew or were reckless in not knowing, these statements when 

made were materially false and misleading and omitted material information for the reasons set 

forth above in Section(s) V.A, A.1.a, and A.1.c. 

444. 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.” As the Tyco Defendants either knew or 

were reckless in not knowing, this statement when made was materially false and misleading and 

omitted material information for the reasons set forth above in Section(s) V.A.1.b, B.4, and B.5. 

445. Finally, the 2000 Annual Report includes PwC’s audit opinion, dated October 24, 

2000 (except as to Note 25, which is as of December 4, 2000), on Tyco’s 2000 and 1999 

financial statements. As set forth above, PwC’s opinion falsely stated that such Tyco financial 

statements were presented in conformity with GAAP, and that PwC’s audit was performed in 

accordance with GAAS. 
171 

D. 2001 Materially False and Misleading Statements and Omissions 

1. 1/17/01 Press Release 

446. On January 2001, Tyco announced its earnings for the quarter ended December 

31, 2000: 

Tyco . . . reported today that diluted earnings per share for its first 

quarter ended December 31, 2000 were 57 cents, a 24 percent 

increase over earnings of 46 cents per share in its first quarter of 

fiscal 2000. Net income before extraordinary items and 

cumulative effect of accounting change rose to $1.01 billion, an 

increase of 28 percent compared to $784.3 million last year. Sales 

for the quarter rose 21 percent to $8.02 billion compared with last 

year’s $6.64 billion. These results are before non-recurring items. 

After giving effect to such items, diluted earnings per share before 

extraordinary items and cumulative effect of accounting change for 

the first quarter of fiscal 2001 were 57 cents, or $1.01 billion, 

compared to 44 cents, or $757.2 million in the first quarter of fiscal 

2000. 

“Each of Tyco’s segments reported solid gains in revenue, 

operating profits and cash flow, even in the face of a turning 

economic environment. The strongest growth was recorded by 

Tyco Electronics, where double-digit organic growth was 

enhanced by the successful integration of the Thomas & Betts 

OEM division,” said L. Dennis Kozlowski, Tyco’s Chairman and 

Chief Executive Officer. 

“Although we face an uncertain economic environment, we remain 

comfortable with Tyco’s outlook for the remainder of 2001. We 

have in place a very deliberate strategy to focus each of the 

businesses on recurring and other sources of revenue and earnings 

that are less sensitive to economic cycles. Based on current 

business trends, we believe that although some parts of our 

business will see slower growth, overall Tyco’s results will be in 

line with our expectations. We will benefit from the integration of 

the acquisitions we have recently completed, particularly from the 

resulting synergies,” he added. 

447. As the Tyco Defendants either knew or were reckless in not knowing, these 

statements were materially false and misleading and omitted material information as set forth in 

Sections V.A, A.1.a, and A.1.c. 
172 

2. 1/17/01 Conference Call 

448. On January 17, 2001, Tyco held a conference call with analysts. During the call, 

the Tyco Defendants 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%. 

As Defendant Kozlowski either knew or was reckless in not knowing, these statements when 

made were materially false and misleading and omitted material information for the reasons set 

forth above in Section(s) V.A, A.1.a, and A.1.c. 

3. 2001 Proxy Statement 

449. On January 29, 2001, the Tyco Defendants filed with the SEC Tyco’s 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. 

a. Management Remuneration 

450. 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 
173 

minimum of 22.5% growth in pre-tax income and operating cash 

flow growth over fiscal 1999 performance was required. In 

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. 

As the Tyco Defendants either knew or were reckless in not knowing, these statements when 

made were materially false and misleading and omitted material information for the reasons set 

forth above in Section(s) V.B. 

451. 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 as 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, review and, as required, approves such policies for 

executive officers and key managers, and oversees the 

administration of executive compensation programs. 

As the Tyco Defendants either knew or were reckless in not knowing, these statements when 

made were materially false and misleading and omitted material information for the reasons set 

forth above in Section(s) V.B. 

452. The 2001 Proxy Statement contains the following specific information concerning 

the compensation of Defendants Kozlowski and Swartz: 

 Annual Compensation Long-Term Compensation 

Name & Principal Position YEAR SALARY 

CASH BONUS 

(3) 

STOCK 

BONUS (4) 

RESTRICIED 

STOCK 

AWARD(S) (5) 

SHARES 

UNDERLYING 

STOCK 

OPTIONS 

TYCOM 

SHARES 

UNDERLYING 

STOCK 

OPTIONS 

ALL 

OTHER 

COMP (6) 

L. DENNIS KOZLOWSKI 2000 $1,350,000 $2,800,000 $21,207,540 5,107,158 800,000 $527,152 

1999 1,350,000 3,200,000 25,707,178 6,621,834 387,001 

1998 1,250,000 2,500,000 20,140,000 3,832,000 901,002 

CHAIRMAN & CHIEF EXECUTIVE 

OFFICER, TYCO INTERNATION LTD 

* * * 
174 

MARK H. SWARTZ 2000 768,750 1,400,000 10,603,770 2,535,999 500,000 292,487 

1999 750,000 1,600,000 12,029,641 2,976,480 150,014 

1998 559,500 1,250,000 10,070,000 2,764,666 256,878 

EXECUTIVE VICE PRESIDENT AND 

CHIEF FINANCIAL OFFICER, TYCO 

INTERNATIONAL LTD. 

 

As the Tyco Defendants either knew or were reckless in not knowing, these statements when 

made were materially false and misleading and omitted material information for the reasons set 

forth above in Section(s) V.B.1, B.2, B.3, B.4, B.5, and B.6. 

453. The 2001 Proxy Statement failed to disclose and misrepresented the actual 

compensation of Defendant Kozlowski: 

For fiscal 2000, Mr. Kozlowski received a be 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 refereed 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 
175 

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%. 

As the Tyco Defendants either knew or were reckless in not knowing, these statements when 

made were materially false and misleading and omitted material information for the reasons set 

forth above in Section(s) V.B.l.a, B.2, B.3, B.4.a, B.5, and B.6. 

b. Key Employee Loan Program 

454. 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 short-term 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. 

As the Tyco Defendants either knew or were reckless in not knowing, these statements when 

made were materially false and misleading and omitted material information for the reasons set 

forth above in Section(s) V.B.4 and B.5. 

455. 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 
176 

2000. 

As the Tyco Defendants either knew or were reckless in not knowing, the statements when made 

were materially false and misleading and omitted material information for the reasons set forth 

above in Section(s) V.B.4 and B.5. 

4. 1/31/01 S-8 

456. On January 31, 2001, the Tyco Defendants filed a Form S-8 for the registration of 

200,000 shares of Tyco common stock (the “1/31/01 S-8”), signed by Defendants Swartz, 

Kozlowski, and Walsh. Because the 1/31/01 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 yearended September 30, 2000; and (ii) Tyco’s Current Reports on Form 8-K filed on November 1, 

2000, and November 15, 2000. 

457. In addition, the 1/31/01 S-8 sets forth the Consent of PricewaterhouseCoopers, 

dated January 29, 2001, permitting the incorporation by reference of its materially false and 

misleading report, dated October 24, 2000 (except as to Note 25, which is as of December 4, 

2000), quoted in the 2000 10-K and discussed above, and other materially false and misleading 

materials discussed herein. 

5. 2/13/01 10-Q for Quarter Ended 12/31/00 

458. On February 13, 2001, the Tyco Defendants filed Tyco’s Form 10-Q for the 

quarter ended December 31, 2000 (the “2/13/01 10-Q”), signed by Defendant Swartz. In it, the 

Tyco Defendants set out numerous materially false and misleading statements. These false and 

misleading statements addressed a variety of topics, including the following: 

a. Tyco’s Operating Results 

459. The 2/13/01 10-Q also gives favorable, purportedly accurate information 
177 

concerning Tyco’s operating results. For example, the Tyco Defendants provide 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 item 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 

As the Tyco Defendants either knew or were reckless in not knowing, these statements when 

made were materially false and misleading and omitted material information for the reasons set 

forth above in Section(s) V.A, A.l.a, and A.l.c. 

b. Tyco’s Reserves 

460. The 2/13/01 10-Q also gives materially false and misleading information 

concerning Tyco’s reserves, such as: 

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 

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 $3413 million is included in current 

liabilities and $29.7 million is included in long-term liabilities. 

As the Tyco Defendants either knew or were reckless in not knowing, these statements when 

made were materially false and misleading and omitted material information for the reasons set 
178 

forth above in Section(s) V.A, A.l.a, and A.l.c. 

6. 2/23/01 S-4 (and Related S-4/A and Prospectus) 

461. On February 23, 2001, Tyco filed with the SEC a Form S-4 relating to Tyco’s 

proposed offer to issue 9,415,481 shares of Tyco stock upon consummation of the merger with 

Scott Technologies, Inc. (the “2/23/01 S-4”). The 2/23/01 S-4 was signed by Defendants 

Kozlowski, Swartz, and Walsh. Because the 2/23/01 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 Report on Form 10-K for the fiscal yearended 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. 

462. Like many of Tyco’s other filings with the SEC throughout the Relevant Period, 

the 2/23/01 S-4 recites Tyco’s purported strategy, quoted and discussed above in paragraph 238. 

It also reiterates its so-called strategy in its discussion of Tyco’s acquisition of Scott: 

At a meeting held on January 10, 2001, Tyco’s Board of Directors 

determined that the acquisition of Scott was in keeping with its 

corporate strategy of complementing its internal growth with 

acquisitions that are likely to benefit from cost reductions and 

synergies when combined with Tyco’s existing operations and that 

are expected to be accretive to Tyco’s earnings per share. 

As the Tyco Defendants either knew or were reckless in not knowing, these statements of 

strategy when made were materially false and misleading and omitted material information for 

the reasons set forth above in Section(s) V.A, A.1.a, and A.l.c. 

463. In addition, the 2/23/01 S-4 sets forth the Consent of PricewaterhouseCoopers, 

dated February 20, 2001, permitting the incorporation by reference of its materially false and 

misleading report, dated October 24, 2000 (except as to Note 25, which is as of December 4, 
179 

2000), quoted in the 2000 10-K and discussed above, and other materially false and misleading 

materials discussed herein. 

464. On March 30, 2001, Tyco filed with the SEC a Form S-4/A (the “3/30/01 S-4/A”) 

and a Prospectus (the “3/30/01 Prospectus”) relating to the proposed merger between Scott 

Technologies, Inc. and Tyco. Because the 3/30/01 S-4/A and the 3/30/01 Prospectus each 

incorporate the following documents by reference, they each contain 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, and March 29, 

2001. 

465. Like many of Tyco’s other filings with the SEC throughout the Relevant Period, 

the 3/30/01 S-4/A and the 3/30/01 Prospectus each recite Tyco’s purported strategy, quoted and 

discussed above in paragraph 438. They also reiterate its so-called strategy in their discussion of 

Tyco’s acquisition of Scott, using precisely the same language quoted from the 2/23/01 S-4 

above. As the Tyco Defendants either knew or were reckless in not knowing, the statements of 

strategy when made were materially false and misleading and omitted material information for 

the reasons set forth above in Section(s) V.A, A.1.a, and A.l.c. 

466. The 3/30/01 S-4/A and the 3/30/01 Prospectus also give favorable, purportedly 

accurate information concerning Tyco’s operating results, including the identical historical 

financial data of Tyco represented in the 2/23/01 S-4, quoted above. As the Tyco Defendants 

either knew or were reckless in not knowing, the statements when made were materially false 

and misleading and omitted material information for the reasons set forth above in Section(s) 
180 

V.A, A.1.a, and A.l.c. 

467. In addition, the 3/30/01 S-4/A sets forth the Consent of PricewaterhouseCoopers, 

dated March 14, 2001, permitting the incorporation by reference of its materially false and 

misleading report, dated October 24, 2000 (except as to Note 25, which is as of December 4, 

2000), quoted in the 2000 10-K and discussed above, and other materially false and misleading 

materials discussed herein. 

7. 3/13/01 Conference Call 

468. On March 13, 2001, Tyco held a conference call to discuss, among other things, 

its proposed acquisition of CIT. Defendant 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 7 1⁄2 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. 

* * * 

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. 

As Defendant Kozlowski either knew or was reckless in not knowing, the statements when made 

were materially false and misleading and omitted material information for the reasons set forth 
181 

above in Section(s) V.A, A.l, A.1.c, and A.1.d. 

8. 3/16/01 S-3 (and related Prospectus) 

469. On March 16, 2001, Tyco filed with the SEC a Form S-3 related to the February 

12, 2001 issuance of $3,035,000,000 of Zero Coupon Convertible Debentures due February 12, 

2021 (the “3/16/01 S-3”). The 3/16/01 S-3 was signed by Defendants Kozlowski, Swartz, and 

Walsh. Because the 3/16/01 S-3 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, and March 15, 2001. 

470. The 3/16/01 S-3 also sets out the following favorable, purportedly accurate 

information concerning Tyco’s operating results: 

Quarter Ended 

December 31, Year-ended September 30, 

Nine Months 

Ended September 

30, 

Year-ended 

December 31, 

2000 2000 1999 1998 1997 1996 

 (in millions, except ratio) 

Earnings: 

Income (loss) 

before 

extraordinary 

items and 

cumulative effect 

of accounting 

changes $1,009.2 $4,520.1 $1,067.7 $1,168.6 $(348.5) $49.4 

Income taxes 529.5 1,926.0 637.5 534.2 348.1 469.4 

Minority interest 12.5 18.7 -- -- -- -- 

1,551.2 6,464.8 1,705.2 1,702.8 (0.4) 518.8 

As the Tyco Defendants either knew or were reckless in not knowing, these statements when 

made were materially false and misleading and omitted material information for the reasons set 

forth above in Section(s) V.A, A.1.a, and A.1.c. 

471. In addition, the 3/16/01 S-3 sets forth the Consent of PricewaterhouseCoopers, 

dated March 14, 2001, permitting the incorporation by reference of its materially false and 
182 

misleading report, dated October 24, 2000 (except as to Note 25, which is as of December 4, 

2000), quoted in the 2000 10-K and discussed above, and other materially false and misleading 

materials discussed herein. 

472. On April 3, 2001, Tyco filed with the SEC a Prospectus related to the February 

12, 2001 issuance of the Zero Coupon Convertible Debentures (the “4/3/01 Prospectus”). 

Because the 4/3/01 Prospectus incorporates by reference the same documents that were 

incorporated by reference in the 3/16/01 S-3, it contains the same materially false and misleading 

statements set forth in those documents, as described herein. 

9. 3/29/01 S-4 (and Related S-8) 

473. 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 wholly 

owned subsidiary of Tyco (the “3/29/01 S-4”). The 3/29/01 S-4 was signed by Defendants 

Kozlowski, Swartz, and Walsh. 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 yearended 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. 

474. Like many of Tyco’s other filings with the SEC throughout the Relevant Period, 

the 3/29/01 S-4 recites Tyco’s purported strategy, quoted and discussed above in paragraph 430. 

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. 
183 

As the Tyco Defendants either knew or were reckless in not knowing, these statements when 

made were materially false and misleading and omitted material information for the reasons set 

forth above in Section(s) V.A, A.1.a, A.1.c, and A.1.d. 

475. The 3/29/01 S-4 also gives favorable, purportedly accurate information 

concerning Tyco’s operating results, including the following: 

 QUARTERS ENDED 

DECEMBER 31, 

YEAR-ENDED 

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 

As the Tyco Defendants either knew or were reckless in not knowing, these statements when 

made were materially false and misleading and omitted material information for the reasons set 

forth above in Section(s) V.A, A.l.a, and A.l.c. 

476. In addition, the 3/29/01 S-4 sets forth the Consent of PricewaterhouseCoopers, 

dated March 26, 2001, permitting the incorporation by reference of its materially false and 

misleading report, dated October 24, 2000 (except as to Note 25, which is as of December 4, 

2000), quoted in the 2000 10-K and discussed above, and other materially false and misleading 

materials discussed herein. 

477. On April 13, 2001, the Tyco Defendants 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 
184 

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. 

478. Like the 2000 10-K and many of Tyco’s other filings with the SEC throughout the 

Relevant Period, the 4/13/01 S-4/A recites Tyco’s purported strategy, quoted and discussed 

above in paragraph 430. 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. As 

the Tyco Defendants either knew or were reckless in not knowing, the statements of strategy 

when made were materially false and misleading and omitted material information for the 

reasons set forth above in Section(s) V.A, A.1.a, and A.1.c. 

479. In addition, the 4/13/01 S-4/A sets forth the Consent of PwC, dated April 13, 

2001, permitting the incorporation by reference of its materially false and misleading report, 

dated October 24, 2000 (except as to Note 25, which is as of December 4, 2000), quoted in the 

2000 10-K and discussed above, and other materially false and misleading materials discussed 

herein. 

480. 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 yearended 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. 
185 

481. Like the 2000 10-K and many of Tyco’s other filings with the SEC throughout the 

Relevant Period, the 4/24/01 Prospectus recites Tyco’s purported strategy, quoted and discussed 

above in paragraph 430. It also reiterates the 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. As 

the Tyco Defendants either knew or were reckless in not knowing, these statements of strategy 

when made were materially false and misleading and omitted material information for the 

reasons set forth above in Section(s) V.A, A.1.a, and A.l.c. 

482. The 4/24/01 Prospectus also gives favorable, purportedly accurate information 

concerning Tyco’s operating results, including the following: 

 QUARTERS ENDED 

DECEMBER 31, 

YEAR-ENDED 

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 

As the Tyco Defendants either knew or were reckless in not knowing, these statements when 

made were materially false and misleading and omitted material information for the reasons set 

forth above in Section(s) V.A, A.l.a, and A.l.c. 

483. On May 24, 2001, the Tyco Defendants 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”). The 5/24/01 

Post-Effective Amendment was signed by Defendant Swartz for himself and for Defendants 

Kozlowski and Walsh. Because the 5/24/01 Post-Effective Amendment incorporates the 

following documents by reference, it contains the same materially false and misleading 
186 

statements set forth in those documents, as described herein: (i) Tyco’s Annual Report on Form 

I0-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. 

484. Like the 2000 10-K and many of Tyco’s other filings with the SEC throughout the 

Relevant Period, the 5/24/01 Post-Effective Amendment recites Tyco’s purported strategy, 

quoted and discussed above in paragraph 430. As the Tyco Defendants either knew or were 

reckless in not knowing, these statements when made were materially false and misleading and 

omitted material information for the reasons set forth above in Section(s) V.A, A.l.a, and A.1.c. 

485. In addition, the 5/24/01 Post-Effective Amendment sets forth the Consent of 

PricewaterhouseCoopers, dated May 23, 2001, permitting the incorporation by reference of its 

materially false and misleading report, dated October 24, 2000 (except as to Note 25, which is as 

of December 4, 2000), quoted in the 2000 10-K and discussed above, and other materially false 

and misleading materials discussed herein. 

486. On June 5, 2001, the Tyco Defendants 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, 
187 

November 15, 2000, February 9, 2001, March 15, 2001, March 29, 2001, April 3, 2001, and May 

24, 2001. 

487. Like the 2000 10-K and many of Tyco’s other filings with the SEC throughout the 

Relevant Period, the 6/5/01 Prospectus recites Tyco’s purported strategy, quoted and discussed 

above in paragraph 460. As the Tyco Defendants either knew or were reckless in not knowing, 

this statement of strategy when made was materially false and misleading and omitted material 

information for the reasons set forth above in Section(s) V.A, A.1.a, and A.1.c. 

488. 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”). The 6/7/01 S-8 was signed 

by Defendants Kozlowski, Swartz, and Walsh. 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. 

489. In addition, the 6/7/01 S-8 sets forth the Consent of PricewaterhouseCoopers, 

dated June 7, 2001, permitting the incorporation by reference of its materially false and 

misleading report, dated October 24, 2000 (except as to Note 25, which is as of December 4, 

2000), quoted in the 2000 10-K and discussed above, and other materially false and misleading 

materials discussed herein. 

10. 4/18/01 Press Release 

490. On April 18, 2001, Tyco announced its financial results for the quarter ended 
188 

March 31, 2001: 

Tyco . . . reported today that diluted earnings per share for its 

second quarter ended March 31, 2001 were 65 cents, a 30 percent 

increase over earnings of 50 cents per share in its second quarter of 

fiscal 2000. Net income before extraordinary items rose to $1.16 

billion, an increase of 35 percent compared to $853.6 million last 

year. Sales for the quarter rose 26 percent to $8.9 billion compared 

with last year’s $7.07 billion. These results are before nonrecurring items. After giving effect to such items, diluted earnings 

per share before extraordinary items for the second quarter of fiscal 

2001 were 65 cents, or $1.15 billion, compared to 50 cents, or 

$855.5 million, in the second quarter of fiscal 2000. 

For the first half of fiscal 2001, income before non-recurring items, 

extraordinary items and cumulative effect of accounting change 

rose to $2.16 billion, or $1.22 per diluted share, a 27 percent 

increase over last year’s diluted earnings per share of 96 cents. 

After giving effect to non-recurring items, diluted earnings per 

share before extraordinary items and cumulative effect of 

accounting change were $1.22, or $2.16 billion, for the first half of 

fiscal 2001 compared to 94 cents, or $1.61 billion, in fiscal 2000. 

Revenues for the first half of fiscal 2001 increased to $16.92 

billion, 23 percent higher than last year’s $13.71 billion. 

491. The Tyco Defendants either knew or recklessly disregarded the fact that these 

statements, when made, were materially false and misleading and omitted material information 

for the reasons set forth in Sections V.A, A.1.a, and A.1.c. 

11. 4/18/01 Conference Call 

492. On April 18, 2001, the Tyco Defendants held a conference call with analysts to 

discuss the Company’s purported earnings growth. During the call, Defendant 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 
189 

various economic conditions that are going on 

around the world. 

As Defendant Kozlowski either knew or was reckless in not knowing, these statements when 

made were materially false and misleading and omitted material information for the reasons set 

forth above in Section(s) V.A, A.l.a, and A.1.c. 

12. 5/11/01 10-Q for Quarter Ended 3/31/01 

493. On May 11, 2001, the Tyco Defendants fled Tyco’s Form 10-Q for the quarter 

ended March 31, 2001 (the “5/11/01 10-Q”), signed by Defendant Swartz. In it, the Tyco 

Defendants set out numerous materially false and misleading statements. These false and 

misleading statements addressed a variety of topics, including the following: 

a. Tyco’s Operating Results 

494. The 5/11/01 10-Q also gives favorable, purportedly accurate information 

concerning Tyco’s operating results. For example, the Tyco Defendants provide the following 

summary information: 

FOR THE QUARTERS 

ENDED MARCH 31, 

FOR THE SIX MONTHS 

ENDED MARCH 31, 

2001 2000 2001 2000 

Income before income taxes, minority interest, extraordinary 

item 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 item and cumulative effect of 

accounting change 1,147.3 855.5 2,156.5 1,612.7 

Extraordinary item, net of tax (10.3) -- (10.3) (0.2) 

Cumulative effect of accounting change, net of tax -- -- (29.7) -- 

Net income $1,137.0 $855.5 $2,116.5 $1,612.5 

As the Tyco Defendants either knew or were reckless in not knowing, these statements when 

made were materially false and misleading and omitted material information for the reasons set 

forth above in Section(s) V.A, A.1.a, and A.1.c. 

495. In addition, these statements are materially false and misleading because they fail 

to disclose the aggressive accounting and incentivizing practices described above (and admitted 
190 

by Tyco in the December Report), and 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. 

As the Tyco Defendants either knew or were reckless in not knowing, these statements when 

made were materially false and misleading and omitted material information for the reasons set 

forth above in Section(s) V.A, A.1.a, and A.1.c. 

b. Tyco’s Reserves 

496. The 5/11/01 10-Q also gives materially false and misleading information 

regarding the Company’s reserves, such as: 

During the six months ended March 3I, 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 

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 
191 

included in long-term liabilities. 

As the Tyco Defendants either knew or were reckless in not knowing, these statements when 

made were materially false and misleading and omitted material information for the reasons set 

forth above in Section(s) V.A, A.1.a, and A.1.c. 

13. 5/30/01 Conference Call 

497. 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). The 

Tyco Defendants 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 5¢ 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 69¢ per share in the third 

quarter, consensus is now around 68¢, 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 

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 3¢ to earnings during the first year 

that we have it, with an initial cash on cash return in 
192 

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. 

As Defendant Kozlowski either knew or was reckless in not knowing, the statements when made 

were materially false and misleading and omitted material information for the reasons set forth 

above in Section(s) V.A, A.1.a, A.1.c, and A.l.d. 

498. 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. 

As Defendant Kozlowski either knew or was reckless in not knowing, these statements when 

made were materially false and misleading and omitted material information for the reasons set 

forth above in Section(s) V.A, A.1.a, and A.1.d. 

14. 7/18/01 Earnings Announcement 

499. On July 18, 2001, Tyco announced its results for the third quarter of fiscal 2001 

(the three months ended June 30, 2001), which were subsequently filed with the SEC on Form 8-

K on July 25, 2001 and signed by Defendant Swartz: 

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 

earnings of $0.58 per diluted share in the third quarter of fiscal 
193 

2000. 

500. As the Tyco Defendants either knew or recklessly disregarded, these statements 

when made were materially false and misleading and omitted material information for the 

reasons set forth in Section(s) V.A, A.l.a, and A.1.c. 

15. 7/18/01 Conference Call 

501. 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 Defendant Kozlowski: 

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 regardsto 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. 

As Defendant Kozlowski either knew or was reckless in not knowing, these statements when 

made were materially false and misleading and omitted material information for the reasons set 

forth above in Section(s) V.A, A.1.a, and A.1.c. 

16. 7/24/01 S-3 

502. On July 24, 2001, Tyco filed with the SEC a Form S-3 relating to the registration 
194 

of $300,000,000 of debt securities of a Tyco subsidiary (the “7/24/01 S-3”). The 7/24/01 S-3 

was signed by Defendant Swartz for himself and for Defendants Kozlowski and Walsh. Because 

the 7/24/01 S-3 incorporates the 8/18/00 S-3(2) by reference, it contains the same materially 

false and misleading statements set forth in that document, as described herein. 

503. In addition, the 7/24/01 S-3 sets forth the Consent of PricewaterhouseCoopers, 

dated July 23, 2001, permitting the incorporation by reference of its materially false and 

misleading report, dated October 24, 2000 (except as to Note 25, which is as of December 4, 

2000), quoted in the 2000 10-K and discussed above, and other materially false and misleading 

materials discussed herein. 

17. 8/3/01 Conference Call 

504. On August 4, 2000, Tyco held a conference call to discuss, among other things, its 

acquisition of Sensormatic. According to Defendant Kozlowski: “This will be an excellent deal 

for us . . . and it’s immediately accretive by at least 3 cents per share during the first year of our 

ownership.” 

505. 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. . . 

As Defendant Kozlowski either knew or was reckless in not knowing, these statements when 

made were materially false and misleading and omitted material information for the reasons set 

forth above in Section(s) V.A, A.1.a, and A.l.c. 

506. On August 6, 2001, Deutsche Bank Alex Brown, reporting materially false and 
195 

misleading information received from the Tyco Defendants, issued an analyst report entitled, 

“TYC Electronics’ July Okay . . . SRM’s Strategic Impact Could Surpass EPS.” The report 

stated, “Kozlowski said the acquisition pipeline was strong and was made up solely of tuck-in 

and bolt-on acquisitions for core companies, and contained “absolutely no surprises.” 

18. 8/13/01 10-Q for Quarter Ended 6/30/01 

507. On August 13, 2001, the Tyco Defendants filed Tyco’s Form 10-Q for the quarter 

ended June 30, 2001 (the “8/13/01 10-Q”), signed by Defendant Swartz. In it, the Tyco 

Defendants set out numerous materially false and misleading statements. These false and 

misleading statements addressed a variety of topics, including the following: 

a. Tyco’s Operating Results 

508. The 8/13/01 10-Q also gives favorable, purportedly accurate information 

concerning Tyco’s operating results. For example, the Tyco Defendants provide 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) -- 

NET INCOME $1,216.8 $997.3 

As the Tyco Defendants either knew or were reckless in not knowing, these statements when 

made were materially false and misleading and omitted material information for the reasons set 

forth above in Section(s) V.A, A.1.a, and A.l.c. 

509. 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), and instead attribute Tyco’s favorable results to organic 
196 

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. 

As the Tyco Defendants either knew or were reckless in not knowing, these statements when 

made were materially false and misleading and omitted material information for the reasons set 

forth above in Section(s) V.A, A.1.a, and A.1.c. 

b. Tyco’s Reserves 

510. The 8/13/01 10-Q also gives materially false and misleading information 

regarding the Company’s reserves, such as: 

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. 

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. 

As the Tyco Defendants either knew or were reckless in not knowing, these statements when 
197 

made were materially false and misleading and omitted material information for the reasons set 

forth above in Section(s) V.A, A.1.a, and A.1.c. 

19. 8/24/01 S-4 (and Related S-4/A and Prospectus) 

511. On August 24, 2001, Tyco filed with the SEC a Form S-4 relating to a proposed 

merger between Sensormatic Electronics Corporation (“Sensormatic”) and a subsidiary of Tyco 

(the “8/24/01 S-4”). The 8/24/01 S-4 was signed by Defendants Swartz, Kozlowski, and Walsh. 

Because the 8/24/01 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 Reports on Forms 10-Q for the quarters 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. 

512. Like the 2000 10-K and many of Tyco’s other filings with the SEC throughout the 

Relevant Period, the 8/24/01 S-4 recites Tyco’s purported strategy, quoted and discussed above 

in paragraph 430. It also reiterates its so-called strategy in its discussion of Tyco’s acquisition of 

Sensormatic: 

At a meeting of the executive committee of Tyco’s board of 

directors held on August 1, 2001, the executive committee 

determined that the acquisition of Sensormatic was in keeping with 

its corporate strategy of complementing its internal growth with 

acquisitions that are likely to benefit from cost reductions and 

synergies when combined with Tyco’s existing operations and that 

are expected to be accretive to earnings per share. 

As the Tyco Defendants either knew or were reckless in not knowing, these statements of 

strategy when made were materially false and misleading and omitted material information for 

the reasons set forth above in Section(s) V.A, A.1.a, and A.1.c. 
198 

513. In addition, the 8/24/01 S-4 sets forth the Consent of PricewaterhouseCoopers, 

dated August 23, 2001, permitting the incorporation by reference of its materially false and 

misleading report, dated October 24, 2000, quoted in the 2000 10-K and discussed above, and 

other materially false and misleading materials discussed herein. 

514. On September 13, 2001, the Tyco Defendants filed with the SEC a Form S-4/A 

(the “9/13/01 S-4/A”), amending the 8/24/01 S-4. The 9/13/01 S-4/A was signed by Defendant 

Swartz for himself and for Defendants Kozlowski, and Walsh. Because the 9/13/01 S-4/A 

incorporates by reference the same documents that were incorporated by reference in the 8/21/01 

S-4, it contains the same materially false and misleading statements set forth in those documents, 

as described herein. 

515. Like the 2000 10-K and many of Tyco’s other filings with the SEC throughout the 

Relevant Period, the 9/13/01 S-4/A recites Tyco’s purported strategy, quoted and discussed 

above in paragraph 430. It also reiterates its so-called strategy in its discussion of Tyco’s 

acquisition of Sensormatic, using precisely the same language quoted from the 8/24/01 S-4 

above. As the Tyco Defendants either knew or were reckless in not knowing, these statements of 

strategy when made were materially false and misleading and omitted material information for 

the reasons set forth above in Section(s) V.A, A.1.a, and A.1.c. 

516. In addition, the 9/13/01 S-4/A sets forth the Consent of PricewaterhouseCoopers, 

dated September 10, 2001, permitting the incorporation by reference of its materially false and 

misleading report, dated October 24, 2000, quoted in the 2000 10-K and discussed above, and 

other materially false and misleading materials discussed herein. 

517. On September 25, 2001, the Tyco Defendants filed a prospectus with the SEC 

relating to the proposed merger between Sensormatic and a subsidiary of Tyco (the “9/25/01 
199 

Prospectus”). Because the 9/25/01 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 yearended September 30, 2000; (ii) Tyco’s Quarterly Reports on Form 10-Q for the quarters 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, 2002, July 25, 2001, August 3, 2001, and 

August 16, 2001. 

518. Like the 2000 10-K and many of Tyco’s other filings with the SEC throughout the 

Relevant Period, the 9/25/01 Prospectus recites Tyco’s purported strategy, quoted and discussed 

above in paragraph 430. As the Tyco Defendants either knew or were reckless in not knowing, 

this statement of strategy when made was materially false and misleading and omitted material 

information for the reasons set forth above in Section(s) V.A, A.1.a, and A.1.c. 

20. 8/28/01 S-3 (and Related Prospectus and Supplemental Prospectus) 

519. On August 28, 2001, Tyco filed a Form S-3 for the registration of $6,000,000,000 

in yet to be determined senior and subordinated debt securities (the “8/28/01 S-3”). The 8/28/01 

S-3 was signed by Defendants Swartz, Kozlowski, and Walsh. Because the 8/28/01 S-3 

incorporates the following documents by reference, it contains the same materially false and 

misleading statements set forth in those documents, as described above: (i) Tyco’s Annual 

Report on Form 10-K for the fiscal year-ended September 30, 2000; (ii) Tyco’s Quarterly 

Reports on Forms 10-Q for the quarters 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. 
200 

520. Like the 2000 10-K and many of Tyco’s other filings with the SEC throughout the 

Relevant Period, the 8/28/01 S-3 recites Tyco’s purported strategy, quoted and discussed above 

in paragraph 430. As the Tyco Defendants either knew or were reckless in not knowing, this 

statement of strategy when made was materially false and misleading and omitted material 

information for the reasons set forth above in Section(s) V.A, A.l.a, and A.1.c. 

521. In addition, the 8/28/01 S-3 sets forth the Consent of PwC, dated August 23, 

2001, permitting the incorporation by reference of its materially false and misleading report, 

dated October 24, 2000 (except as to Note 25, which is as of December 4, 2000), quoted in the 

2000 10-K and discussed above, and other materially false and misleading materials discussed 

herein. 

522. On August 31, 2001, Tyco filed with the SEC a Prospectus in connection with the 

registration of $6,000,000,000 in yet to be determined senior and subordinated debt securities 

(the “8/31/01 Prospectus”). Because the 8/31/01 Prospectus incorporates by reference the same 

documents that were incorporated by reference in the 8/28/01 S-3, it contains the same materially 

false and misleading statements set forth in those documents, as described herein. 

523. Like the 1999 10-K and many of Tyco’s other filings with the SEC throughout the 

Relevant Period, the 12/8/00 Prospectus recites Tyco’s purported strategy, quoted and discussed 

above in paragraph 430. As the Tyco Defendants either knew or were reckless in not knowing, 

this statement of strategy, when made, was materially false and misleading and omitted material 

information for the reasons set forth above in Section(s) V.A, A.l.a, and A.l.c. 

524. On October 25, 2001, Tyco filed a Prospectus Supplement to the 8/31/01 

Prospectus (the “10/25/01 Prospectus Supplement”). Because the 10/25/01 Prospectus 

Supplement incorporates by reference the same documents that were incorporated by reference 
201 

in the 8/28/01 S-3, it contains the same materially false and misleading statements set forth in 

those documents, as described herein. 

525. The 10/25/01 Prospectus Supplement contains false and misleading statements 

about Tyco’s operating results under the heading “Recent Developments of Tyco,” such as: 

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. 

* * * 

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. 

As the Tyco Defendants either knew or were reckless in not knowing, these statements when 

made were materially false and misleading and omitted material information for the reasons set 

forth above in Section(s) V.A, A.1.a and A.1.c. 

21. 9/11/01 Conference Call 

526. On September 11, 2001, Tyco held a conference call/investor meeting with 

analysts. During the call, the Tyco Defendants provided investors with significant assurance that 

the Company was performing well and that it would remain profitable. For example, the Tyco 

Defendant Kozlowski stated as follows: 

KOZLOWSKI: . . . we remain very much on track to achieve our 
202 

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 the Re’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. 

As Defendant Kozlowski either knew or was reckless in not knowing, these statements when 

made were materially false and misleading and omitted material information for the reasons set 

forth above in Section(s) V.A, A.1.a, and A.1.c. 

22. 10/18/01 Press Release 

527. On October 18, 2001, Tyco announced its financial results for the quarter ending 

September 30, 2001: 

Tyco . . . reported today that diluted earnings per share for its 

fourth quarter ended September 30, 2001 were 86 cents, a 34 

percent increase over earnings of 64 cents per share for the same 

quarter last year. Revenues for the quarter rose 29 percent to $10.1 

billion compared with last year’s $7.8 billion. These results are 

before non-recurring charges and credits, extraordinary items, and 

the adoption of Staff Accounting Bulletin No. 101 (SAB 101). 
203 

After giving effect to such items, diluted earnings per share for the 

fourth quarter of fiscal 2001 were 70 cents, compared to $1.12 is 

59 cents resulting from a gain on the issuance of share by a 

subsidiary. 

For fiscal 2001, income before non-recurring charges and credits, 

extraordinary items, and the adoption of SAB 101, rose to $2.81 

per diluted share, a 29 percent increase over last year’s diluted per 

share earnings of $2.18. After giving effect to such items, diluted 

earnings per share were $2.17 for fiscal 2001 compared to $2.64 in 

fiscal 2000. Included in the prior year’s $2.64 is 59 cents resulting 

from a gain on the issuance of shares by a subsidiary. Revenues 

for the twelve months increased to $36.3 billion, 25 percent higher 

than last year’s $28.9 billion. 

528. As the Tyco Defendants either knew or recklessly disregarded, these statements 

when made were materially false and misleading and omitted material information for the 

reasons set forth in Section V.A., A.1.a, and A.1.c. 

23. 10/18/01 Conference Call 

529. On October 18, 2001, the Tyco Defendants 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. 

As the Tyco Defendants either knew or were reckless in not knowing, these statements when 

made were materially false and misleading and omitted material information for the reasons set 

forth above in Section(s) V.A, A.l.a and A.1.c. 

24. 10/23/01 S-4 (and Related S-4/A and Prospectus) 

530. On October 23, 2001, Tyco filed with the SEC a Form S-4 relating to a proposed 
204 

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”). The 10/23/01 S-4 was signed 

by Defendants Swartz, Kozlowski, and Walsh. 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 Report on Forms 

10-K and I0-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. 

531. Under the heading “Recent Developments of Tyco and TyCom,” the Tyco 

Defendants 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. 

As the Tyco Defendants either knew or were reckless in not knowing, these statements when 

made were materially false and misleading and omitted material information for the reasons set 

forth above in Section(s) V.A, A.1.a, and A.1.c. 

532. In addition, the 10/23/01 S-4 sets forth the Consent of PricewaterhouseCoopers, 

dated October 18, 2001, permitting the incorporation by reference of its materially false and 

misleading report, dated October 24, 2000 (except as to Note 25, which is as of December 4, 
205 

2000), quoted in the 2000 10-K and discussed above, and other materially false and misleading 

materials discussed herein. 

533. On November 9, 2001, the Tyco Defendants filed with the SEC a Form S-4/A (the 

“11/9/01 S-4/A”), amending the 10/23/01 S-4. The 11/9/01 S-4/A was signed by Defendant 

Swartz for himself and for Defendants Kozlowski, and Walsh. 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. 

534. 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 

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. 

As the Tyco Defendants either knew or were reckless in not knowing, these statements when 

made were materially false and misleading and omitted material information for the reasons set 

forth above in Section(s) V.A, A.1.a, and A.1.c. 
206 

535. On November 13, 2001, the Tyco Defendants filed with the SEC a Prospectus 

relating to the amalgamation agreement between Tycom and a subsidiary of Tyco (the “11/13/01 

Prospectus”). Because the 11/13/01 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. 

536. 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. 

25. 11/15/01 Conference Call 

537. The Tyco Defendants hosted another conference call with investors on November 

15, 2001. During the call, Defendant Kozlowski 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. 

* * * 

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. . . 

As Defendant Kozlowski either knew or was reckless in not knowing, 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.l.c. 

26. 12/28/01 10-K for Fiscal Year-ended 9/30/01 

538. On December 28, 2001, Tyco filed its Form 10-K for the fiscal year-ended 
207 

September 30, 2001 (the “2001 10-K”), signed by Defendants Swartz, Kozlowski, and Walsh. 

539. In the 2001 10-K, the Tyco Defendants set out numerous materially false and 

misleading statements, as evidenced by (among other things) the Tyco Defendants’ 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: 

a. Tyco’s “Strategy” 

540. The 2001 10-K purports to set forth Tyco’s “strategy,” which the Tyco 

Defendants repeated verbatim in other SEC filings during the Relevant Period. 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. 

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. 

As the Tyco Defendants either knew or were reckless in not knowing, this statement of strategy 

when made was materially false and misleading and omitted material information for the reasons 

set forth above in Section(s) V.A, A.1.a, and A.1.c. 

b. Tyco’s Operating Results 

541. The 2001 10-K also gives favorable, purportedly accurate information concerning 

Tyco’s operating results. For example, the Tyco Defendants provide the following summary 

information ($ in millions): 
208 

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 

As the Tyco Defendants either knew or were reckless in not knowing, these statements when 

made were materially false and misleading and omitted material information for the reasons set 

forth above in Section(s) V.A, A.l.a, and A.1.c. 

542. 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), and 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 

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. 

As the Tyco Defendants either knew or were reckless in not knowing, these statements when 

made were materially false and misleading and omitted material information for the reasons set 

forth above in Section(s) V.A, A.1.a, and A.1.c. 

543. And concerning profits in Tyco’s electrical business, the Tyco Defendants stated: 
209 

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. 

As the Tyco Defendants either knew or were reckless in not knowing, these statements when 

made were materially false and misleading and omitted material information for the reasons set 

forth above in Section(s) V.A, A.1.a, and A.l.c. 

c. Management Remuneration 

544. The 2001 10-K addresses management remuneration only by reference, stating: 

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. 
210 

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. 

545. 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.” As the Tyco 

Defendants either knew or were reckless in not knowing, these statements when made were 

materially false and misleading and omitted material information for the reasons set forth above 

in Section(s) V.B, B.4, and B.5. 

27. 2001 Annual Report to Shareholders 

546. 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 each acquisition be championed by a 

business unit that will oversee the integration into one of our 

existing segments. 

As the Tyco Defendants either knew or were reckless in not knowing, these statements when 

made were materially false and misleading and omitted-material information for the reasons set 

forth above in Section(s) V.A, A.1.a and A.1.c. 
211 

547. The 2001 Annual Report also set forth information concerning Tyco’s Key 

Employee Loan program: 

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. 

As the Tyco Defendants either knew or were reckless in not knowing, these statements when 

made were materially false and misleading and omitted material information for the reasons set 

forth above in Section(s) V.B, B.4, and B.5. 

548. The 2001 Annual Report also included a letter to Tyco shareholders from 

Defendant Kozlowski, which states: 

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. 

As Defendants either knew or were reckless in not knowing, these statements when made were 

materially false and misleading and omitted material information for the reasons set forth above 

in Section(s) V.A, A.1.a, and A.1.c. 

549. Defendant 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. 

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. 
212 

I remain optimistic about Tyco’s future. It’s a clichè today for a 

CEO to proclaim that his company is “well-positioned” but, in 

truth, we are. 

As Defendants either knew or were reckless in not knowing, these statements when made were 

materially false and misleading and omitted material information for the reasons set forth above 

in Section(s) V.A, A.1.a, A.l.c, and A.1.d. 

550. 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. 

As Defendants either knew or were reckless in not knowing, these statements when made were 

materially false and misleading and omitted material information for the reasons set forth above 

in Section(s) V.A.l.a and A.l.c. 

551. 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. 

E. 2002 Materially False and Misleading Statements and Omissions 

1. 1/8/02 S-4 (and Related S4/A) 

552. On January 8, 2002, Tyco filed with the SEC a Form S-4 relating to a proposed 

merger between McGrath RentCorp and Tyco (the “1/8/02 S-4”). The 1/8/02 S-4 was signed by 

Defendants Kozlowski, Swartz, and Walsh. Because the 1/8/02 S-4 incorporates Tyco’s Annual 

Report on Form 10-K for the fiscal year-ended September 30, 2001 by reference, it contains the 

same materially false and misleading statements set forth in that document, as described herein. 
213 

553. Like many of Tyco’s other filings with the SEC throughout the Relevant Period, 

the 1/8/02 S-4 recites Tyco’s purported strategy, quoted and discussed above in paragraph 540. 

It also reiterates the Company’s so-called strategy in its discussion of Tyco’s acquisition of 

McGrath RentCorp: 

At a meeting held on December 12, 2001, the executive committee 

of Tyco’s board of directors determined that the acquisition of 

McGrath was in keeping with its corporate strategy of 

complementing its internal growth with acquisitions that are likely 

to benefit from cost reductions and synergies when combined with 

Tyco’s existing operations and that are expected to be immediately 

accretive to earnings per share. 

As the Tyco Defendants either knew or were reckless in not knowing, the statements of strategy 

when made were materially false and misleading and omitted material information for the 

reasons set forth above in Section(s) V.A, A.1.a, and A.1.c. 

554. The 1/8/02 S-4 also gives favorable, purportedly accurate information concerning 

Tyco’s operating results, including the following: 

YEAR-ENDED SEPTEMBER 30, 

2001(2) 2000(3) 1999(4) 

(IN MILLIONS, EXCEPT PER 

SHARE DATA) 

CONSOLIDATED 

STATEMENTS OF 

OPERATIONS DATA: 

Total revenues(1) $36,388.5 $30,691.9 $22,496.5 

Income (loss) from continuing 

operations 4,671.1 4,520.1 1,067.7 

Income (loss) from continuing 

operations per common share (8): 

Basic 2.59 2.68 0.65 

Diluted: 2.55 2.64 0.64 

As the Tyco Defendants either knew or were reckless in not knowing, these statements when 

made were materially false and misleading and omitted material information for the reasons set 

forth above in Section(s) V.A, A.l.a, and A.l.c. 

555. In addition, the 1/8/02 S-4 sets forth the Consent of PricewaterhouseCoopers, 

dated January 7, 2002, permitting the incorporation by reference of its materially false and 
214 

misleading report, dated October 18, 2001 (except as to Note 31, which is as of December 18, 

2001), quoted in the 2001 10-K and discussed above. 

556. On May 22, 2002, Tyco filed with the SEC a Form S-4/A relating to a proposed 

merger between McGrath RentCorp and Tyco (the “5/22/02 S-4/A”). The 5/22/02 S-4/A was 

signed by Defendant Swartz for himself and for Defendants Kozlowski, and Walsh. Because the 

5/22/02 S-4/A incorporates Tyco’s Annual Report on Form 10-K for the year-ended September 

30, 2001, and its Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2002, 

it contains the same materially false and misleading statements set forth in those documents, as 

described herein. 

557. Like many of Tyco’s other filings with the SEC throughout the Relevant Period, 

the 5/22/02 S-4/A recites Tyco’s purported strategy, quoted and discussed above in paragraph 

540. It also reiterates the Company’s so-called strategy in its discussion of Tyco’s acquisition of 

McGrath RentCorp, using precisely the same language quoted from the 1/8/02 S-4 above. As the 

Tyco Defendants either knew or were reckless in not knowing, these statements of strategy when 

made were materially false and misleading and omitted material information for the reasons set 

forth above in Section(s) V.A, A.1.a, and A.l.c.

558. In addition, the 5/22/02 S-4/A sets forth the Consent of PwC, dated May 21, 2002, 

permitting the incorporation by reference of its materially false and misleading report, dated 

October 18, 2001 (except as to Note 31, which is as of December 18, 2001), quoted in the 2001 

10-K and discussed above. 

2. 1/15/02 Press Release 

559. On January 15, 2002, Tyco released its financial results for the quarter ended 

December 31, 2001: 

Tyco . . . reported today that diluted earnings per share for its first 
215 

quarter ended December 31, 2001 were 74 cents, a 17 percent 

increase over pro forma earnings of 63 cents per share for the same 

quarter last year. As required, results for the first quarter of fiscal 

2001 have been restated to reflect the adoption of Staff Accounting 

Bulletin No. 101 (SAB 101) and are presented on a pro forma basis 

to exclude goodwill amortization as a result of the Company’s 

adoption of Statement of Financial Accounting Standards No. 

(SFAS) 142, “Goodwill and Other Intangible Assets.” Revenues 

for the quarter rose 25 percent to $10.1 billion compared with last 

year’s $8.0 billion. Results presented above are before nonrecurring charges and credits, extraordinary items, and, for fiscal 

2001, the cumulative effect of accounting changes. As discussed 

further below and in the accompanying tables, non-recurring 

charges and credits for the first quarter totaled a charge of 

approximately $26 million, before tax, in fiscal 2001. After giving 

effect to such non-recurring items, diluted earnings per share 

before effect of accounting changes and extraordinary were 73 

cents for the first quarter of fiscal 2002, compared to 57 cents in 

the first quarter of fiscal 2001. The guidelines of SFAS 142 do not 

allow for restatement of prior year results. 

560. As the Tyco Defendants either knew or were reckless in not knowing, these 

statements when made were materially false and misleading and omitted material information for 

the reasons set forth above in Section(s) V.A, A.1.a, and A.1.c. 

3. 1/15/02 Conference Call 

561. 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 Tyco Defendants were to 

announce the breakup of Tyco into four separate parts the following week, they 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 80-82¢ per share up roughly 17% 

for the quarter. 

562. Kozlowski also falsely reassured investors and analysts about “rumors” that were 
216 

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 an unfortunate 

part of this business, but here at Tyco we’re very 

willing to discuss anything at all that anybody might 

have . . . . 

As Defendant Kozlowski either knew or was reckless in not knowing, these statements when 

made were materially false and misleading and omitted material information for the reasons set 

forth above in Section(s) V.A, A.l.a, A.1.c, and A.3.

563. 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. 

As Defendant Kozlowski either knew or was reckless in not knowing, these statements when 

made were materially false and misleading and omitted material information for the reasons set 

forth above in Section(s) V.A, A.l.a, and A.1.c. 

564. Similarly, a January 16, 2002 article in The New York Times entitled, “Tyco 

Shares Fall as Investors Show Concern on Accounting,” reported: 
217 

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. 

As Defendant Kozlowski either knew or was reckless in not knowing, these statements when 

made were materially false and misleading and omitted material information for the reasons set 

forth above in Section(s) V.A, A.1.a, A.1.c,. and A.3. 

565. Shortly thereafter, on January 22, 2002, Tyco issued a press release concerning its 

plan to separate into “four independent, publicly traded companies.” The January 22, 2002 press 

release was subsequently filed with the SEC on Form 8-K on January 24, 2002, which was 

signed by defendant Swartz. 

566. 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 
218 

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.” 

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.” 

As the Tyco Defendants either knew or were reckless in not knowing, these statements when 

made were materially false and misleading and omitted material information for the reasons set 

forth above in Section(s) V.A, A.1.a, and A.1.c. 

4. 1/22/02 Conference Call 

567. The Tyco Defendants held a conference call with analysts on January 22, 2002 to 
219 

discuss their plan to break the Company into four separate parts. Defendants Kozlowski and 

Swartz stated as follows: 

KOZLOWSKI: . . . the plan [to break up the company] will release 

value . . . 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 

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 the accounting 

insinuations, allegations, rumors, etc we have had 

over the past few weeks, this has not changed our 
220 

plan ANY nor any level of comfort as far as being 

able to go forward, have these individual financial 

statements and send each of the businesses off with 

extremely strong earnings and cash flows. 

As the Tyco Defendants either knew or were reckless in not knowing, these statements when 

made were materially false and misleading and omitted material information for the reasons set 

forth above in Section(s) V.A, A.1.a, A.l.c, and A.3. 

568. Defendant Kozlowski also went out of his way to assure investors that there were 

no accounting improprieties or cash flow issues at Tyco. For example, Defendant Kozlowski 

stated: 

KOZLOWSKI: . . . we have no liquidity crisis .. . 

* * * 

... 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. 

As the Tyco Defendants either knew or were reckless in not knowing, these statements when 

made were materially false and misleading and omitted material information for the reasons set 

forth above in Section(s) V.A, A.1.a, and A.l.c. 

569. 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: 
221 

You don’t create four new public entities if you have something to 

hide,” says John Inch, analyst at Bear Stearns. 

570. Defendant Kozlowski 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: 

“Crooks are going to be crooks at any company,” Mr. Kozlowski 

said. “But we have executives of very high integrity.” 

As Defendant Kozlowski either knew or was reckless in not knowing, these statements when 

made were materially false and misleading and omitted material information for the reasons set 

forth above in Section(s) V.A, A.1.a, and A.1.c. 

5. 1/28/02 Proxy Statement 

571. On January 28, 2002, the Tyco Defendants filed with the SEC Tyco’s 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. 

a. Management Remuneration 

572. 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 the executives 

was a growth rate in earnings per share before non-recurring items 

of at least 15% over fiscal 2000. The Committee reports that the 
222 

Company achieved each of these benchmarks, reflecting superior 

performance notwithstanding a very difficult business and 

economic environment. 

As the Tyco Defendants either knew or were reckless in not knowing, these statements when 

made were materially false and misleading and omitted material information for the reasons set 

forth above in Section(s) V.B. 

573. The 2002 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 has oversight of the 

administration of executive compensation programs. 

As the Tyco Defendants either knew or were reckless in not knowing, these statements when 

made were materially false and misleading and omitted material information for the reasons set 

forth above in Section(s) V.B. 

574. The 2002 Proxy Statement contains the following specific information concerning 

the compensation of Defendants Kozlowski and Swartz: 

 Annual Compensation (1) Long-Term Compensation 

Name & Principal 

Position Year Salary 

Cash Bonus 

(3) 

Stock 

Bonus (4) 

Other annual 

compensatio

n (5) 

Restricted 

Stock 

Award(S) 

(6) 

Shares 

Underlying 

Stock 

Options 

All Other 

Compensation 

2001 $1,650,000 $4,000,000 $219,543 $30,398,880 1,439,135 $4,313,553 

2000 1,350,000 2,800,000 143,652 21,207,540 5,357,798(8) 383,500 

L. Dennis Kozlowski 

Chairman & Chief 

Executive officer Tyco 

International LTD 1999 1,350,000 3,2000,000 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 
223 

Executive Vice 2000 768,750 1,400,000 171,039 10,603,770 2,692,649(8) 121,448 

President and Chief 

Financial Officer, Tyco 

International LTD 

1999 750,000 1,600,000 63,066 12,029,641 2,976,480 86,948 

As the Tyco Defendants either knew or were reckless in not knowing, these statements when 

made were materially false and misleading and omitted material information for the reasons set 

forth above in Section(s) V.B, B.l.a-b, B.2, B.3, B.4.a-b, B.5, and B.6. 

575. The 2002 Proxy Statement failed to disclose and misrepresented the actual 

compensation of Defendant 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 

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. 

As the Tyco Defendants either knew or were reckless in not knowing, the statements when made 

were materially false and misleading and omitted material information for the reasons set forth 

above in Section(s) V.B, B.l.a, B.2, B.3, B.4.a, B.5, and B.6. 

b. Key Employee Loan Program 

576. 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 
224 

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. 

As the Tyco Defendants either knew or were reckless in not knowing, these statements when 

made were materially false and misleading and omitted material information for the reasons set 

forth above in Section(s) V.B, B.4, and B.5. 

577. 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 

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. 

As the Tyco Defendants either knew or were reckless in not knowing, these statements when 
225 

made were materially false and misleading and omitted material information for the reasons set 

forth above in Section(s) V.B, B.4, B.5, and B.6.f. 

578. In the January 29, 2002 edition of The Wall Street Journal, Tyco disclosed that it 

paid Defendant 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. 

A Tyco press release of that same date quoted Defendant Kozlowski as saying: “The Board felt 

that fee was appropriate in light of Mr. Walsh’s efforts.” As the Tyco Defendants either knew or 

were reckless in not knowing, the statements when made were materially false and misleading 

and omitted material information for the reasons set forth above in Section(s) V.B, and B.6.f. 

579. 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 an environment 

where people are intensely skeptical of corporate 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. 

As Defendant Kozlowski either knew or was reckless in not knowing, these statements when 

made were materially false and misleading and omitted material information for the reasons set 

forth above in Section(s) V.A, A.l.a, A.l.c, and B.6.f. 

580. On January 30, 2002, The New York Times reported that Defendants Kozlowski 

and Swartz had sold stock by returning it to the Company: 

Two senior executives of Tyco International Ltd. quietly disposed 
226 

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.” 

Mt 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. 

As Defendant Kozlowski either knew or was reckless in not knowing, the statements when made 

were materially false and misleading and omitted material information for the reasons set forth 

above in Section(s) V.B, and B.7. 

6. 1/31/02 Analyst Report 

581. On January 31, 2002, J.P. Morgan, reporting materially false and misleading 

information received from the Tyco Defendants, 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. 

582. On February 4, 2002, Defendant Swartz admitted to The Wall Street Journal that 
227 

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. 

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. 

As Defendant Swartz either knew or was reckless in not knowing, these statements when made 

were materially false and misleading and omitted material information for the reasons set forth 
228 

above in Section(s) V.A, A.l.a, and A.1.c. 

7. 2/4/02 Press Release 

583. On February 4, 2002, the Tyco Defendants admitted in a press release that, 

contrary to their 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.16 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.” 

584. As Defendant Kozlowski either knew or was reckless in not knowing, these 

statements when made were materially false and misleading and omitted material information for 

the reasons set forth above in Section(s) V.A, A.l.a, and A.l.c. 

585. In addition to admitting that Tyco’s use of emergency debt would reduce the 

Company’s earnings and free cash flow, Defendant Swartz also admitted that Tyco’s draw-down 

of its emergency backup credit facilities substantially impaired the Company’s credit rating. At 

 

16 The February 4, 2002 press release was filed with the SEC on Form 8-K on February 6, 2002, 

which was signed by defendant Swartz. 
229 

the beginning of Tyco’s conference call on February 6, 2002, Defendant 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 Fl to F2. 

8. 2/6/02 Conference Call 

586. In a conference call on February 6, 2002, the Tyco Defendants announced that it 

was drawing down its bank lines, and attempted to squelch rumors about manipulative 

acquisition accounting. According to Defendant 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 the 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 
230 

concerns us and we’ll walk anybody through any 

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 the 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 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 
231 

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. 

* * * 

 There is no liquidity issue. 

As the Tyco Defendants either knew or were reckless in not knowing, the statements when made 

were materially false and misleading and omitted material information for the reasons set forth 

above in Section(s) V.A, A.l.a, A.1.c, and B.3. 

587. 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.” The February 6, 2002 press release was filed with the SEC 

on Form 8-K on February 8, 2002, which was signed by defendant Swartz. As the Tyco 

Defendants either knew or were reckless in not knowing, this statement when made was 

materially false and misleading and omitted material information for the reasons set forth above 

in Section(s) V.A, A.1.a, and A.1.c. 
232 

9. 2/11/02 Disclosures 

588. 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. 

As the Tyco Defendants either knew or were reckless in not knowing, this statement when made 

was materially false and misleading and omitted material information for the reasons set forth 

above in Section(s) V.A, A.1.a, and A.l.c. 

10. 2/13/02 Conference Call 

589. As part of their ongoing effort to keep investors continually in the dark, the Tyco 

Defendants also held a conference with analysts on February 13, 2002. The Tyco Defendants 

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 
233 

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. 

As the Tyco Defendants either knew or were reckless in not knowing, these statements when 

made were materially false and misleading and omitted material information for the reasons set 

forth above in Section(s) V.A, A.1.a, A.1.c, and B.3. 

590. That same day The New York Times reported that in 30 months, Defendants 

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. 

11. 2/14/02 10-Q 

591. On February 14, 2002, the Tyco Defendants filed Tyco’s Form 10-Q for the 

quarter ended December 31, 2001 (the “2/14/02 10-Q”), signed by Defendant Swartz. In it, the 

Tyco Defendants set out numerous materially false and misleading statements. These false and 

misleading statements addressed a variety of topics, including the following: 

a. Tyco’s Operating Results 

592. The 2/14/02 10-Q also gives favorable, purportedly accurate information 

concerning Tyco’s operating results. For example, the Tyco Defendants provide 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 item and cumulative effect of accounting 

change 1,845.1 1,538.3 

Income taxes (390.5) (525.0) 

Minority interest (0.8) (12.5) 

Income before extraordinary item and cumulative effect 1,453.8 1,000.8 
234 

of accounting change 

Extraordinary item, net of tax (2.8) -- 

Cumulative effect of accounting change, net of tax -- (683.4) 

Net income $1,451.0 $317.4 

As the Tyco Defendants either knew or were reckless in not knowing, these statements when 

made were materially false and misleading and omitted material information for the reasons set 

forth above in Section(s) V.A, A.l.a, and A.1.c. 

593. 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 pretax 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. 

b. Tyco’s Reserves 

594. The 2/14/02 10-Q also gives materially false and misleading information 

concerning Tyco’s reserves, such as: 

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. The 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 
235 

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 millions included in other long-term 

liabilities. 

As the Tyco Defendants either knew or were reckless in not knowing, the statements when made 

were materially false and misleading and omitted material information for the reasons set forth 

above in Section(s) V.A, A.1.a, and A.1.c. 

12. 2/22/02 Boston Globe Article 

595. During this time, Defendant Kozlowski 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. 

As the Tyco Defendants either knew or were reckless in not knowing, the statements when made 

were materially false and misleading and omitted material information for the reasons set forth 
236 

above in Section(s) V.A, A.l.a, A.1.c, and B.3. 

13. 2/26/02 Conference Call 

596. During a weekly conference call on February 26, 2002, Defendant Swartz sought 

to falsely reassure analysts and investors about the propriety of Tyco’s acquisition accounting 

practices. According to Defendant 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. 
237 

597. 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. 

As Defendant Swartz either knew or was reckless in not knowing, these statements when made 

were materially false and misleading and omitted material information for the reasons set forth 

above in Section(s) V.A, A.1.a, and A.1.c. 

14. 2/28/02 New York Times Article 

598. 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. 

* * * 

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. 
238 

“The enforcement division of the S.E.C. specifically inquired into 

the 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. 

As the Tyco Defendants either knew or were reckless in not knowing, these statements when 

made were materially false and misleading and omitted material information for the reasons set 

forth above in Section(s) V.A, A.l.a, A.1.c, and B.3. 

15. 3/5/02 Conference Call 

599. During a weekly conference call on March 5, 2002, Defendant Swartz 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 
239 

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 

proper disclosure for our investors to see the 

performance of our business. 

As Defendant Swartz either knew or was reckless in not knowing, these statements when made 

were materially false and misleading and omitted material information for the reasons set forth 

above in Section(s) V.A, A.1.a, and A.1.c. 

16. 3/10/02 Sun Sentinel Article 

600. 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.” 

As Defendant Kozlowski either knew or was reckless in not knowing, these statements when 

made were materially false and misleading and omitted material information for the reasons set 

forth above in Section(s) V.A, A.1.a, A.1.c, and B.3. 

17. 3/12/02 Conference Call 

601. 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. 

* * * 
240 

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. 

As Defendant Swartz either knew or was reckless in not knowing, these statements when made 

were materially false and misleading and omitted material information for the reasons set forth 

above in Section(s) V.A, A.l.a, and A.1.c. 

18. 3/19/02 Conference Call and Wall Street Journal Article 

602. During the weekly investor call on March 19, 2002, Swartz 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 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 the warrant placement as 

the second most important news story in the global 

business in finance areas today. 

As Defendant Swartz either knew or was reckless in not knowing, these statements when made 

were materially false and misleading and omitted material information for the reasons set forth 

above in Section(s) V.A, A.l.a, A.1.c, and A.5. 

603. On March 19, 2002, an article in The Wall Street Journal entitled “Tyco Inflated 

Cash Flow Of Acquisition” reported that the Company engaged 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-
241 

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.” 

As the Tyco Defendants either knew or were reckless in not knowing, these statements when 

made were materially false and misleading and omitted material information for the reasons set 

forth above in Section(s) V.A, A.1.a, A.1.c., and B.3. 

19. 4/2/02 Conference Call 

604. On April 2, 2002, the Company held yet another conference call in its ongoing 

efforts to provide false assurances concerning Tyco’s accounting practices. Defendant Swartz 

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 
242 

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 more importantly the 

integrity of our numbers. 

As Defendant Swartz either knew or was reckless in not knowing, these statements when made 

were materially false and misleading and omitted material information for the reasons set forth 

above in Section(s) V.A, A.1.a, A.1.c, and B.3. 

20. 4/3/02 Analyst Report 

605. On April 3, 2002, J.P. Morgan, reporting materially false and misleading 

information received from the Tyco Defendants, 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 position for growth. 

* * * 

We find Tyco a compelling investment given its strong collection 

of businesses and attractive valuation. 

21. 4/25/02 Press Release 

606. On April 25, 2002, the Tyco Defendants announced the termination of the 

breakup plan and poor financial results. The press release, which was filed with the SEC on 

Form 8-K on May 1, 2002 and was signed by Defendant Swartz stated:

Pembroke, Bermuda, April 25, 2002-Tyco International Ltd. 

(NYSE: TYC, BSX: TYC, LSE: TI) 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. 

607. The press release also attached a letter from Defendant Kozlowski to all 
243 

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 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. 

As the Tyco Defendants either knew or were reckless in not knowing, these statements when 

made were materially false and misleading and omitted material information for the reasons set 

forth above in Section(s) V.A, A.1.a, A.l.c, and B.3. 

22. 4/25/02 Conference Call 

608. The Tyco Defendants elaborated on their 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 
244 

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 finds. 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 the series of rumors 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 
245 

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. 

As the Tyco Defendants either knew or were reckless in not knowing, these statements when 

made were materially false and misleading and omitted material information for the reasons set 

forth above in Section(s) V.A, A.1.a, A.1.c, and B.3. 

609. 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. As the Tyco Defendants either knew or were reckless in not knowing, this 

statement when made was materially false and misleading and omitted material information for 

the reasons set forth above in Section V.A.1. 

23. 4/30/02 Conference Call 

610. During a conference call on April 30, 2002, Defendant Swartz 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, 
246 

* * * 

We are continuing to run the 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 is the 

right level that people should factor in. 

* * * 

SWARTZ: . . . there is no liquidity issue, for those of you 

looking at next February. 

As Defendant Swartz either knew or was reckless in not knowing, the statements when made 

were materially false and misleading and omitted material information for the reasons set forth 

above in Section(s) V.A.l. 

24. 5/15/02 10-Q for the Quarter Ended 3/31/02 

611. On May 15, 2002, the Tyco Defendants filed Tyco’s Form 10-Q for the quarter 

ended March 31, 2002 (the “5/15/02 10-Q”), signed by Defendant Swartz. In it, the Tyco 

Defendants set out numerous materially false and misleading statements, as evidenced by 

(among other things) the Tyco Defendants’ 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: 

a. Tyco’s Operating Results 

612. The 5/15/02 10-Q also gives favorable, purportedly accurate information 

concerning Tyco’s operating results. For example, the Tyco Defendants provide the following 

summary information: 
247 

TYCO INTERNATIONAL LTD. 

AND CONSOLIDATED 

SUBSIDIARIES 

FOR THE QUARTERS ENDED 

MARCH 31, 

2002 2001 

(LOSS) INCOME BEFORE INCOME TAXES, MINORITY INTEREST 

AND EXTRAORDINARY ITEMS 

(1,803.0) 1,488.1 

Income taxes (97.4) (366.0) 

Minority interest (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 

As the Tyco Defendants either knew or were reckless in not knowing, these statements when 

made were materially false and misleading and omitted material information for the reasons set 

forth above in Section V.A.1. 

613. 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.17 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. 

614. 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): 

 

17 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.
248 

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. 

As the Tyco Defendants either knew or were reckless in not knowing, these statements when 

made were materially false and misleading and omitted material information for the reasons set 

forth above in Section V.A.1. 

b. Tyco’s Reserves 

615. The 5/15/02 10-Q also gives materially false and misleading information 

regarding Tyco’s reserves, such as: 

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 miIlion relating to earn-out 
249 

liabilities) against the reserves established during and prior to this 

six-month period. In addition, during the six months ended March 

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. 

As the Tyco Defendants either knew or were reckless in not knowing, these statements when 

made were materially false and misleading and omitted material information for the reasons set 

forth above in Section V.A.1. 

25. 5/16/02 Conference Call 

616. During a conference call on May 16, 2002, Defendant Swartz 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.” As 

Defendant Swartz either knew or was reckless in not knowing, these statements when made were 

materially false and misleading and omitted material information for the reasons set forth above 

in Section V.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. 

617. 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 
250 

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. Mr. Swartz further stated that the Company’s “financial position as we 

sit right now is stronger than it was a year ago today.” As Defendant Swartz either knew or was 

reckless in not knowing, these statements when made were materially false and misleading and 

omitted material information for the reasons set forth above in Section V.A.1. 

618. 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 can 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. 

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. 

As the Tyco Defendants either knew or were reckless in not knowing, these statements when 

made were materially false and misleading and omitted material information for the reasons set 

forth above in Section V.A.1. 

26. Announcements of Criminal Investigations 

619. The Tyco Defendants announced on June 1, 2002 that Defendant Kozlowski was 
251 

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. 

620. According to the Company’s December Report, the Board was then informed on 

June 1 and June 2, 2002: (i) that Defendant Kozlowski had been aware of the investigation since 

on or about May 3, 2002; (ii) that the Company itself had received a subpoena in connection with 

the investigation; (iii) that the Company had retained counsel to represent itself in the 

investigation; (iv) that the Company’s counsel had met with prosecutors and had furnished 

prosecutors with data and documents; and (v) that it was now expected that Defendant 

Kozlowski would be indicted. 

621. According to the December Report, on June 2, 2002, Tyco requested that the 

Boies firm represent it in connection with negotiating the terms of Defendant Kozlowski’s 

resignation. Those negotiations led to Defendant Kozlowski resigning from the Tyco Board and 

from his position as the Company’s Chief Executive Officer on June 3, 2002. 

622. 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;” 

b. TheStreet.com (June 30, 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): 
252 

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. 

623. 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 art work 

was to be shipped out of New York and therefore not covered by New York State sales tax 

provisions. 

624. 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 
253 

31, 2002. 

625. 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 

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.” 

626. 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. 

627. 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. 

628. That same day, there were also numerous reports that the Manhattan District 
254 

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. 

629. 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.” 

630. 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. 

631. During a conference call held that same day, the last day of the Relevant Period, 

Defendant 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. 

* * * 
255 

. . . 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. 

VII. POST-RELEVANT PERIOD EVENTS 

632. On June 10, 2002, Tyco announced that it had fired its Chief Corporate Counsel 

Belnick because it had lost confidence in Belnick’s willingness and ability to conduct a fair 

investigation of company executives, including Belnick himself. 

633. 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 

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 “shortcomings in corporate 

governance.” Fitch warned that it may cut the long-term rating again. “It maybe 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. 

634. 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 
256 

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. 

635. 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. 

“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 

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

businessman said. 

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

Southern District of New York, alleging that Defendant 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. 

637. 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. 

638. In addition to being sued by the Company, Walsh was criminally charged by the 
257 

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. 

639. 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. 

640. 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 yearend 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.” 

641. 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. 

642. 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 
258 

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. 

643. 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. 

644. According to the Enterprise Corruption Indictment, Kozlowski and Swartz 

exercised control over Tyco’s flow of information and funds by: (i) granting themselves “excess 

compensation in the form of improper bonuses; (ii) forgiving the payment of personal expenses 

and unapproved loans; and (iii) concealing these payments from the Company’s shareholders. 
259 

The indictment also 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.” 

645. The Enterprise Corruption Indictment charges that Kozlowski and Swartz 

concealed from Tyco’s shareholders that: (i) tens of millions of dollars worth of payments and 

forgiven loans were made to Tyco executives; (ii) tens of millions of dollars worth of credit lines 

and loans were given to Tyco executives; (iii) Kozlowski and Swartz sold substantial amounts of 

Tyco stock to Tyco; (iv) Tyco’s reported earnings were artificially inflated; (v) Tyco executives 

used corporate resources to fund personal ventures and property acquisitions; (vi) Tyco 

purchased properties from members of Tyco’s Board; and (vii) Tyco gifted residences, money, 

and other property to employees. 

646. 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. 

647. 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 
260 

since 1997 and the forfeiture of all his severance pay. 

648. 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. 

649. Kozlowski also abused Tyco’s KEL Program, 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. 

650. On September 12, 2002, the SEC filed an action against Kozlowski and Swartz 

for fraud, making false and misleading proxy statements, fraudulent stock sales, reporting 

violations, and record-keeping violations. 

651. On December 6, 2002, Tyco filed an action pursuant to 15 U.S.C. § 78p(b) 

against Kozlowski and Swartz to recover over $40 million in short-swing trading profits they 

made on the sale of Tyco stock between August 1, 2000 and April 26, 2002. 

652. 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. 

653. Walsh’s case was the first of the criminal cases brought by the New York County 

District Attorney involving Tyco executives to be resolved. On December 17, 2002, Walsh 
261 

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. 

VIII. ADDITIONAL SCIENTER ALLEGATIONS 

A. Insider Selling During the Relevant Period 

654. While the Tyco Defendants were issuing materially false favorable statements 

about the Company’s financial condition and business prospects, and concealing or obscuring 

negative information, the Individual Defendants, who had access to confidential information and 

were aware of the truth about the Company and its financial condition, were benefiting 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. The numerous and repeated insider sales of Tyco common stock by the Individual 

Defendants imposed upon them an additional duty of full disclosure of all of the material facts 

alleged in this complaint. 

655. The following table shows the heavy insider selling (totaling more than $691 

million) by the Individual Defendants during the Relevant Period: 

INDIVIDUAL DEFENDANTS’ RELEVANT PERIOD 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 
262 

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 

L. DENNIS KOZLOWSKI CEO,P,CB,OD 09/11100 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 58.3 5,027,383.90 

L. DENNIS KOZLOWSKI CEO,P,CB,OD 09/14/00 86,233.00 58.3 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 62.8 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 8,284,947.0 $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 

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 62.8 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 4,196,423.0 $231,287,225.69 

 

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 12/18/0I 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
263 

Total Insider Selling by 

Individual Defendants 12,531,460.00 $691,771,283.94 

656. 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, Plaintiff 

estimates that the proceeds exceed $65 million. 

657. 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 

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, Plaintiff 

estimates that the proceeds exceed $38 million. 

658. According to a February 13, 2002 article in The New York Times, although 

Defendants 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, Defendants 

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 
264 

thirteen months. 

659. 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. 

Defendants 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 

during the Relevant Period, and while secretly pocketing $105 million from the Undisclosed 

Insider Sales alone. Indeed, Defendants Kozlowski and Swartz even received new stock options 

from the Company to replace the Tyco shares they sold through the Undisclosed Insider Sales. 

660. Furthermore, the Company’s incentive plan (the “Plan”) for additional payments 

to Defendants Kozlowski and Swartz was directly tied to the Company’s reported earnings 

growth and free cash flow. Under the Plan and during the Relevant Period, 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 Defendants Kozlowski and Swartz was based on, inter alia, (i) an increase in 

earnings for the Company, and (ii) an improvement in operating cash flow for the Company. 
265 

Tyco’s 2001 Proxy Statement also explicitly admitted that Defendants 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 nonrecurring items of at least 15% over fiscal 2000. 

As such, compensation to Kozlowski and Swartz under Tyco’s incentive plan was inextricably 

linked to the Tyco Defendants’ materially false and misleading statements during the Relevant 

Period. This linkage is highly probative of the Tyco Defendants’ motive and opportunity to 

commit securities fraud. 

B. Tyco’s $40 Billion in Public Stock Offerings During the Relevant Period 

661. The Tyco Defendants’ scienter is also established by virtue of their efforts during 

the Relevant Period to issue hundreds of millions of shares of common stock to pay, in whole or 

part, for the Company’s more than $40 billion in acquisitions during the fiscal years 1999 

through 2002. These transactions using Tyco’s artificially inflated common stock as currency 

constitute insider trading on a massive scale. 

IX. INAPPLICABILITY OF STATUTORY SAFE HARBOR 

662. 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 nor does the safe harbor 
266 

apply to false or misleading statements that are made in connection with the Company’s offering 

of securities and/or are contained in financial statements that purport to have been prepared in 

accordance with GAAP. 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 forwardlooking statements pleaded herein, Defendants are liable for those false forward-looking 

statements because at the time each of those statements was made, the particular speaker 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. 

663. 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. 

X. PLAINTIFF’S RELIANCE ON DEFENDANTS’ 

FALSE AND MISLEADING STATEMENTS 

664. At all relevant times, Colorado PERA reasonably relied upon the Defendants to 

disclose material information as required by law and in the Company’s SEC filings. Plaintiff 

would not have purchased or otherwise acquired Tyco securities at artificially inflated prices if 

the Defendants had disclosed all material information as required. Thus, to the extent 

Defendants wrongfully failed to disclose material information, Plaintiff is presumed to rely on 

Defendants’ omissions as established by the Supreme Court in Affiliated Ute Citizens v. United 
267 

States, 406 U.S. 128 (1972). 

665. Furthermore, 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. The common stock of Tyco met 

the requirements for listing, and was listed and traded on the NYSE, a highly developed and 

efficient market, under the ticker symbol “TYC.” During the Relevant Period, 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. Plaintiff relied on the integrity of the market price of Tyco’s 

securities. Based upon the foregoing, Plaintiff is entitled to a presumption of reliance upon the 

integrity of the market for the ultimate proof of their claims on the merits. 

666. Plaintiff will also rely, in part, upon Plaintiff’s actual reliance upon the 

Defendants’ false and misleading statements and omissions. 

XI. LOSS CAUSATION 

667. Plaintiff was damaged as a result of Defendants’ fraudulent conduct set forth 

herein. Throughout the Relevant Period, as detailed above, the prices of the Company’s 

securities were artificially inflated as a direct result of Defendants’ misrepresentations and 

omissions regarding the Company. When the truth about the Company was partially revealed to 

the market beginning in January 2002 and continuing throughout the Relevant Period, the 
268 

inflation that had been caused by Defendants’ misrepresentations and omissions was eliminated 

from the price of the Company’s securities, causing significant damages to Plaintiff. 

668. A chart depicting the Company’s stock price during the Relevant Period is 

attached hereto as Exhibit F. The price of Tyco’s common stock was at $31.00 on the first day 

of the Relevant Period (December 13, 1999). Thereafter, while Defendants repeatedly failed to 

disclose material information, the price steadily rose and stayed in the $50s for much of the 

Relevant Period - - reaching a Relevant Period high of $59.76 on December 5, 2001. On January 

29, 2002, the day after the 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 the Tyco Defendants 

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, on 

June 3, 2002 Tyco shares fell $5.90 to close at $16.05 on news that Defendant Kozlowski (i) was 

the target of a criminal investigation being undertaken by the New York District Attorney into 

possible violations of state sales tax laws, and (ii) was resigning as the CEO of Tyco. Finally, on 

June 7, 2002, Tyco stock fell to a six-year low, down $4.50 to $10.10 per share, on news that: (i) 

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 art and homes; (ii) S&P and 

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; (iii) the sale of CIT was delayed by the SEC 

while its fraud investigation continues; and (iv) Tyco confirmed that it was launching its own 

“comprehensive internal investigation” into Kozlowski’s and other executives’ use of company 

funds. 
269 

XII. APPROPRIATENESS OF GROUP PLEADING 

AS TO THE INDIVIDUAL DEFENDANTS 

669. It is appropriate to treat the Individual Defendants as a group for pleading 

purposes and to presume that the false, misleading, and incomplete information conveyed in the 

Company’s public filings, press releases, and other publications as alleged herein are the 

collective actions of the narrowly defined group of Individual Defendants identified above. Each 

of the Individual Defendants, by virtue of his high-level-position with the Company, directly 

participated in the management of the Company, was directly involved in the day-to-day 

operations of the Company at the highest level and was privy to confidential proprietary 

information concerning the Company and its business, operations, prospects, growth, finances, 

and financial condition as alleged herein. The Defendants were involved in drafting, producing, 

reviewing, approving, and/or disseminating the materially false and misleading statements and 

information alleged herein (including SEC filings, press releases, and other publications), were 

aware of or recklessly disregarded that materially false or misleading statements were being 

issued regarding the Company, and nonetheless approved or ratified these statements in violation 

of the federal securities laws. 

670. As officers, directors, and controlling persons of a publicly held company whose 

common stock was, and is, registered with the SEC, traded on the NYSE, and governed by the 

provisions of the federal securities laws, the Individual Defendants each had a duty to promptly 

disseminate accurate and truthful information with respect to the Company’s financial condition 

and performance, growth, operations, financial statements, business, earnings, management, and 

present and future business prospects, and to correct any previously-issued statements that had 

become materially misleading or untrue, so that the market price of the Company’s publiclytraded securities would be based upon truthful and accurate information. The Individual 
270 

Defendants’ misrepresentations and omissions during the Relevant Period violated these specific 

requirements and obligations. 

671. The Individual Defendants participated in the drafting, preparation, and/or 

approval of the various public and shareholder and investor reports and other communications 

concerning Tyco that are complained of herein and were aware of, or recklessly disregarded, the 

misstatements contained therein and the omissions thereto, and were aware of their materially 

false and misleading nature. Because of their positions with Tyco, each of the Individual 

Defendants had access to adverse undisclosed information about Tyco’s business prospects and 

financial condition and performance as particularized herein, and knew (or recklessly 

disregarded) that these adverse facts rendered the statements complained of herein materially 

false and misleading. 

672. The Individual Defendants, because of their positions of control and authority as 

officers and controlling persons of the Company, were able to and did control the content of the 

various SEC filings, press releases, and other public statements pertaining to the Company 

during the Relevant Period. Each of these Defendants were provided with copies of the 

documents alleged herein to be misleading prior to or shortly after their issuance and/or had the 

ability and/or opportunity to prevent their issuance or cause them to be corrected. Accordingly, 

each of these Defendants is responsible for the accuracy of the public reports, releases, and 

statements detailed herein and is therefore primarily liable for the representations contained 

therein. 

XIII. THE INDIVIDUAL DEFENDANTS’ CONTROL OVER TYCO 

673. The Individual Defendants were at all relevant times during the Relevant Period 

controlling persons of Tyco within the meaning of Section 15 of the Securities Act and Section 

20(a) of the Exchange Act. Because of the Individual Defendants’ positions with the Company, 
271 

they had access to undisclosed adverse information about its business, operations, balance sheets, 

accounting policies, operational trends, financial condition, and present and future business 

prospects through, among other ways, access to internal corporate documents (including the 

Company’s operating plans, budgets, forecasts and reports of actual operations compared 

thereto), conversations and connections with other corporate officers and employees, attendance 

at management meetings and meetings of the board and committees thereof, and through reports 

and other information provided to them in connection therewith. 

674. By virtue of their roles as members of the Board and/or as the Company’s 

highest-ranking executives, Defendants Kozlowski, Swartz, and Walsh were “control persons” of 

Tyco as that term is utilized in § 20(a) of the Exchange Act and § 15 of the Securities Act. 

675. Defendant Kozlowski was able to exercise control over Tyco’s operations because 

he was the Company’s highest-ranking executive. As a result, Kozlowski served as the 

Company’s primary voice in all press releases and interviews and actively participated in the 

day-to-day management of Tyco’s affairs. He was also principally responsible for making 

decisions regarding the compensation received by Tyco’s officers, including himself and the 

other Individual Defendants. 

676. Defendant Swartz was able to exercise control over Tyco’s operations because he 

was the Company’s highest-ranking financial officer at the time Plaintiff purchased Tyco 

securities. As a result, he was intimately involved in all aspects of the day-to-day management 

of Tyco’s operations and the misrepresentations and omissions concerning the Company’s 

operations, financial results, and compensation plans that are the subject of Plaintiff’s claims. 

Swartz also prepared the Company’s false and misleading financial statements, participated in 

the drafting of the Company’s financial disclosures, supervised and drafted material portions of 
272 

the Company’s SEC filings, and signed certain of the SEC filings described herein. 

677. As Tyco’s “lead director,” Walsh served as the primary liaison between Tyco’s 

management and the Company’s independent directors. Walsh also served as a member of the 

Board’s Corporate Governance, Nominating, and Compensation Committees. Through these 

various positions, Walsh was actively involved in the management of Tyco and had the ability to 

exercise control over Tyco’s operations. 

XIV. THE INDIVIDUAL DEFENDANTS’ USE OF ANALYSTS 

AS A CONDUIT TO DISSEMINATE FALSE AND 

MISLEADING INFORMATION ABOUT TYCO 

678. The Individual Defendants provided guidance to securities analysts and used 

misleading information to the securities markets. Tyco was followed by securities analysts 

employed by brokerage firms that throughout the Relevant Period reported information provided 

to them by the Individual Defendants and made recommendations concerning the Company’s 

securities based on the information provided by the Individual Defendants. 

679. Prior to and during the Relevant Period, it was the Company’s frequent practice to 

have its top officers and key members of its management team, including the Individual 

Defendants, communicate regularly with securities analysts at the firms identified above (among 

others) on a regular basis to discuss, among other things, the Company’s financial results, and to 

provide detailed guidance to these analysts with respect to the Company’s business. These 

communications included, but were not limited to, conference calls, meetings, analyst briefings, 

and investor conferences where the Individual Defendants discussed relevant aspects of the 

Company’s operations and financial prospects on, among others, the following dates: January 18, 

2000, April 18, 2000, June 28, 2000, July 19, 2000, October 24, 2000, November 14, 2000, 

January 17, 2001, March 13, 2001, April 18, 2001, May 30, 2001, July 18, 2001, August 3, 2001, 

September 11, 2001, October 18, 2001, November 15, 2001, January 15, 2002, January 22, 2002, 
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February 6, 2002, February 13, 2002, February 26, 2002, March 5, 2002, March 12, 2002, March 

19, 2002, April 2, 2002, April 25, 2002, April 30, 2002, May 16, 2002, and June 7, 2002. The 

Individual Defendants knew that by participating in these regular and direct communications 

with analysts, the Company disseminated information to the investing community, and that 

investors relied and acted on such information by purchasing and selling the Company’s 

securities. 

680. Many of the analyst reports issued during the Relevant Period were remarkably 

similar or reported substantially the same facts after meetings with the Company. This confirms 

that the information contained in analyst reports came from Tyco and the Individual Defendants. 

681. The Individual Defendants engaged in the above-referenced communications with 

analysts to cause or encourage them to issue favorable reports concerning Tyco, and used these 

communications to present the operations and prospects of Tyco to the marketplace in a falsely 

favorable light to artificially inflate the market price of Tyco securities. Tyco also endorsed the 

reports of analysts, adopted them as its own, and placed its imprimatur on them as well as on the 

projections, forecasts, and statements contained therein, as set forth in more detail below. 

Despite their duty to do so, the Individual Defendants failed to correct these statements during 

the Relevant Period. 

682. The investment community, and in turn investors, relied and acted on the 

information communicated in these written reports that recommended that investors purchase 

Tyco securities. The Individual Defendants manipulated and inflated the market price of Tyco 

securities by falsely presenting to analysts, through regular meetings, and during both telephonic 

and written communications, the prospects of the Company, as well as by failing to disclose the 

true adverse information about the Company that was known only to them. 
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XV. NEW JERSEY RICO ALLEGATIONS 

683. Plaintiff brings claims against all Tyco Defendants pursuant to the New Jersey 

RICO Statute, N.J.S.A. 2C:41-1, et seq. Through the misconduct described in detail above, the 

Tyco Defendants engaged in a pattern of racketeering activity, as that term is defined in N.J.S.A. 

2C:41-1. Plaintiff was damaged as a proximate result of Defendants’ schemes, and the Tyco 

Defendants are liable therefore, under the New Jersey RICO Act, as alleged below. 

A. Tyco Defendants’ Pattern of Racketeering Conduct 

684. The predicate acts constituting the Tyco Defendants’ pattern of racketeering 

activity shared common purposes, results, participants, victims, and methods. In addition, as set 

forth above, they were carried out during an extended period of time and were interrelated by 

distinguishing characteristics and were not disconnected or isolated acts. They were oriented 

toward common goals, objectives and schemes, including (i) the artificial and fraudulent 

inflation of Tyco’s reported earnings; (ii) the artificial and fraudulent inflation of Tyco’s stock 

price; (iii) Tyco’s acquisition of other companies, in part, through the exchange of its artificially 

and fraudulently priced stock for the ownership of these companies; (iv) enabling Tyco to 

compensate its employees with the artificially and fraudulently inflated stock; and (v) the 

enrichment of Kozlowski, Swartz, and Walsh through unauthorized compensation and financial 

benefits. 

685. Each Defendant under this count committed at least two predicate acts of 

racketeering conduct during the Relevant Period, which lasted from at least 1997 to at least 2002. 

1. Theft and Violations of Chapter 20 

of Title 2C of the New Jersey Statutes 

686. The Individual Defendants engaged in theft and theft by deception, in violation of 

N.J.S.A. 2C:20-3 and -4, by wrongfully and intentionally obtaining millions of dollars of income 
275 

and property from Tyco to which they knew they were not lawfully entitled. As is set forth at 

length above, in violation of N.J.S.A.2C:20-4, Defendants concealed their wrongful activities 

through, among other things, their misleading accounting practices, and created and reinforced 

numerous false impressions regarding illicit income and financial benefits that they received. 

The Individual Defendants also prevented others from acquiring information that would affect 

their judgment of the particular transactions involved, failed to correct false impressions that they 

had created or reinforced with regard to those transactions and failed to correct false impressions 

held by Tyco’s shareholders, even though they knew that such impressions influenced Tyco’s 

shareholders, and even though, as employees, officers and/or directors of Tyco, they stood in a 

fiduciary relationship to the company and its shareholders, including Plaintiff. Such actions 

constitute racketeering activity under N.J.S.A. 2C:41-la. (l)(n). 

687. The Individual Defendants engaged in theft and theft by deception by, among 

other means, engaging in schemes (i) to abuse the Company’s “relocation loans” program and 

KEL Programs; (ii) to pay themselves secret, unapproved bonuses; (iii) the payment of the secret 

Walsh finder’s fee; (iv) selling stock to the Company at artificially inflated prices; and (v) other 

fraudulent schemes detailed herein in Section(s) V.A and V.B detailing Defendants’ looting of 

the Company. 

688. The Individual Defendants substantially assisted, cooperated, and participated 

with one another in the perpetration of these thefts by orchestrating them and by aiding and 

abetting in their concealment through improper and misleading accounting practices and 

misrepresentations and omissions contained in Tyco’s disclosures to shareholders and SEC 

filings. 
276 

2. Fraudulent Practices and Violations of Chapter 

21 of Title 2C of the New Jersey Statutes 

689. As is set forth more fully above, the Individual Defendants also engaged in 

various fraudulent practices for both self-enrichment and to artificially inflate the market price of 

Tyco stock and assisted one another in the perpetration of their fraud. Such actions are alleged 

more fully above, and in the RICO causes of action alleged herein, and include the fraudulent 

concealment of “relocation” loans, the unauthorized Walsh bonus, the TyCom Bonus (which was 

improperly concealed by being accounted for, in part, as an offering expense and booked against 

two reserve accounts), the ADT acquisition bonuses (also improperly offset against the unrelated 

gain accrued by Tyco on the disposition of the ADT Automotive business), the improper 

undervaluation of Flag Telecom stock in order to accelerate vesting of shares of restricted Tyco 

stock owned by Kozlowski and Swartz, the concealment of Kozlowski’s abuse of the KEL 

Program loans in Tyco’s SEC filings, the concealment of Belnick’s side agreement guaranteeing 

an annual cash bonus at least equal to one-third of Kozlowski’s, the concealment of Belnick’s 

year 2000 compensation in Tyco’s 2001 Proxy Statement and other SEC filings, the concealment 

of the true terms of Belnick’s Retention Agreement, the concealment of income received by 

Kozlowski and Swartz through improper transactions with Tyco and Tyco’s payment of various 

personal expenses incurred by them. Such actions constitute “fraudulent practices” under 

N.J.S.A. 2C:41-la.(l)(o). 

690. In addition, as is set forth more fully in the RICO causes of action alleged herein, 

such actions were intended to constitute false statements of material fact or omissions of material 

fact, to be relied upon by Tyco’s shareholders, including Plaintiff, were reasonably relied upon 

by Tyco’s shareholders, including Plaintiff insofar as, had they known the truth, they would have 

sold or not purchased their Tyco stock in light of, at the very least, the rampant and manifest 
277 

corruption of the Individual Defendants and the Company’s inadequate oversight of the 

Individual Defendants. Such acts of fraudulent concealment constitute racketeering activity 

under N.J.S.A. 2C:41 -la.(l)(o). 

691. As set forth more fully above, Tyco also engaged in fraudulent disclosures and 

accounting practices in order to artificially inflate its earnings and the market price of its stock. 

Such actions constitute “fraudulent practices” and racketeering activity under N.J.S.A. 2C:41 - 

la.(l)(o). 

692. In addition, as is set forth more fully above and in the RICO causes of action, 

such actions constituted racketeering activity under N.J.S.A. 2C:41-la.(l)(o). Both the Individual 

Defendants and Tyco made numerous false and misleading written statements, in the form of 

press releases, Proxy Statements, Annual Reports and disclosure filings, for the purpose of 

promoting the sale of securities and omitted information required by law to be disclosed in 

written documents relating to said securities, in violation of N.J.S.A.2C:2 1-7(i). Such actions 

constitute racketeering activity under N.J.S.A.2C:41-la. (l)(o). 

3. Use of Tyco to Further 

and Promote Criminal Objects 

693. The Individual Defendants purposely and knowingly used, controlled, and 

operated Tyco for the furtherance and promotion of numerous criminal objects, in violation of 

N.J.S.A.2C:21-9(c). Such actions included the thefts and fraudulent practices set forth in more 

detail above. Such actions constitute racketeering activity under N.J.S.A. 2C:41-la.(l)(o). 

4. Securities Violations 

694. As set forth at length herein, the Tyco Defendants committed fraud in the 

offering, sale, and purchase of securities. Such actions constitute racketeering activity under 

N.J.S.A. 2C:41-la.(l)(p). In particular, as is alleged in detail herein, the Tyco Defendants 
278 

violated § 10(b) of the Exchange Act and Sections 11 and 12 of the Securities Act; and the 

Individual Defendants violated Sections 20(a) and 20A of the Exchange Act and Section 15 of 

the Securities Act. 

695. In addition, the Tyco Defendants offered, purchased, or sold securities in violation 

of N.J.S.A. 49:3-7 1, as is alleged more fully above and in the RICO Counts alleged herein, by 

offering and selling those shares (i) by employing devices, schemes and artifices to defraud; and 

(ii) by engaging in acts, practices, and courses of business that operated as a fraud and deceit, 

and, with respect to the Individual Defendants, by virtue of their status as control persons and as 

officers or directors of Tyco. Such actions constitute racketeering activity under N.J.S.A. 

2C:41-la. (l)(p). 

5. Mail and Wire Fraud 

696. Defendants committed mail fraud and wire fraud in violation of 18 U.S.C. § 1341 

and § 1343, respectively. Among other things, the Tyco Defendants committed wire fraud by 

causing numerous documents to be filed with the SEC, knowing that they contained materially 

false and misleading statements using the SEC’s EDGAR system. The Tyco Defendants also 

committed mail fraud by causing the numerous materially false and misleading disclosures 

contained in Press Releases, Proxy Statements, and Annual Reports, as set forth above, to be 

mailed to Tyco’s shareholders. In addition, Tyco’s policy was to mail SEC filings to any 

shareholder or potential investor who requested them. As set forth above, those filings contained 

materially false and misleading statements. Such actions constitute racketeering activity under 

N.J.S.A. 2C:41-la.(2). 

697. These acts of wire fraud and mail fraud were made with the knowledge, approval 

or acquiescence of each of the Tyco Defendants. 

698. In addition, in connection with the insider sales of the Tyco stock owned by the 
279 

Individual Defendants set forth above, the Defendants made telephonic or wire instructions to 

initiate the sales on or about the dates of such sales. When giving those instructions, the 

Defendants failed to disclose adverse material information about Tyco that was in their 

possession. With respect to each of these transactions, the Individual Defendants caused the 

proceeds of the sales to be transferred to them by wire or other electronic means. Though they 

knew that these proceeds were generated through fraudulent means, the Individual Defendants 

failed to disclose said adverse material information. 

699. The Individual Defendants engaged in such conduct in order to enrich themselves 

at the expense of Tyco investors, including Plaintiff. Each of the instructions to sell shares in 

Tyco and transfers of the proceeds of those sales to the Individual Defendants constitutes a 

separate act of wire fraud and of fraud in the offering, sale, or purchase of securities. Such 

actions constitute racketeering activity under N.J.S.A. 2C:41-la.(2) and under N.J.S.A. 2C:41-la. 

(l)(p). 

B. Tyco Defendants’ Violations of the New Jersey RICO Act 

700. The Tyco Defendants violated the New Jersey RICO Act in a number of ways, 

which are set forth more fully below. 

701. By way of summary, the Tyco Defendants conducted or participated, directly or 

indirectly, in the conduct of the affairs of two distinct enterprises as defined herein, which were 

engaged in or whose activities affected commerce or trade in New Jersey, through a pattern of 

racketeering activity, as set forth in the previous sections. In connection therewith, among other 

things, (i) the Individual Defendants’ embezzlement was effectuated and concealed, (ii) Tyco’s 

reported earnings were fraudulently increased, and (iii) the market price of Tyco’s stock was 

artificially and fraudulently inflated. Such activities violated N.J.S.A. 2C:41-2(c). 

702. In addition, using income derived from racketeering activity and/or through a 
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pattern of racketeering activity, Tyco and/or an association in fact of Tyco and the Individual 

Defendants acquired and/or acquired control over numerous other business entities, including but 

not limited to ADT Automotive, Flag Telecom, Carlisle Plastics, U.S. Surgical Corp., Keystone 

International, Inc., Raychem Corp., Mallinckrodt and CIT (collectively “the Acquired 

Companies Enterprises”), each of which constituted enterprises under N.J.S.A. 2C:41-lc, and 

which engaged in commerce or trade in New Jersey. Such actions violated N.J.S.A. 2C:41-2(a) 

and (b). 

703. Tyco’s acquisitions of said entities contributed to and perpetuated the artificial 

and fraudulent inflation of the price of Tyco’s stock via the acquisitions scheme set forth in 

Section V.A. The acquisitions were part of Tyco’s false method of increasing earnings, as is 

described more fully above, through accounting machinations to artificially inflate Tyco’s 

earnings in the post-acquisition periods. 

704. Not only was the fraudulent increase in the market price of its stock a benefit per 

se to Tyco, but Tyco also benefited from the fraudulent increase in the market price of its stock 

because the stock was used by the Company to fund various activities that served Tyco’s 

interests, including, among other things: (i) using the stock to acquire other companies; and (ii) 

compensating officers and employees with stock and stock options the value of which were 

artificially and fraudulently inflated. 

705. The Individual Defendants benefited from these activities because (i) their 

embezzlement was concealed; (ii) their ability to continue pillaging Tyco was preserved; (iii) 

they were enriched by the fraudulent and artificial inflation in the price of Tyco stock due to their 

ownership of shares of Tyco stock; and (iv) the fraudulent inflation of Tyco’s ostensible earnings 

entitled the Individual Defendants to enhanced compensation based on Tyco’s compensation 
281 

incentives program. 

C. Plaintiff’s Injuries Arising From Tyco Defendants’ 

Violations of the New Jersey RICO Act 

706. Plaintiff was injured by the Tyco Defendants’ violations of the New Jersey RICO 

Act because such violations resulted in, preserved, and perpetuated the artificial and fraudulent 

inflation of the market price of Tyco stock that Plaintiff purchased, acquired, or held during the 

Relevant Period. 

707. Plaintiff was injured by Tyco’s investments in various other enterprises because 

they contributed to and perpetuated the artificial inflation of the price of Tyco stock owned or 

purchased by Plaintiff and contributed to the false impression that Tyco’s strategy of pursuing 

earnings growth through acquisitions was more successful than it actually was. The Tyco 

Defendants’ violations of the New Jersey RICO Act directly caused injury to Plaintiff because, 

among other things, they caused Plaintiff to tender shares of stock owned by Plaintiff in 

Mallinckrodt, CIT Group, Scott Technologies, and Sensormatic in exchange for shares of falsely 

inflated Tyco stock in connection with Tyco’s acquisitions of these entities. Plaintiff suffered 

significant losses as a result of these violations. 

708. Plaintiff would not have purchased their shares of Tyco stock at the prices at 

which they were purchased, would have sold its Tyco stock without suffering the massive losses 

that they eventually suffered or would otherwise have avoided those losses if the Tyco 

Defendants had not engaged in the conduct alleged herein. 

XVI. CAUSES OF ACTION 

COUNT I 

(AGAINST TYCO, KOZLOWSKI, SWARTZ, WALSH, AND PWC FOR VIOLATION 

OF SECTION 10(B) OF THE 1934 ACT AND RULE 10B-5) 

709. Plaintiff repeats and realleges each and every allegation above as if set forth in 
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full herein. 

710. This Count is brought by Plaintiff against Defendants Tyco, Kozlowski, Swartz, 

Walsh, and PwC for violations of Section 10(b) of the 1934 Act and Rule 10b-5 promulgated 

thereunder. 

711. During the Relevant Period, Defendants carried out a scheme, plan, and course of 

conduct that was intended to and, throughout the Relevant Period, did: (i) deceive the investing 

public, including Plaintiff; (ii) artificially inflate and maintain the market price of Tyco 

securities; and (iii) cause Plaintiff to purchase or otherwise acquire Tyco securities at inflated 

prices. In furtherance of this unlawful scheme, plan, and course of conduct, Defendants took the 

actions set forth herein. 

712. Defendants: (i) employed devices, schemes, and artifices to defraud; (ii) made 

untrue statements of material fact and/or omitted to state material facts necessary to make the 

statements made not misleading; and/or (iii) 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. Defendants are sued either as primary participants in the wrongful and illegal 

conduct charged herein or as controlling persons as alleged below. 

713. In addition to the duties of full disclosure imposed on Defendants as a result of 

their making affirmative statements and reports, or participation in the making of affirmative 

statements and reports to the investing public, they 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 
283 

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. 

714. Defendants, individually and in concert, by the use of means and instrumentalities 

of interstate commerce and/or the mail, 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. Defendants 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 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. 

715. The Individual Defendants’ primary liability arises from the following facts: (i) 

they were high-level executives and directors of the Company during the Relevant Period and 

were members of the Company’s management team; (ii) by virtue of their responsibilities and 

activities as senior officers of the Company, they were privy to and participated in the drafting, 

reviewing, and/or approving the misleading statements, omissions, releases, reports, and other 

public representations of and about Tyco, and/or signed the Company’s public flings with the 

SEC, which public filings contained the allegedly materially misleading statements and 
284 

omissions; (iii) they knew or had access to the material adverse non-public information about the 

financial results of Tyco which were not disclosed; and (iv) they were aware of the Company’s 

dissemination of information to the investing public which they knew or recklessly disregarded 

was materially false and misleading. 

716. Each of the Defendants had actual knowledge of the misrepresentations and 

omissions of material facts set forth herein; or acted with reckless disregard for the truth in that 

they failed to ascertain and to disclose such facts, even though such facts were available to them. 

Defendants’ 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 Defendants’ statements throughout the Relevant Period, if 

they did not have actual knowledge of the misrepresentations and omissions alleged, they were 

reckless in failing to obtain such knowledge by deliberately refraining from taking those steps 

necessary to discover whether those statements were false or misleading. 

717. As a result of the dissemination of the materially false and misleading information 

and/or Defendants’ failure to disclose material facts, as set forth herein, the market price of Tyco 

securities was artificially inflated at all times during the Relevant Period. 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 

Defendants, 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 Defendants but not disclosed in public statements by such 
285 

Defendants during the Relevant Period, Plaintiff purchased or otherwise acquired for value Tyco 

securities during the Relevant Period at artificially high prices and was damaged as the truth 

regarding Tyco emerged to the market. 

718. At the time of such misstatements and omissions, Plaintiff was ignorant of their 

falsity, and believed them to be true. Had Plaintiff and the marketplace known of the true 

financial condition of the Company, which was not disclosed by Defendants, Plaintiff would not 

have purchased or otherwise acquired Tyco securities during the Relevant Period, or, if Plaintiff 

had purchased or otherwise acquired such securities during the Relevant Period, Plaintiff would 

not have done so at artificially inflated prices. 

719. By virtue of the foregoing, the Defendants named in this count violated Section 

10(b) of the 1934 Act, and Rule 10b-5 promulgated thereunder. 

720. As a direct and proximate result of Defendants’ wrongful conduct, Plaintiff 

suffered damages. 

COUNT II 

(AGAINST KOZLOWSKI, SWARTZ, AND WALSH 

FOR VIOLATION OF SECTION 20(a) OF THE 1934 ACT) 

721. Plaintiff repeats and realleges each and every allegation above as if set forth in 

full herein. 

722. This Count is brought by Plaintiff against Defendants Kozlowski, Swartz, and 

Walsh for violation of Section 20(a) of the 1934 Act, 15 U.S.C. § 78t. 

723. Each of the Individual Defendants acted as a controlling person of Tyco within 

the meaning of Section 20(a) of the 1934 Act, as alleged herein. By virtue of their executive 

positions, and/or position on the Company’s Board of Directors, each had the power to influence 

and control and did influence and control, directly or indirectly, the decision-making of the 

Company, including the content and dissemination of the various statements that Plaintiff 
286 

contend are materially false and misleading. The Individual Defendants were provided with or 

had unlimited access to copies of the Company’s internal reports, press releases, public filings, 

and other statements alleged by Plaintiff to be misleading prior to and/or shortly after these 

statements were issued and had the ability to prevent the issuance of the statements or cause the 

statements to be corrected. 

724. In particular, each of the Individual Defendants had direct involvement in the dayto-day operations of the Company and, therefore, are presumed to have had the power to control 

or influence the particular transactions giving rise to the securities violations as alleged herein, 

especially by virtue of their senior positions, and exercised the same. 

725. As set forth above, Tyco and the Individual Defendants violated Section 10(b) 

and Rule 10b-5 by their acts and omissions as alleged herein. By virtue of their positions as 

controlling persons of Tyco, each of the Individual Defendants is liable pursuant to Section 20(a) 

of the 1934 Act. As a direct and proximate result of the Individual Defendants’ wrongful 

conduct, Plaintiff suffered damages. 

COUNT III 

(AGAINST KOZLOWSKI, SWARTZ, AND WALSH 

FOR VIOLATION OF SECTION 20A OF THE 1934 ACT) 

726. Plaintiff repeats and realleges each and every allegation above as if set forth in 

full herein. 

727. This Claim is brought against the Defendants Kozlowski, Swartz, and Walsh by 

Plaintiff for violation of Section 20A of the 1934 Act, 15 U.S.C. § 78t-1. As set forth in the 

chart attached as Exhibit G, Plaintiff purchased Tyco common stock contemporaneously with 

sales of Tyco stock by the Defendants named in this count. 

728. By virtue of their positions as senior insiders of Tyco, the Individual Defendants 

were in possession of material, non-public information about the Company at the time of their 
287 

sales of Tyco stock to Plaintiff at artificially inflated prices. 

729. By virtue of their participation in the scheme to defraud investors described 

herein, and their sales of stock while in possession of material, non-public information about the 

adverse information detailed herein, the Individual Defendants violated the Exchange Act and 

applicable rules and regulations thereunder. 

730. Plaintiff, which purchased shares of Tyco stock contemporaneously with the sales 

of Tyco stock by the Individual Defendants: (i) suffered substantial damages in that Colorado 

PERA paid artificially inflated prices for Tyco stock as a result of the securities law violations 

described herein; and (ii) would not have purchased Tyco stock at the prices Plaintiff paid, or at 

all, if it had been aware that the market prices had been artificially inflated by Defendants’ false 

and misleading statements. 

731. The Defendants are required to account for all such stock sales and to disgorge 

their profits or ill-gotten gains. 

COUNT IV 

(AGAINST ALL DEFENDANTS FOR VIOLATION OF 

SECTION 11 OF THE 1933 ACT) 

732. This Count is brought pursuant to Section 11 of the 1933 Act, 15 U.S.C. § 77k, 

against all Defendants. 

733. 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. 

734. 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 Mallinckrodt Inc. and a subsidiary of 
288 

Tyco, dated July 12, 2000; 

• Form S-4/A, dated August 9, 2000; 

• Prospectus relating to the proposed merger between Mallinckrodt Inc. and a subsidiary 

of Tyco, dated August 11, 2000; 

• Form S-3 for the registration of $4,657,500,000 in Liquid Yield Option Notes due 

2020, dated December 8, 2000; 

• Form S-3/A, amending the 12/8/00 S-3, dated December 15, 2000; 

• Prospectus relating to the registration of $4,657,500,000 in Liquid Yield Option Notes 

due 2020, dated December 19, 2000; 

• Form S-4 relating to Tyco’s proposed offer to issue 9,415,481 shares of Tyco stock 

upon consummation of the merger with Scott Technologies, Inc., dated February 23, 

2001; 

• Form S-4/A and a Prospectus relating to the proposed merger between Scott 

Technologies, Inc. and Tyco, dated March 30, 2001; 

• 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. 3 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; 

• Form S-4 relating to a proposed merger between Sensormatic Electronics Corporation 

and a subsidiary of Tyco, dated August 24, 2001; 

• Form S-4/A, amending the 8/24/01 S-4, dated September 13, 2001; and 

• Prospectus with the SEC relating to the offer of Tyco Acquisition Corp. XXIV (NV), a 

wholly-owned subsidiary of Tyco, to exchange common shares of Tyco for each 

outstanding share of common stock of Sensormatic Electronics Corporation, dated 

September 25, 2001. 

735. The Company is the registrant for these offerings. Defendants named herein 

signed and/or were otherwise responsible for the contents and dissemination of the Registration 
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Statements/Prospectuses. 

736. PwC consented to the inclusion of its audit reports in the Registration 

Statements/Prospectuses, and to being named therein as an expert. 

737. As issuer of the shares, Tyco is strictly liable to Plaintiff for the misstatements 

and omissions. 

738. None of the Defendants named herein made a reasonable investigation or 

possessed reasonable grounds for the belief that the statements contained in the Registration 

Statements/Prospectuses were true and without omissions of any material facts and were not 

misleading. 

739. Defendants issued, caused to be issued and participated in the issuance of 

materially false and misleading written statements to the Plaintiff that were contained in the 

Registration Statements/Prospectuses, which misrepresented or failed to disclose, among other 

things, the facts set forth above. By reasons of the conduct herein alleged, each Defendant 

violated, and/or controlled a person who violated, Section 11 of the 1933 Act. 

740. Plaintiff acquired Tyco shares issued pursuant to and/or traceable to the 

Registration Statements/Prospectuses. 

741. Plaintiff has sustained damages. The value of Tyco shares has declined 

substantially subsequent to and due to Defendants’ violations. 

742. At the time Colorado PERA acquired Tyco shares, Plaintiff 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 Plaintiff discovered or reasonably could have discovered the facts upon which this 

Complaint is based to the time that Plaintiff filed its Complaint. Less than three years elapsed 
290 

from the time that the securities upon which this Count is brought were bona fide offered to the 

public to the time Plaintiff filed its Complaint. 

COUNT V 

(AGAINST TYCO, KOZLOWSKI, SWARTZ, AND WALSH FOR 

VIOLATION OF SECTION 12(a)(2) OF THE 1933 ACT) 

743. This Count is brought on behalf of Plaintiff pursuant to Section 12(a)(2) of the 

1933 Act, 15 U.S.C. § 78l(b), against the Defendants Tyco, Kozlowski, Swartz, and Walsh. 

744. 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. 

745. The Defendants in this count were sellers, offerors, and/or solicitors of sales of 

the shares offered pursuant to the Registration Statements/Prospectuses. 

746. The Registration Statements/Prospectuses contained untrue statements of material 

facts, omitted to state other facts necessary to make the statements made not misleading, and 

concealed and failed to disclose material facts. The Defendants’ actions of solicitation included 

participating in the preparation of the materially false and misleading Registration 

Statements/Prospectuses. 

747. The Defendants owed to Plaintiff the duty to make a reasonable and diligent 

investigation of the statements contained in the Registration Statements/Prospectuses to ensure 

that such statements were true and that there was no omission to state a material fact required to 

be stated in order to make the statements contained therein not misleading. The Defendants 

knew of, or in the exercise of reasonable care should have known of, the misstatements and 

omissions contained in the Registration Statements/Prospectuses as set forth above. 

748. Plaintiff purchased or otherwise acquired Tyco shares pursuant to or traceable to 

the defective Registration Statements/Prospectuses. Plaintiff did not know, or in the exercise of 

reasonable diligence could not have known, of the untruths and omissions contained in the 
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Registration Statements/Prospectuses. 

749. Plaintiff offers to tender to the Defendants those Tyco securities that Plaintiff 

continues to own in return for the consideration paid for those securities together with interest 

thereon. 

750. By reason of the conduct alleged herein, the Defendants violated, and/or 

controlled a person who violated, Section 12(a)(2) of the 1933 Act. Accordingly, Plaintiff who 

holds Tyco shares purchased or acquired pursuant to or traceable to Registration 

Statements/Prospectuses has the right to rescind and recover the consideration paid for Tyco 

shares and, hereby elects to rescind and tenders their Tyco shares to the Defendants sued herein. 

Plaintiff is entitled to rescissory damages for Tyco securities it has sold. 

751. Less than three years elapsed from the time that the securities upon which this 

Count is brought were sold to the public to the time of the filing of this action. Less than one 

year elapsed from the time when Plaintiff discovered or reasonably could have discovered the 

facts upon which this Count is based to the time of the filing of this action. 

COUNT VI 

(AGAINST KOZLOWSKI, SWARTZ, AND WALSH 

FOR VIOLATION OF SECTION 15 OF THE 1933 ACT) 

752. This Count is brought by Plaintiff against the Defendants Kozlowski, Swartz, and 

Walsh for violation of Section 15 of the 1933 Act, 15 U.S.C. § 77o. 

753. 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. 

754. Each of the Defendants was a control person of Tyco by virtue of their positions 

as directors and/or as senior officers of Tyco. The Defendants each had a series of direct and/or 

indirect business and/or personal relationships with other directors and/or major shareholders of 

Tyco. 
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755. Each of the Defendants was a culpable participant in the violations of Sections 11 

and 12(a)(2) of the 1933 Act alleged in Counts IV and V above, based on their having signed or 

participated in the preparation and/or dissemination of the Registration Statements/Prospectuses 

or having otherwise participated in the process that allowed the offerings to be successfully 

completed. 

COUNT VII 

(AGAINST TYCO FOR VIOLATIONS OF N.J.S.A. 2C;41-2(a)) 

756. Plaintiff repeats and realleges the foregoing allegations as if fully set forth herein. 

757. Tyco is a liable person under N.J.S.A. 2C:41-2(a) because Tyco received income 

derived from a pattern of racketeering activity and used and invested that income in the 

acquisition of numerous enterprises engaged in or whose activities affected commerce or trade. 

758. As is set forth above, Tyco purchased Acquired Companies Enterprises, each of 

which constitutes an enterprise under N.J.S.A. 2C:41-lc, using, in part, Tyco stock whose market 

price was artificially and fraudulently inflated as a result of a pattern of racketeering activity, 

including the fraudulent accounting practices, misrepresentations, material omissions and 

securities violations effectuated by the Tyco Defendants. The enterprises acquired by Tyco 

engaged in and/or their activities affected interstate commerce. 

759. Tyco’s acquisitions of said entities contributed to and perpetuated the artificial 

inflation of the price of Tyco’s stock because said acquisitions were part of Tyco’s purported but 

false method of increasing earnings as set forth in Section V.A.1. 

760. Not only was the fraudulent increase in the market price of its stock a benefit per 

se to Tyco, but Tyco also benefitted from the fraudulent increase in the market price of its stock 

because the stock was used by the Company to fund various activities that served Tyco’s 

interests, including, among other things: (i) continuing to use the stock to acquire other 
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companies and (ii) compensating officers and employees with stock and stock options the value 

of which was artificially and fraudulently inflated. 

761. Plaintiff was injured by Tyco’s investments in these enterprises because they 

contributed to and perpetuated the artificial inflation of the market price of Tyco stock owned or 

purchased by Plaintiff and contributed to the false impression that Tyco’s strategy of pursuing 

earnings growth through acquisitions was more successful than it actually was. In addition, 

Plaintiff tendered shares of stock owned by Colorado PERA in Mallinckrodt, Scott 

Technologies, CIT, and Sensormatic in exchange for shares of falsely inflated Tyco stock in 

connection with Tyco’s acquisitions of these entities. 

762. Colorado PERA would not have purchased all or some of its shares of Tyco stock 

at the prices at which it purchased, would have sold its Tyco stock without suffering the massive 

losses that it eventually suffered or would otherwise have avoided those losses if Tyco had not 

engaged in the conduct described above. 

763. Colorado PERA was injured by the afore-stated conduct and said conduct 

proximately caused Colorado PERA’s injuries for the reasons previously stated. 

COUNT VIII 

(AGAINST TYCO FOR VICARIOUS LIABILITY 

IN VIOLATION OF N.J.S.A. 2C:41-2(a)) 

764. Plaintiff repeats and realleges the foregoing allegations as if fully set forth herein. 

765. The Individual Defendants are liable persons under N.J.S.A. 2C:41-2(a). The 

Individual Defendants invested or used income derived, directly or indirectly, from a pattern of 

racketeering activity (i) in other companies, (ii) Tyco, and/or (iii) an association in fact of Tyco 

and the Individual Defendants whose purpose was to artificially and fraudulently inflate the 

market price of Tyco’s stock. Each of the said entities constituted enterprises engaged in or 

whose activities affected commerce or trade. 
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766. Tyco benefitted from said investment and/or use of income derived, directly or 

indirectly, from a pattern of racketeering activity. 

767. The Individual Defendants’ racketeering activities and use of the income derived 

therefrom were carried out in the scope of the Individual Defendants’ employment activities, 

arose from the types of activities that they were employed to perform, were substantially within 

the limits of their authority and were carried out in part to serve Tyco’s interests. 

768. Tyco intended that the racketeering activities take place, that the income derived 

from said activities be used or invested as aforesaid; was reckless or failed to exercise reasonable 

care with respect to the Individual Defendants’ racketeering activities; and/or Tyco knew or 

should have known of the Individual Defendants’ unfitness or dangerous attributes, as 

manifested by their acts of malfeasance, misrepresentation, and defalcation, and could 

reasonably have foreseen the risk of harm created by the Individual Defendants, from which 

qualities of the Individual Defendants Plaintiff’s losses arose. 

769. Tyco failed to take measures to prevent or remedy the fraud. For instance, Tyco’s 

Board of Directors failed to correct Defendant Kozlowski’s false statements to investors stating 

that the Board of Directors had approved the Company’s payment of $20 million to Walsh as 

part of the CIT acquisition as set forth in Section V.B.6. Given the size of the Company’s stock 

price drop on that date, and Kozlowski’s clear response in a Company press release, the Board of 

Directors either knew or was reckless in not knowing that Kozlowski’s statements were false and 

misleading and an attempt to conceal the criminal nature of the payment to Walsh. 

770. Similarly, an article in the December 27, 2002 edition of The Wall Street Journal

shows that Tyco’s outside counsel and certain of the Company’s Board of Directors knew in 

early 2000 that the Company had serious accounting problems and that corporate funds were 
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being misused by the Company’s senior executives, including Kozlowski and Walsh. Because 

the Audit Committee is charged under its charter with supervising Tyco’s litigation, including 

the SEC’s investigation of Tyco’s financial statements, the Company’s Audit Committee either 

knew or should have known about those adverse facts as well. The Wall Street Journal 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 

that would have helped the SEC in an informal inquiry it launched 

in 1999 into Tyco’s accounting practices .... 

771. One e-mail mentioned in The Wall Street Journal article, a March 23, 2000 

communication from a Wilmer Cutler partner to Tyco’s General Counsel Belnick, states: “There 

are payments to a woman whom the folks in finance describe to be Dennis’s girlfriend [now 

wife, Karen Mayo]. I do not know Dennis’s situation, but this is an embarrassing fact.” 

772. In addition, a May 25, 2000 e-mail from another Wilmer Cutler partner to Belnick 

states, “We have found issues that will likely interest the SEC . . . creativeness is employed in 

hitting the forecasts. . . .” 

773. The same document acknowledges that “[t]here 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....” In addition, Wilmer partner McLucas stated that the 

company’s financial reports suggest “something funny which is likely apparent if any decent 
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accountant looks at this.” 

774. The facts set forth in The Wall Street Journal articles were verified by McLucas 

in his testimony in Belnick’s criminal trial. McLucas acknowledged the use of cookie jar 

reserves by Tyco in his testimony. In addition, he authenticated a May 2000 e-mail sent to 

Belnick during the course of McLucas’s work on the SEC’s investigation in which McLucas told 

Belnick that Tyco needed to change certain accounting practices that McLucas considered 

worrisome, particularly the use of accounting reserves to meet projected financial results. 

775. With reference to that practice, the e-mail stated, “The cost of this kind of fooling 

around can destroy a corporate franchise, and it’s all so these guys can squeeze a couple of more 

pennies” out of earnings. The e-mail further stated, “If we escape this process without a 

crippling broadside, the toughest challenge here seems to me to involve how one changes the 

culture.” 

776. Tyco’s Audit Committee and Board of Directors also either knew or were reckless 

in not knowing of the foregoing facts. Once Tyco’s counsel began an inquiry concerning the 

compensation paid to the Company’s officers (including Walsh and Kozlowski), counsel 

determined in short order that these officers had engaged in the fraudulent schemes to inflate 

their compensation that are alleged herein. It should have been equally easy for the Audit 

Committee Defendants, particularly with the assistance of the PwC Defendants, to learn the same 

information. This is particularly true in light of facts then known to the members of the Audit 

Committee and Board of Directors. 

777. According to a September 24, 2002 Associated Press article, the Tyco Board’s 

Compensation Committee was also apprized of several of the improper relocation loans taken by 

the Company’s officers, including Kozlowski and Walsh. And, minutes from the February 21, 
297 

2002 Tyco Compensation Committee meeting specifically mention improper loans to Kozlowski 

($18.8 million) and Swartz ($7 million). 

778. PwC has also claimed in public statements that it raised questions with Tyco’s 

management concerning the propriety of the compensation paid Tyco’s officers. For example, 

PwC LLP spokesman David Nestor was quoted in a January 3, 2003 article in The New York 

Times article as stating, “We did not know that the disclosure was wrong. We raised questions 

about it, went to the company and were told that the disclosure was appropriate.” 

779. Tyco, its counsel, and its Board of Directors, either knew or were grossly reckless 

in ignoring facts that demonstrated the existence of fraudulent conduct long before Tyco 

disclosed the Individual Defendants’ misconduct. 

780. Despite red flags known to them, the members of the Audit Committee, the 

Compensation Committee, and others at Tyco failed to investigate: (i) the propriety of the loans 

made to the Company’s officers, including the Individual Defendants; (ii) the adequacy of 

Tyco’s disclosures concerning the Individual Defendants’ compensation; and (iii) the Individual 

Defendants’ self-dealing transactions. 

781. Further, Tyco was motivated to conceal the depth of the Company’s accounting 

fraud by the cash crunch that affected Tyco following the revelation of the criminal conduct 

undertaken by Kozlowski, Swartz, Walsh, and others. By claiming that the Company had not 

engaged in systemic accounting improprieties, Tyco was able to complete a $6 billion 

refinancing in January of 2003. Without that refinancing, the persistent market rumors that Tyco 

would be forced to file for bankruptcy could well have become a reality. 

782. Plaintiff was injured by the conduct of the Individual Defendants and of Tyco, 

and said conduct proximately caused Plaintiff’s injuries for the reasons previously stated. 
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COUNT IX 

(AGAINST TYCO FOR LIABILITY UNDER N.J.S.A. 2C:41-2(b)) 

783. Plaintiff repeats and realleges the foregoing allegations as if fully set forth herein. 

784. Tyco is a liable person under N.J.S.A. 2C:41-2(b). Tyco acquired and/or 

maintained control over numerous other enterprises through a pattern of racketeering activity. 

As set forth above, Tyco purchased the Acquired Companies Enterprises that constitute 

enterprises under N.J.S.A. 2C:41-1c, which were engaged in or whose activities affected 

commerce or trade, using, in part, Tyco stock whose market value was artificially and 

fraudulently inflated as a result of the Tyco Defendants’ pattern of racketeering activity. 

785. Tyco’s acquisitions of said entities contributed to and perpetuated the artificial 

inflation of the market price of Tyco’s stock because said acquisitions were part of Tyco’s 

purported but false method of increasing earnings. As is described more fully above, said 

acquisitions were “spring-loaded” through accounting machinations to artificially inflate Tyco’s 

earnings in the post-acquisition periods. 

786. Plaintiff was injured by Tyco’s investments in these enterprises because they 

contributed to and perpetuated the artificial inflation of the market price of Tyco stock owned or 

purchased by Plaintiff and because they contributed to the false impression that Tyco’s strategy 

of pursuing earnings’ growth through acquisitions was more successful than it actually was. 

787. In addition, Plaintiff tendered shares of stock owned by Plaintiff in Mallinckrodt, 

CIT, Scott Technologies, and Sensormatic in exchange for shares of falsely inflated Tyco stock 

in connection with Tyco’s acquisitions of these entities. 

788. Plaintiff would not have purchased all or some their shares of Tyco stock at the 

prices at which they were purchased, would have sold their Tyco stock without suffering the 

massive losses that they eventually suffered or would otherwise have avoided those losses if 
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Tyco had not engaged in the conduct described above. 

789. Plaintiff was injured by the afore-stated conduct and said conduct proximately 

caused Plaintiff’s injuries for the reasons previously stated. 

COUNT X 

(AGAINST TYCO AND THE INDIVIDUAL DEFENDANTS AS AN 

ASSOCIATION IN FACT FOR VIOLATIONS OF N.J. S.A. 2C:41-2(b)) 

790. Plaintiff repeats and realleges the foregoing allegations as if fully set forth herein. 

791. Tyco and the Individual Defendants, as an association in fact, are liable persons 

under N.J.S.A. 2C:41-2(b). Tyco and the Individual Defendants as an association in fact acquired 

and/or maintained control over numerous other enterprises through a pattern of racketeering 

activity as set forth more fully in the preceding Count. 

792. The acquisitions of and maintenance of control over said entities contributed to 

and perpetuated the artificial inflation of the market price of Tyco’s stock as is described more 

fully above. 

793. Plaintiff was injured by the afore-stated conduct and said conduct proximately 

caused Plaintiff’s injuries for the reasons previously stated. 

COUNT XI 

(AGAINST THE INDIVIDUAL DEFENDANTS FOR LIABILITY 

UNDER N.J.S.A. 2C:41-2(b)) 

794. Plaintiff repeats and realleges the foregoing allegations as if fully set forth herein. 

795. The Individual Defendants are liable persons under N.J.S.A. 2C:41-2(b). The 

Individual Defendants caused Tyco to acquire and/or maintain control over numerous other 

enterprises through a pattern of racketeering activity. As set forth above, Tyco purchased the 

Acquired Companies Enterprises that constitute enterprises under N.J.S.A. 2C:41-1c, which were 

engaged in or whose activities affected commerce or trade, using, in part, Tyco stock whose 

market value was artificially and fraudulently inflated as a result of the pattern of racketeering 
300 

activity carried out by Defendants. 

796. Said conduct contributed to and perpetuated the artificial inflation of the market 

price of Tyco’s stock because said acquisitions were part of the purported but false method of 

increasing Tyco’s earnings. In addition, as described more fully above, said acquisitions were 

“spring-loaded” through accounting machinations to artificially inflate Tyco’s earnings in the 

post-acquisition periods. 

797. Plaintiff was injured by the aforestated conduct, and said conduct proximately 

caused Plaintiff’s injuries for the reasons previously stated. 

COUNT XII 

(AGAINST TYCO FOR VICARIOUS LIABILITY UNDER N.J.S.A. 2C:41-2(b)) 

798. Plaintiff repeats and realleges the foregoing allegations as if fully set forth herein. 

799. The Individual Defendants are liable persons under N.J.S.A. 2C:41-2(b). As is set 

forth above, the Individual Defendants caused to be acquired and/or maintained the Acquired 

Companies Enterprises through a pattern of racketeering activity using, in part, Tyco stock 

whose market value was artificially and fraudulently inflated as a result of the pattern of 

racketeering activity carried out by Defendants. The Acquired Companies Enterprises constitute 

enterprises under N.J.S.A. 2C:41-1c, which were engaged in or whose activities affected 

commerce or trade. 

800. The Individual Defendants’ racketeering activities and use thereof to cause the 

acquisition of and maintain control over said enterprises were carried out in the scope of the 

Individual Defendants’ employment activities, arose from the types of activities that they were 

employed to perform, were substantially within the limits of their authority and were carried out 

in part to serve Tyco’s interests. 

801. Tyco intended that the racketeering activities take place and that, through them, 
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said enterprises be acquired; Tyco was reckless or failed to exercise reasonable care with respect 

to the Individual Defendants’ racketeering activities and the acquisition of said enterprises 

through those activities; and/or Tyco knew or should have known of the Individual Defendants’ 

unfitness or dangerous attributes, as manifested by their acts of malfeasance, misrepresentation 

and defalcation, and could reasonably have foreseen the risk of harm created by the Individual 

Defendants in causing said entities to be acquired and in maintaining control over said entities, 

and Plaintiff’s losses arose from those qualities of the Individual Defendants. 

COUNT XIII 

(AGAINST THE INDIVIDUAL DEFENDANTS FOR 

LIABILITY UNDER N.J.S.A. 2C:41-2(c)) 

802. Plaintiff repeats and realleges the foregoing allegations as if fully set forth herein. 

803. The Individual Defendants are liable persons under N.J.S.A. 2C:41-2(c). These 

Defendants conducted and participated in Tyco’s affairs through a pattern of racketeering 

activity. Tyco constitutes an enterprise under N.J.S.A. 2C:41-1c. and, during the Relevant 

Period, was engaged in and its activities affected trade or commerce. The Individual Defendants 

were employed by or associated with Tyco. 

804. As is set forth above, the Individual Defendants conducted or participated, 

directly or indirectly, in the conduct of Tyco’s affairs through a pattern of racketeering activity. 

Among other things, the Individual Defendants engaged in fraudulent accounting practices, and 

fraudulent misrepresentations and omissions in connection with the offering, purchase and sale 

of Tyco stock and securities law violations that constituted a pattern of racketeering activity 

under N.J.S.A. 2C:41-1. In connection therewith, the market price of Tyco’s stock was 

artificially and fraudulently inflated. 

805. As is set forth more fully above, the Individual Defendants benefited from the 

conduct of Tyco’s affairs through a pattern of racketeering activity. Further, in concealing their 
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own defalcations and in effectuating fraudulent accounting manipulations, the Individual 

Defendants were not simply engaged in carrying out their normal corporate functions. 

806. Plaintiff was injured by the aforesaid pattern of racketeering activity as a result of 

Plaintiff’s ownership and acquisition of Tyco stock. 

COUNT XIV 

(AGAINST ALL TYCO DEFENDANTS FOR LIABILITY UNDER N.J.S.A. 2C:41-2(c)) 

807. Plaintiff repeats and realleges the foregoing allegations as if fully set forth herein. 

808. The Tyco Defendants are liable persons under N.J.S.A. 2C:41-2(c). Defendants 

conducted and participated, through a pattern of racketeering activity, in the affairs of an 

enterprise comprised of an association in fact of Tyco and the Individual Defendants. During the 

Relevant Period, said enterprise was engaged in and its activities affected trade or commerce. 

All of the Defendants were associated with said association in fact. 

809. As is set forth above, the Tyco Defendants conducted or participated, directly or 

indirectly, in the conduct of the association in fact’s affairs through a pattern of racketeering 

activity. In connection therewith, the market price of Tyco’s stock was artificially and 

fraudulently inflated. 

810. For the reasons set forth more fully above, this pattern of racketeering activity 

benefited all of the Tyco Defendants. 

811. Plaintiff was injured by the aforesaid pattern of racketeering activity as a result of 

Plaintiff’s ownership and acquisition of Tyco stock. 

COUNT XV 

(AGAINST ALL TYCO DEFENDANTS AS AN ASSOCIATION IN FACT 

FOR LIABILITY UNDER N.J.S.A. 2C:41-2(c)) 

812. Plaintiff repeats and realleges the foregoing allegations as if fully set forth herein. 

813. The Tyco Defendants constituted an association in fact that is a liable person 
303 

under N.J.S.A. 2C:41-2(c). This association in fact conducted and participated in Tyco’s affairs 

through a pattern of racketeering activity. Tyco constitutes an enterprise under N.J.S.A. 2C:41-

1c. and, during the Relevant Period, was engaged in and its activities affected trade or 

commerce. The association in fact was associated with Tyco. 

814. As is set forth above, the association in fact conducted or participated, directly or 

indirectly, in the conduct of Tyco’s affairs through a pattern of racketeering activity. In 

connection therewith, the market price of Tyco’s stock was artificially and fraudulently inflated. 

815. As is set forth more fully above, all of the Tyco Defendants, operating as an 

association in fact, benefited from the conduct of Tyco’s affairs through a pattern of racketeering 

activity. 

816. Further, in concealing their own defalcations and in effectuating fraudulent 

accounting manipulations, the Individual Defendants were not simply engaged in carrying out 

their normal corporate functions. 

817. Plaintiff was injured by the aforesaid pattern of racketeering activity as a result of 

Plaintiff’s ownership and acquisition of Tyco stock. 

COUNT XVI 

(AGAINST TYCO FOR VICARIOUS LIABILITY UNDER N.J.S.A. 2C:41-2(c)) 

818. Plaintiff repeats and realleges the foregoing allegations as if fully set forth herein. 

819. The Individual Defendants are liable persons under N.J.S.A. 2C:41-2(c). These 

Defendants conducted and participated in Tyco’s affairs through a pattern of racketeering 

activity. In connection therewith, the market price of Tyco’s stock was artificially and 

fraudulently inflated. 

820. Tyco constitutes an enterprise under N.J.S.A. 2C:41-1c. and, during the Relevant 

Period, was engaged in and its activities affected trade or commerce. The Individual Defendants 
304 

were employed by and/or associated with Tyco during the Relevant Period. 

821. Plaintiff was injured by the aforesaid pattern of racketeering activity as a result of 

Plaintiff’s ownership and acquisition of Tyco stock. 

822. The Individual Defendants’ racketeering activities, and their conducting or 

participating, directly or indirectly, in the conduct of Tyco’s affairs, were carried out in the scope 

of the Individual Defendants’ employment activities, arose from the types of activities that they 

were employed to perform, were substantially within the limits of their authority and were 

carried out in part to serve Tyco’s interests. 

823. Tyco intended that the Individual Defendants’ racketeering activities, and their 

conducting or participating, directly or indirectly, in the conduct of Tyco’s affairs, take place; 

Tyco was reckless or failed to exercise reasonable care with respect to the Individual 

Defendants’ racketeering activities and their conducting or participating, directly or indirectly, in 

the conduct of Tyco’s affairs; and/or Tyco knew or should have known of the Individual 

Defendants’ unfitness or dangerous attributes, as manifested by their acts of malfeasance, 

misrepresentation and defalcation, and could reasonably have foreseen the risk of harm created 

by the Individual Defendants, and Plaintiff’s losses arose from those qualities of the Individual 

Defendants. 

COUNT XVII 

(AGAINST ALL DEFENDANTS FOR VIOLATIONS OF N.J.S.A. 2C:41-2(d)) 

824. Plaintiff repeats and realleges the foregoing allegations as if fully set forth herein. 

825. The Tyco Defendants agreed with one another that they would engage in the 

violations of the New Jersey RICO Act as set forth in the previous Counts of this Complaint. 

The Tyco Defendants, along with the other co-conspirators, agreed to assist one another in the 

planning and/or commission of said violations. The Tyco Defendants agreed to the commission 
305 

of numerous predicate acts of racketeering in connection therewith. 

826. PwC agreed to assist and did assist the Individual Defendants in perpetrating 

thefts by providing clean audit opinions with respect to accounting statements that fraudulently 

concealed the thefts. According the SEC, as found in its August 13, 2003 filing instituting public 

cease-and-desist proceedings against PwC partner Richard P. Scalzo, PwC was aware of but 

failed to require Tyco to properly account for and/or disclose: (i) the improper bonus payments 

in connection with the TyCom IPO, the ADT Automotive divestiture and the Flag Telecom 

transaction; (ii) the $20 million CIT payment to Walsh; (iii) the improper relocation loans; (iv) 

the improper KEL Program loans; and (v) Tyco’s use of post-period adjustments to off-set 

charges so that Tyco could make its earnings forecasts. 

827. As a direct and proximate result of the Tyco Defendants’ assistance of one 

another in connection with the violations of the New Jersey RICO Act alleged above, Plaintiff 

was injured. 

XVII. PRAYER FOR RELIEF 

WHEREFORE, Plaintiff demands judgment: 

A. Awarding compensatory damages and/or recission as appropriate against 

Defendants and each of them, in favor of Plaintiff for damages sustained as a result of 

Defendants’ wrongdoing together with interest thereon; 

B. Awarding prejudgment interest; 

C. Awarding extraordinary, equitable and/or injunctive relief as permitted by law 

(including but not limited to disgorgement); 

D. Awarding Plaintiff treble damages; 

E. Awarding Plaintiff its costs and disbursements of this suit, including reasonable 

attorneys’ fees, accountants’ fees, and experts’ fees; and 
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F. Awarding such other and further relief as may be just and proper. 

XVIII. JURY TRIAL DEMANDED 

Plaintiff hereby demands a trial by jury. 

XIX. VERIFICATION AND CERTIFICATION PURSUANT 

TO LOCAL CIVIL RULE 11.2 

I am authorized to file this verification on behalf of Colorado PERA. I verify that I have 

reviewed the complaint and the facts set forth in it are true and correct to the best of my 

knowledge, information, and belief. I am providing this verification on behalf of Colorado 

PERA as the facts set forth herein have been established through an investigation conducted by 

counsel. 

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 (1) 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; (2) Franklin Mutual Advisors, LLC, et al. v. Tyco Int’l Ltd., et al., Case No. 07-CV04575-WJM-MF (D.N.J.); Teacher Retirement System of Texas, et al. v. Tyco Int’l Ltd., et al., 

Case No. 07-CV-05704-WJM-MF (D.N.J.); Federated American Leaders Fund, Inc. et al. v. 

Tyco Intl Ltd., et al., Case No. 2:08-cv-00478-WJM-MF (D.N.J); Nuveen Balanced Municipal 

and Stock Fund, et al. v. Tyco Int’l Ltd., et al., Case No. 08-CV-00518-WJM-MF (D.N.J.); and 

Blackrock Global Allocation Fund, Inc., et al. v. Tyco International Ltd., et al., Case No. 2:08-

cv-00519-WJM-MF (D.N.J.). 

Dated: July 11, 2008 Respectfully submitted, 

ENTWISTLE & CAPPUCCI LLP 
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_____________/s/_________________ 

Andrew J. Entwistle 

Johnston de F. Whitman, Jr. 

Richard W. Gonnello 

280 Park Avenue, 26th Floor West 

New York, NY 10017 

Telephone: (212) 894-7200 

Fax: (212) 894-7272