A widening investigation into the alleged misuse of expenses to evade securities law has raised concerns that giant US conglomerate Tyco International could face a financial crisis of Enron proportions.
Tyco yesterday replaced its top lawyer, general counsel Mr Mark Belnick, who was due to collect a $10.6 million (€11.23 million) retention bonus next year, as the debt-ridden company reeled from the crisis caused by the resignation and indictment of its chief executive last week. Mr Belnick issued an extraordinary statement saying the company was "in distress and chaos" and that factions in Tyco were seeking to expand their personal control to protect their "undeserved entitlements".
Manhattan prosecutors are investigating whether Tyco used corporate funds to enrich executives. They have turned their interest in recent days to the curious ownership record of a house at the exclusive Royal Palm Yacht and Country Club in Boca Raton, Florida.
The house was once owned by director Lord Ashcroft, a former treasurer of the Conservative Party in the UK. In October 1997, he sold it for $100 to his wife, who then sold it on to a senior Tyco executive for $2.5 million. It is alleged that the $2.5 million came from company funds and were not disclosed in financial statements as a related-party transaction.
This is one of a wide range of expenses, including possible interest-free mortgages for employees relocated to Florida from Tyco headquarters in New Hampshire, that are being probed.
Former Tyco chief executive Mr Dennis Kozlowski was indicted last week on charges that he evaded sales tax on art works worth $13.2 million bought with cash borrowed from the company. Tyco funds may also have been used to buy an $18 million Manhattan apartment for Mr Kozlowski, whose resignation precipitated a crisis of confidence in the firm.
Mr Kozlowski pleaded unsuccessfully with directors not to force him to resign during a heated teleconference on June 2nd, it emerged yesterday.
Tyco is hoping to pay off much of the debt by selling shares in its CIT Group or selling it outright.
