Judge Puts on Hold $10-Million Bail Offer for Former Tyco Chief Executive

With Tyco International Ltd. Chief Executive L. Dennis Kozlowski headed for a prison cell on Rikers Island, his ex-wife agreed to post the $10 million in cash to secure his bail. But a judge Thursday put her gesture on hold.

Prosecutors said they need to determine whether the money is tied to the alleged $600-million looting of the conglomerate when Kozlowski served as chairman.

Kozlowski will be permitted to remain free at least until Sept. 27, when state Supreme Court Justice Michael Obus holds a hearing on the questions raised by the prosecutors.

Kozlowski attorney Stephen Kaufman said his client’s former wife, Angie Kozlowski, agreed to post $10 million in cash and a statement from a brokerage firm backing up the source of the money.

“She is just supporting her ex-husband,” he said. Kaufman added that she would be available for the hearing next week.

He said she was not sure whether the money came from assets that may be part of the indictment.

Kozlowski and former Chief Financial Officer Mark Swartz were charged by a New York grand jury with enterprise corruption and grand larceny for allegedly stealing $600 million from Tyco. They face up to 25 years in prison on each of those charges if convicted. They were accused of using Tyco as their own “personal piggy bank” to finance a lavish lifestyle, according to the Securities and Exchange Commission, which filed a separate civil lawsuit.

At last week’s arraignment, Obus released the two men after setting a $100-million personal recognizance bond on Kozlowski and a $50-million bond on Swartz. But the judge froze $600 million in assets, hindering their ability to come up with bail, which would be 10% of the bond amounts.

Kaufman said earlier in the week that Manhattan prosecutors rejected Kozlowski’s offer to post his ex-wife’s Connecticut home, valued at about $10 million, according to the lawyer, or municipal bonds she holds that are worth about the same amount.

Meanwhile, a person with knowledge of the case told Associated Press on Thursday that Tyco is selling the Fifth Avenue apartment and its antiques and furnishings that Kozlowski allegedly bought with Tyco money.

Sotheby’s auction house has been in the $16.8-million home to look it over, but it has not yet been appraised, the person said.

Assistant Manhattan Dist. Atty. John Moscow on Thursday told Obus he is concerned that the assets offered by Kozlowski’s ex-wife might be tainted.

Kaufman, however, said the money was paid to her by Kozlowski as part of their divorce settlement in July 2000.

“When the bail is posted, we will check it out,” Moscow said.

Swartz’s lawyer, James Mitchell, said his client would seek to post Tyco stock he owns valued at $6.7 million to cover his $50-million bail. The shares Swartz is seeking to pledge were given to him by Tyco when he joined the company in 1995, Mitchell said.

“I view it as outside the time frame of the indictment,” Mitchell said of the transfer of Tyco shares to Swartz.

The indictments of the former Tyco executives were the latest by state and federal prosecutors pursuing allegations of corporate misconduct. Criminal charges also have been brought against former officials at Adelphia Communications Corp., WorldCom Inc. and ImClone Systems Inc.

Tyco shares fell 63 cents to close at $15.29 on the New York Stock Exchange.

The defense lawyers also said they may seek to challenge the order signed last week by a New York civil court judge freezing the assets.

Kaufman said defense lawyers believe a New York state judge can freeze only New York assets. A hearing on that issue is scheduled for Tuesday.

Kozlowski owns homes in Boca Raton, Fla.; Nantucket, Mass.; and Rye, N.H., which, the indictment states, were bought with money obtained from Tyco employee loan programs he and Swartz are accused of raiding.

In addition to Kozlowski and Swartz, former general counsel Mark Belnick is charged with falsifying business records to hide more than $14 million in company loans to himself. A lawyer for Belnick told the judge his client would post his $1-million bond.

Manhattan prosecutors also are considering criminal charges against former Tyco director Frank Walsh because of a payment he received for aiding the company in its purchase of CIT Group Inc. last year, the Wall Street Journal reported, citing people familiar with the inquiry.

Two other unidentified executives also are being scrutinized by the Manhattan district attorney’s office for taking millions of dollars in compensation that wasn’t disclosed to the Tyco board, the paper said.

Tyco paid $10 million to Walsh in July 2001 and another $10 million to a charitable fund of which he is trustee, the paper said.

Bloomberg News was used in compiling this report.