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Tyco shareholders claim $6 bn in fraud
Boston, June 07: Investors burned by the collapse of Tyco International Ltd.`s stock last year charged in a lawsuit the conglomerate falsified financial reports and inflated pre-tax profits by more than $6 billion between December 1999 and June 2002.
Shareholder complaints began piling up across the country last year after an investigation mushroomed into criminal charges against three former Tyco executives and its lead outside director. The claims were consolidated in New Hampshire's U.S. District Court.
In the documents investors alleged that fraud occurred during the tenure of former Tyco Chairman Dennis Kozlowski, who is accused of running a criminal enterprise that looted more than $600 million from the company.
At the height of the company's troubles last year, the decline in its share price had erased as much as $90 billion in market capitalization.
The shareholder filing said, "Even though the company has taken billions of dollars in charges in connection with overstated prior earnings, Tyco has still essentially refused to go back and restate its previously stated financial results."
Lawyers for the investors say a large part of the alleged fraud stemmed from Tyco's reluctance to write down the value of its June 2001 acquisition of CIT Group Inc. Tyco bought the company for about $9.5 billion and sold it in 2002 for less than half that amount.
Tyco ultimately took a charge against earnings to reflect the decreased value of the acquisition. The effect of the charge, according to shareholders' lawyers, eliminated almost 40 percent of the retained earnings Tyco had accumulated since its inception.
Tyco's new management team under Chairman Edward Breen has admitted to aggressive accounting during the Kozlowski era. They also point to an internal accounting investigation overseen by lawyer David Boies, which found no systemic fraud.
The credibility of the Boies report was called into question by some investors last month when Tyco took $1.1 billion in after-tax charges after unearthing fresh accounting problems.
In separate legal action this week, shareholder lawsuits were filed against Merrill Lynch & Co. Inc. and one of its former analysts, Phua K. Young, who is accused of issuing misleading research reports on Tyco, according to news releases issued by the law firms.
Christopher Wilson, Young's attorney, was not immediately available for comment. Merrill Lynch spokespeople also could not be reached for comment on Friday night.
Since October, Tyco has disclosed $2 billion in accounting-related problems. Tyco's accounting remains under investigation by the U.S. Securities and Exchange Commission.
Bureau Report