Tyco Accounting Scandal

Accounting Fraud > Accounting Scandals > Tyco Accounting Scandal

The Tyco International Limited Accounting scandal serves as a great example of things that can go wrong when a company’s top executives want to siphon off cash by concealing financial transactions through complex accounting rules.

Tyco is a large international conglomorate that manufactures a wide variety of products, from electronic components to healthcare products in over a hundred countries around the world. During 2002, the Securities and Exchange Commission began an investigation of Tyco’s top executives. Inquiries into the accuracy of the company’s books began in January 2002.

As investigations continued it was uncovered that Dennis Kozlowski, Tyco’s former CEO; Mark Schwartz, Tyco’s former CFO; and Mark Belnick, the company’s chief legal officer, had taken over $170 million in loans from Tyco without receiving appropriate approval from Tyco’s compensation committee and notifying shareholders. For the most part these loans were taken with low to no interest. Many of them were offset as bonuses without open approval. Kozlowski and Swartz also sold seven and a half million shares of Tyco stock for $430 million without telling investors. Formal charges were made by the SEC September 12, 2002.

Tyco continues operations and has replaced many members of its board of directors and has since been free from accounting scandals as we know them.

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