BACKGROUND OF THE CASE

STATEMENT OF THE PROBLEM

1. Shareholder rights
1.1 Stock paid
FINDINGS

The Tyco’s scandal was taken place in 2002 when the board of directors launched an
investigation about their members’ incorrect behaviour. Kozlowski and his few “friends”
were resigned and have been dragged to the court. Kozlowski and Swartz, the Chief Finance
Officer (CFO) of Tyco Inc were alleged for stealing $170 million from the company and
fraudulently selling an additional $430 million in stock options. Kozlowski and few Tyco’s
board of directors also been accused in embezzling of Tyco fund for their private used and
were cited for conflict of interest issues. This scandal has caused the shares value decreased
drastically and made the workers breathless. After the resignation of Kozlowski, Tyco was
led by Edward Breen and the firm have been saved [https://www.lawteacher.net/free-law-
essays/company-law/unethical-issues-or-legal-issues-in-tyco-international-company-law-
essay.php]

They were also accused of selling their company stock without telling investors, which is a
requirement under SEC rules.

Essentially, they concealed their illegal actions by keeping them out of the accounting books
and away from the eyes of shareholders and board members.
[https://money.howstuffworks.com/cooking-
books10.htm?fbclid=IwAR0Dz5qMASRUWqAHyNwCIfkFnZOkS0D5ocphi0yuwcow48Kq-
qBjMul-B1Y]

Generally, securities fraud occurs when someone makes a false statement about a company
or the value of its stock, and others makes financial decisions based on the false
information.

SOLUTION

*The investors has the right know where the top management are putting their stocks

The Shareholders shall be provided, upon request, with periodic reports which disclose
personal and professional information about the directors and officers and certain other
 matters such as their holdings of the company�s shares, dealings with the company,
relationships among directors and key officers, and the aggregate compensation of directors
and officers. The Information Statement/Proxy Statement where these are found must be
distributed to the shareholders before annual general meetings and in the Registration
Statement and Prospectus in case of registration of shares for public offering with the
Commission.

The minority shareholders should be granted the right to propose the holding of a meeting,
and the right to propose items in the agenda of the meeting, provided the items are for
legitimate business purposes.

The minority shareholders should have access to any and all information relating to matters
for which the management is accountable for and to those relating to matters for which the
management should include such information and, if not included, then the minority
shareholders can propose to include such matters in the agenda of stockholders� meeting,
being within the definition of �legitimate purposes�.
[http://www.sec.gov.ph/stockholders-rights-and-protection-of-minority-stockholders-
interests/?fbclid=IwAR0RriPnp8q-Jmzmb9AjI8jXjeoAFXqPvETcjgSeVeqtbSlMMUJCbkYczLU]

2. Executive Compensation
2.1 Unauthorized/Unapproved bonuses
2.2 Misuse of company funds
FINDINGS
From the case, we could identify that Kozlowski had exploited the right of his employees by
taking a large amount from a program that could help the employees to buy company stock
in order to buy himself luxury homes, yachts and fine arts. Besides Kozlowski, another
director, Lord Michael Ashcroft also involved himself in misappropriating the company fund.
He used Tyco funds to purchase a home. Their deeds were unethical; they should not exploit
others for their own benefits. https://www.lawteacher.net/free-law-essays/company-
law/unethical-issues-or-legal-issues-in-tyco-international-company-law-essay.php

Tyco's former CEO Dennis Koslowski, former CFO Mark Swartz, and former General Counsel
Mark Belnick were accused of giving themselves interest-free or very low interest loans
(sometimes disguised as bonuses) that were never approved by the Tyco board or repaid.
Some of these "loans" were part of a "Key Employee Loan" program the company offered.
Rumors of a $6,000 shower curtain, $2,000 trash can, and a $2 million dollar birthday party
for Koslowski's wife in Italy are just a few examples of the misuse of company funds. As
many as 40 Tyco executives took loans that were later "forgiven" as part of Tyco's loan-
forgiveness program, although it was said that many did not know they were doing anything
wrong. Hush money was also paid to those the company feared would "rat out" Kozlowski.
https://money.howstuffworks.com/cooking-books10.htm?fbclid=IwAR0jx2ux2Bg-
JbJfWAGmkUbd7de7S3jlERdJapBfUCLZOIUcyrM9e6QniHU
SOLUTION:
*Transparency
*Corroborating information wit
*Proper segregation of duties
 3. Organizational Ethics Program
3.1 Conflict of Interest
3.1.1 conflict between management and subordinates pg 24.
FINDINGS:
Bribery . Silent lang yung mga subortdinates or employees sa mga nakkitang issues,
they are been given some financial benefits to remain silent or not to interfere.
3.1.2 conflict between management and company itself .
FINDINGS
Misuse of company funds.
3.2 Unethical auditing practices
3.3 Tax Evasion

Background of the case

Tyco International has operations in over 100 countries and claims to be the
world's largest maker and servicer of electrical and electronic components; the
largest designer and maker of undersea telecommunications systems; the larger
maker of fire protection systems and electronic security services; the largest
maker of specialty valves; and a major player in the disposable medical
products, plastics, and adhesives markets. Since 1986, Tyco has claimed over
40 major acquisitions as well as many minor acquisitions.

How it Was Discovered

In 1999 the SEC began an investigation after an analyst reported questionable
accounting practices. This investigation took place from 1999 to 2000 and
centered on accounting practices for the company's many acquisitions, including
a practice known as "spring-loading." In "spring-loading," the pre-acquisition
earnings of an acquired company are underreported, giving the merged company
the appearance of an earnings boost afterwards. The investigation ended with
the SEC deciding to take no action.

In January 2002, the accuracy of Tyco's bookkeeping and accounting again

came under question after a tip drew attention to a $20 million payment made to
Tyco director Frank Walsh, Jr. That payment was later explained as a finder's fee
for the Tyco acquisition of CIT. In June 2002, Kozlowski was being investigated
for tax evasion because he failed to pay sales tax on $13 million in artwork that
he had purchased in New York with company funds. At the same time, Kozlowski
resigned from Tyco "for personal reasons" and was replaced by John Fort. By
September of 2002, all three (Kozlowski, Swartz, and Belnick) were gone and
charges were filed against them for failure to disclose information on their
multimillion dollar loans to shareholders.

The SEC asked Kozlowski, Swartz, and Belnick to restore the funds that they
took from Tyco in the form of undisclosed loans and compensations.

1. Tyco – A Brief Background

Tyco International was founded in 1960 and was regarded as an
important electrical and electronic components provider, fire
protection system maker and electronic security service provider.
It is a diverse producing and serving corporation. Tyco has done
business in over 1000 locations in 50 countries and hires 69,000
employees around the world (TYCO, 2012). Tyco International
has expanded rapidly and broadly since its IPO in 1973 and has
numerous companies among the Fortune 500. The firm’s
revenue increased from $3.1 billion in 1992 to over $40 billion in
2004, with the firm’s market value estimated at over $100 billion
(TYCO, 2012). Tyco has made numerous acquisitions, including
40 acquisitions since the 1980s.