Monday, September 29, 2003

Investors watch as execs go to trial

Kozlowski was conspicuous consumer

By Erin McClam
The Associated Press

NEW YORK - One defendant is an ex-CEO whose alleged greed came to symbolize the scandals that have hit Wall Street. The other is a former banking star accused of ordering key documents destroyed.

Former Tyco chief Dennis Kozlowski and banker Frank Quattrone go on trial today less than a block apart in the first major trials since white-collar corruption erupted in the headlines last year.

And while the charges are different - Kozlowski is accused of grand larceny, Quattrone of obstruction of justice - both trials will be watched closely by the financial community.

"The investing public feels like it has been trampled on by Wall Street," says Christopher J. Bebel, a former Justice Department prosecutor. "And it has a thirst for vengeance that has not been quenched at this point."

Kozlowski and former Tyco financial chief Mark Swartz, who will be tried with him, are accused of turning the conglomerate into their personal piggy bank, looting it to the tune of $600 million.

Reports after Kozlowski was charged last September showed he spent company money at will on high art and furniture - from a $6,000 shower curtain to a $15,000 antique umbrella stand.

In one well-known incident, Tyco picked up half the tab for a $2-million birthday party for Kozlowski's wife in Italy that featured musician Jimmy Buffett and an ice sculpture of Michelangelo's David.

Besides lavish salaries and perks, Kozlowski and Swartz arranged to be paid $84 million in unauthorized bonuses, Manhattan prosecutors say.

Both men have pleaded innocent. The pair are expected to argue that the millions they are accused of stealing were actually loans and bonuses approved by the board and disclosed to outside auditors.

Last week, the judge who will hear the case overruled prosecutors who said the argument should not be allowed, calling it "rhetoric and sophistry" that Kozlowski and Swartz could sell to an unsophisticated jury. The ruling was considered an important victory for the defense.

The key to acquittal will be convincing a jury that the board knew about the compensation, and that Kozlowski worked hard to improve Tyco and deserved the pay, said Robert Zatorski, a former New Jersey white-collar crime prosecutor.

"You have to show that he, in fact, deserved the accouterments of wealth," Zatorski said. "There's a big difference between being wealthy and being a criminal."

The trial, at state Supreme Court in Manhattan, is expected to last several months. Kozlowski, 56, and Swartz, 43, could each get 30 years in jail if convicted on grand larceny and other lesser counts.

Banker's day in court

The Quattrone obstruction trial, just down the street at a federal courthouse in lower Manhattan, features fairly simple evidence and is expected to last only two to three weeks.

Quattrone was a highly influential investment banker at Credit Suisse First Boston during the 1990s. At the height of the dot-com boom, he was paid tens of millions of dollars a year to help take technology companies public.

He is accused of encouraging CSFB employees to get rid of documents that were being sought by a grand jury and regulators looking into how CSFB doled out shares of initial public offerings.

The government says Quattrone deliberately obstructed justice on Dec. 5, 2000, when he distributed an e-mail proposed by one of his subordinates that urged workers to "catch up on file cleaning before the holidays."

Quattrone attached his own note at the top: "I strongly advise you to follow these procedures."

The trick for prosecutors will be proving criminal intent. Quattrone insists he did not know the documents were being sought by investigators, and that he was following CSFB policy on getting rid of old files.

"Only prosecutors who see the world through dirty windows would take a one-sentence e-mail supporting company policy and turn it into a federal criminal case," defense attorney John W. Keker said in April, when Quattrone was charged.

To win their case, prosecutors must portray Quattrone as a man who was arrogant, under incredible stress and defiant of government investigators, Bebel said.

"The government's challenge will be to bring those cold, bland, corporate-speak instructions to life," he said.

Quattrone, 47, has pleaded innocent. He faces 25 years in prison if convicted on all counts - two of obstruction, one of witness tampering - but would likely get far less under federal sentencing guidelines.

Other major white-collar trials loom early next year.

In Harrisburg, Pa., former Rite Aid Corp. executive Franklin C. Brown's trial begins today on federal criminal charges of fraud and conspiracy.

The former general counsel and vice chairman is accused of conspiring to inflate the company's financial statements during the late 1990s. Several other former Rite Aid top managers have pleaded guilty to criminal charges.

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Sunday's business report