PwC Settles Tyco Investors' Suit Over Fraud
Saturday, July 7, 2007
PricewaterhouseCoopers agreed to pay $225 million to settle a class-action lawsuit brought by shareholders of Tyco International over a multibillion-dollar accounting fraud that ended with Tyco's top executives going to prison.
The settlement with the manufacturing giant's former auditor comes after one reached in May with Tyco. The company agreed to put $2.975 billion into a fund to settle most shareholder claims over the actions of former chief executive L. Dennis Kozlowski and former chief financial officer Mark H. Swartz.
With interest, the Tyco settlement is believed to be the largest ever by a single corporate defendant, according to the law firms pursuing claims for the shareholders.
The total settlement of more than $3.2 billion from Tyco and PricewaterhouseCoopers concludes a four-year legal battle.
The money will be divided among shareholders after payment of attorneys' fees, which have not been determined, said Jay Eisenhofer, one of the three lead counsels in the case. Eisenhofer said money may be dispersed as early as next year.
The New Hampshire judge overseeing the class-action suit, Paul J. Barbadoro, is to hold a hearing soon on preliminary approval for the settlement and then will have a hearing on final approval in November, Eisenhofer said.
The settlement covers investors who acquired Tyco securities from Dec. 13, 1999, to June 7, 2002.
The shareholders' suit said that as Tyco's independent auditor, PricewaterhouseCoopers failed to uncover fraud in the accounting scandal at the conglomerate. The shareholders' legal team said Tyco overstated its income in that period by $5.8 billion.
PricewaterhouseCoopers spokesman David Nestor said, "While PwC was prepared to continue to defend all aspects of its work in the litigation process, the cost of that defense and the size of the securities class action made settlement the sensible choice for the firm."
Investors' losses were $1 billion to $2 billion. It's unclear how many shareholders are involved, but Tyco had about 2 billion shares of stock on the market in the period in question, Eisenhofer said.
Kozlowski and Swartz were convicted of grand larceny and other crimes for looting Tyco of about $600 million to fund extravagant lifestyles and inflating the company's value. The pair are serving terms of eight years to 25 years in prison.
Tyco spokesman Paul Fitzhenry declined to comment on the latest settlement.