Tyco International Ltd.'s former top lawyer, Mark A. Belnick, failed to alert the board of directors to accounting problems at the company after he learned of them in 2000, former director John F. Fort III testified Wednesday.
Belnick, who retained outside lawyers to investigate Tyco, didn't tell the board about e-mails he got from them when they found problems with company accounting procedures, Fort said. Belnick hired former Securities and Exchange Commission enforcement chief William R. McLucas and his Washington law firm to help Tyco through an SEC inquiry begun in late 1999.
"From the tone of the e-mails, they certainly didn't seem minor," Fort testified. He said he first saw the e-mails after Belnick was fired from Tyco.
Manhattan prosecutors say Belnick, 57, received a $17 million bonus and almost $15 million in improper, no-interest loans for covering up misconduct by former Tyco chief executive L. Dennis Kozlowski. Belnick's lawyers contend the bonus was a reward for heading off the SEC inquiry.
Fort is the government's first witness in its case against Belnick, who's charged with grand larceny, stock fraud and falsifying business records. If convicted, Belnick faces up to 25 years in prison. Fort testified for a third day.
During his testimony, Fort read from several e-mails between Belnick and McLucas and other lawyers at Wilmer, Cutler & Pickering. The e-mails detailed accounting problems that the lawyers determined were not material and did not need to be reported to the SEC.
In response to a question from Assistant District Attorney John Moscow, Fort, who headed Tyco's audit committee, said that was information he should have been told.
During cross-examination by the defense, Fort recalled that he and Belnick shared a three-hour ride in Fort's private plane after Tyco's board had learned of the nearly $15 million in no-interest relocation loans Belnick got from the company. Prosecutors say Belnick used $10 million of that to build a home in Park City, Utah. Tyco had no corporate offices in the state.
"During that plane ride with Mr. Belnick, did you ever challenge that Utah loan?" defense lawyer Reid Weingarten asked him.
"I would say no," Fort replied. Belnick told him he wanted to live in Utah because his family "enjoyed the skiing, they enjoyed the area and they enjoyed the lifestyle out there," Fort said.
Tyco, the world's biggest maker of security systems, is based in Bermuda and run from offices in West Windsor, N.J.
Fort also testified for the prosecution in the trial of Kozlowski, 57, and former Tyco Chief Financial Officer Mark H. Swartz, 43. State Supreme Court Justice Michael J. Obus declared a mistrial in that case last month, citing outside pressure on one of the jurors, Ruth Jordan, 79.
Jordan returned to Obus's courtroom today to watch part of Belnick's trial.
"I read a little bit about it in the paper," she said, adding that she came "just out of general curiosity."