$12.5 million was a part of bonus, ex-Tyco CFO says

NEW YORK — Tyco International Ltd.'s former chief financial officer testified Wednesday that $12.5 million he is accused of stealing from the company was actually part of a bonus he had earned.

Mark Swartz said he initially got the money as a loan, but after a member of the Tyco board of directors expressed concern about the size of executive bonuses for 1999, Swartz said he was asked to take "forgiveness" for that loan as part of his bonus.

Swartz said the loan forgiveness suggestion came from Tyco's chief executive, L. Dennis Kozlowski. He said Kozlowski later told him board member Philip Hampton had approved the $12.5 million loan forgiveness idea. Hampton died May 1, 2001.

Prosecutors say the board's entire compensation committee — not one individual — had to approve the loan forgiveness for it to be legal. And they note that Swartz paid back the $12.5 million — with interest — in 2002 when he was challenged about it.

Swartz and Kozlowski, accused of stealing $600 million from Tyco, are on trial in Manhattan's state Supreme Court. They are charged with grand larceny, enterprise corruption, state business law violations and falsifying business records.

The first defense witness, Swartz took the stand Tuesday after lawyers for Kozlowski rested without calling any witnesses. The prosecution rested last week after 47 witnesses and some 700 exhibits, including a videotape of a $2.1 million birthday party for Kozlowski's wife on the Mediterranean island of Sardinia.

Swartz, 43, said Tyco paid about $1 million of the party's cost and Kozlowski paid the rest. He said he thought split was "appropriate" given the fact that Tyco business was conducted there and that a number of the people present were Tyco employees.