TRENTON, N.J. (AP) – PricewaterhouseCoopers LLP has agreed to pay $225 million to settle a class-action lawsuit brought by shareholders of Tyco International Ltd. over a multibillion-dollar accounting fraud that sent Tyco’s top executives to prison.
The settlement with Tyco’s former auditing firm comes on top of one reached in May, in which Tyco agreed to put $2.975 billion into a fund to settle most shareholder claims over the actions of former chief executive officer L. Dennis Kozlowski and ex-chief financial officer Mark Swartz.
With interest, that settlement will 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 concludes a four-year legal battle. The money will be divided among shareholders after attorneys’ fees – not yet determined – are deducted, said Jay Eisenhofer, one of the three co-lead counsels in the case.
“Money could be distributed as early as 2008,” Eisenhofer said.
Prior to that, the New Hampshire judge overseeing the class-action suit, Paul Barbadoro, is to hold a hearing soon to give preliminary approval to the settlement and then will have a hearing on final approval in November, according to Eisenhofer.
Assuming Barbadoro grants preliminary approval, in late July or early August the shareholders affected will receive a notice from a claims administrator informing them of the settlement and explaining the claims process.
The settlement covers investors who acquired Tyco securities from Dec. 13, 1999, to June 7, 2002. Tyco has its operating headquarters in West Windsor, N.J., and is nominally headquartered in Bermuda. The lawsuits were filed in New Hampshire because the company was formerly headquartered in Exeter, N.H.
The shareholders’ suit had claimed that as Tyco’s independent auditor, PricewaterhouseCoopers failed to uncover fraud in the accounting scandal at the conglomerate. According to the shareholders’ legal team, Tyco overstated its income during that period by $5.8 billion.
PricewaterhouseCoopers spokesman David Nestor said the company “has decided to resolve the vast majority of the Tyco litigation involving the firm by joining the global settlement previously announced by Tyco International.”
“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. In addition, PwC values its ongoing business relationships with all of the Tyco entities and this settlement clears the way for those relationships to continue to grow,” Nestor said.
Investors’ losses have been estimated at $1 billion to $2 billion. The settlement was reached after extensive litigation and mediation, according to the shareholders’ lawyers.
It’s unclear how many shareholders are involved, but Tyco had about 2 billion shares of stock on the market during the period in question, Eisenhofer said. The class representatives in the suit included several trade unions and public pension funds, among them pension plans for office employees, teachers and state employees in Louisiana, and plumbers and pipe fitters around the country.
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.
Eisenhofer said the company still has lawsuits pending trying to recover monies from Kozlowski and Swartz.
“Part of the settlement (with Tyco) provides us with a financial interest in the lawsuits that Tyco has against Kozlowski and Swartz
Shares of Tyco International rose 7 cents to $53.17 in trading Friday.
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