Tyco to Pay $2.98 Billion to Settle Fraud Lawsuits

Bermuda conglomerate Tyco International has agreed to pay $2.98 billion to settle investor lawsuits over accounting fraud, the largest corporate payout ever in this kind of litigation. Tyco will take a charge this quarter for the full amount and will now proceed to break itself up. The suits accused the company of inflating its income by $5.8 billion under the aegis of former CEO L. Dennis Kozlowski, who is now serving a jail sentence for grand larceny, falsification of business records and conspiracy. He and former CFO Mark Swartz are serving up to 25 years for absconding with over $150 million in unauthorized bonuses and defrauding shareholders of millions more by manipulating the company's earnings. "With this settlement we are taking an important step to resolve our most significant remaining legacy legal matter," said CEO Edward D. Breen. In April, Tyco agreed to pay $50 million to settle SEC accounting claims. The company plans to separate its health-care unit into a standalone publicly traded company called Covidien and its electronics unit into a public company called Tyco Electronics. The breakup is scheduled to be completed by June 30.

Sources: New York Times, Bloomberg, MarketWatch
Commentary: Tyco Misses on Breakup Charges • No Accounting Fraud at Tyco? I Beg To Differ • Pre-Spinoff Tyco Is A Buy
Stocks/ETFs to watch: Tyco International Ltd. (TYC). Competitors: Johnson & Johnson (JNJ), Molex Inc. (MOLX), United Technologies Corp. (UTX). ETFs: PowerShares FTSE RAFI Industrials (PRFN), Vanguard Industrials ETF (VIS), iShares S&P Global Industrials (EXI)

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