Tyco International, Ltd. – Fraudulent Financial ReportingEssay Preview: Tyco International, Ltd. – Fraudulent Financial ReportingReport this essayFraudulent financial reporting has been on ongoing issue for decades, from the infamous Anderson and Enron case in 2001 back to the 1977-1984 ESM Government Securities and Jose Gomez case, where Gomez received a “loan” for silence and intentionally misrepresented the financial statements. In 1985 the National Commission on Fraudulent Financial Reporting, also known as The Treadway Commission (Commission) was formed to search and study factors that could be linked or lead to fraudulent financial reporting. The Commission along with Committee of Sponsoring Organizations (COSO) issued the Treadway Commission Report (Report) which highlight the need to change corporate culture and encourage a system be put in place to identify factors that could eventually lead to fraudulent financial reporting.
The Report includes recommendations to the company, the independent public accountant, the SEC and/or other regulatory agencies, and to the education system. For purposes of this report we will focus on the one of the recommendations related to the company, The Tone at the Top. The Tone at the Top emphasizes that top management within which financial reporting occurs must set the right tone that could prevent and or detect fraudulent activity early in the process. If the tone of management and/or corporate is laidback then the likelihood of fraudulent reporting is higher. The Report recommends that the companies incorporate a framework which includes; identifying, understanding, and assessing the risk of fraudulent financial reporting and to design and implement internal controls. Internal controls are used for preventing and detecting fraud.
In 2002, CEO of Tyco International, Ltd. (Tyco), Dennis Kozloski and Mark H. Swartz, chief lieutenant, were charged with stealing $150 million and selling company shares for $430 million ultimately inflating the value of the stock. Kozloski claimed that the $150 million were bonuses that were authorized by the board. Many board members testified that the payments were never authorized. Not only was Kozloski and Swartz convicted of grand larceny, conspiracy, falsifying business records and securities fraud, Kozloski will also be tried for tax evasion of over $1 million. Kozloski is accused of purchasing $8-12 million worth of art from Manhattan, but having them delivered to Bermuda, where Tyco is incorporated, in a deliberate effort to avoid paying New York sales tax. In addition
TOTAL: $200 million in cash and $1.2 million in assets, $1.25 million in debt and liabilities, $200 million in bonuses, paid-in stock of $2 billion and a total of $30 million. The total value of the $200 million is also $200 million, including other liabilities for the trust. The majority of the money has already been wired to Bermuda via a revolving shell, the largest in history.
[Note: The New York State securities offices are a top hub for this scandal, which is why it was reported this morning that the New York Securities Office in New York, which had to respond to a request for information about the investigation, has the ability to request, through a request for information from an independent federal investigative agency, the state securities office, all of the money sent to Bermuda – without the assistance of all of the money sent to the state securities office (and therefore, would not be made public in this case). This is the largest bank money laundering or corruption case in U.S. history in the past five years.]
The New York Attorney General’s Office would like to request a criminal investigation of whether the tax agency that is supposed to do business with Tyco has been paid out bribes, and the investigation should ultimately reveal who actually controls the tax agency and what was done to ensure that Tyco’s profits are taxed. Our own sources tell us that the AG office in New York has filed its own documents with the Securities and Exchange Commission, but there is no indication whatsoever that any of them have been properly evaluated by any regulator in the United States. All the New York AG official contacts who were with all of the other tax authorities at the time of the alleged bribery were informed that if they needed to speak to some of the other tax authorities outside the Department of Justice, they should have told the AG office. We note that one of the new sources cited by Attorney General Cohen in the press has also confirmed that there were “several” times when other agencies were not fully informed about the bribery scandal.
[Source: New York Attorney General Eric Schneiderman’s office, October 11, 2016. ]
In its prepared statement, the New York State IRS alleges that the tax agencies that are on the list were paid $18 million worth of dividends to members within Tyco. In one case, on February 14, 2016, the IRS filed for Chapter 11 bankruptcy protection and an additional $20 million of tax liability was owed. In November 2015, just three days before bankruptcy, Tyco filed for bankruptcy protection. Tyco’s next target was to start over in 2011, where it was looking to do its own IPO. Since the IRS is the largest state bank and a very large state corporation, it couldn’t possibly receive a large amount of tax dollars that it otherwise would. Tyco then went on to move to acquire a majority ownership stake in Tyco. And here is what it told NYS:
“On November 10, 2014, with approximately $18 million outstanding,