Tyco employee class action nets $72.5m settlement


Some 50,000 former and current employees of Tyco International who held the company’s stock in their 401(k) plans will get a total of $50 million – an average of about $1,000 apiece – as part of a $72.5 million settlement approved last week in U.S. District Court in Concord.Lawyers representing the plaintiffs will get the rest -- about $23 million, including nearly $2 million in approved expenses.Tyco – formerly based in Exeter, N.H., but now based in Princeton, N.J. -- will pay the bulk of the settlement, $72.2 million. Former chief executive L. Dennis Kozlowski will chip in $100,000 and former CFO Mark Swartz agreed to pay $225,000. Both executives – convicted in 2005 of looting the company of $400 million -- are currently serving prison terms.However, all of the defendants refused to admit liability.The parties preliminarily agreed on the deal in August, but it was made final on Nov. 23.The settlement – reached after more than seven years of litigation – is the sixth-largest award under the Employee Retirement Income Security Act of 1974 (ERISA), which covers pension plans, according to Robert A. Izard, an attorney for Schatz & Nobel, the Hartford, Conn., law firm litigating the class action.The amount is relatively small compared to the nearly $3 billion settlement reached on behalf of all shareholders back in 2007. But in this case, shareholders won’t have to file a claim to collect their money. Checks based on the amount will be sent out some time early next year, Izard said. He noted that the average settlement is $1,000, but amounts could vary depending on how much stock was held and when. Only those who purchased or held Tyco stock in their 401(k) between Aug. 12, 1998, and July 25, 2002, will get any money though.Tyco, a fire prevention and security firm that became a multinational conglomerate, was one of the state’s most profitable companies during the 1990s. But though it was based in Exeter, its official headquarters for tax purposes was in Bermuda and most of its holdings were out of state, so it employed a little more than 1,000 people here.While the ERISA claim mentioned mention that there was excessive compensation that was not transparent -- “forgiven loans and so-called “gross-up” payments to executive officers of Tyco International Ltd.” -- the bulk of the argument was the company’s delayed disclosure of some 700 acquisitions for a total of $8 billion. Not only did the company have to borrow at a high interest rate to undertake the deals, it manipulated the financials of the companies to make it seem as if they were worth more than the were, according to the complaint. Instead of increasing earnings, “they had a substantial negative impact on Tyco’s earnings and free cash flow,” according to the claim.The officials that managed the company’s pension plan knew that the company was on shaky grounds, but it invested $700 million in Tyco stock anyway, without telling employees of the danger.But analysts started questioning the company’s aggressive acquisition strategy, and when the Securities and Exchange Commission and the New York attorney general launched an investigation into Tyco, the stock took a nosedive, causing those with 401(k) plans to take substantial losses.The ERISA complaint was buried in the massive billion-dollar shareholder lawsuit, as litigation floated in and out of U.S. District Court in New Hampshire. After the main shareholder lawsuit was settled in 2007, much of the litigation was by individual and institutional stockholders who did not participate in the class action settlement.Tyco would not comment on the ERISA settlement, but in its annual filing with the SEC it said that it agreed to pay $271 million for all of its remaining claims, including the ERISA suit.However, because of a cost-sharing arrangement with its former spin offs, Tyco’s share of the total would be $73 million and its share of the ERISA action would be $19.5 million. The company would take no charge against earnings because it had previously set up a reserve to cover such cost, the filing said.The ERISA settlement differs from the other actions, however, because it was on top of, rather than instead of, the main shareholder settlement. Stockholders who took advantage of that settlement can still collect under the ERISA settlement, it was filed under a different law.While most of the legal fees will be collected by law firms in Hartford and New York, one local attorney was listed: Kenneth Bouchard of Bouchard, Kleinman & Wright, which has offices in Manchester and Hampton. Bouchard could not be reached by deadline for comment about his role. – BOB SANDERS/NEW HAMPSHIRE BUSINESS REVIEW
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