In 2001, Tyco paid PwC $51.1 million for its services. It is unclear how PwC missed a scandal as large as this one, due to the fact that they missed the millions of dollars in “unreported, misappropriated, and misrepresented compensation” shared amongst Kozlowski and Swartz (Forbes). According to several experts, the tactics that Tyco used to prevent the auditors from discovering the fraud was the fact that Kozlowski only permitted a handful of dependable lieutenants to work with him at the headquarters operation (Washington Post). People believe that they knew exactly what was going on there. Another factor was the fact that Kozlowski never elected a president and he handpicked top management, which insured that they were up to his approval and had a similar mindset. This allowed Kozlowski to be able to keep outside directors in the dark. Kozlowski went to extreme lengths to ensure that he was in control of all of the pertinent information; including the internal audits that should have gone directly to the board members. However, the board should have never allowed Kozlowski to provide the internal audit information to them, instead they should have required that they hear directly from the auditors …show more content…
Kozlowski, Swartz, and Belnick were all accused of selling their stock without informing shareholders, which under the Securities and Exchange Commission is a requirement. The Securities and Exchange Commission(SEC), the Manhattan D.A. and Tyco all pursued cases against Kozlowski, Swartz, and other former corporate officials on various charges which included: fraud, grand larceny, and falsifying regulatory filings. The SEC originally began an investigation on Tyco in 1999 after an analyst reported questionable accounting practices (SEC). The investigation revolved around the suspicious accounting principles of the company’s acquisitions, including a practice known as “spring-loading” (Forbes). In spring-loading, earnings of an acquired company are underreported, allowing the merged company’s earnings to have a boost afterwards. The SEC decided not to pursue Tyco any further after 2000, however in 2002 Tyco’s books came into question once again after a payment of $20 million went to their director Frank Walsh (Bloomberg). This is when things began to rock, Kozlowski was then investigated for tax evasion due to the fact that he did not pay sales taxes on one of the many pieces of artwork he purchased in New York with company funds. While he was under investigation Kozlowski