Taking Down the Lion: The Rise and Fall of Tyco's Dennis Kozlowski (3 page)

Not once during his twenty-seven years with Tyco, and most certainly not when he expressed optimism about the future to Tyco shareholders in December of 2001, did Dennis Kozlowski imagine he’d be in a courtroom charged with nearly two dozen felonies—accused of wrongfully taking millions of dollars from the company he loved. But that’s where he found himself in June of 2005. He was standing with his defense team in front of the Supreme Court of the State of New York at the conclusion of a lengthy criminal trial, facing a jury of six women and six men who held his fate in their hands.

Two

BA 0.043

In baseball, one measure of performance is a player’s batting average (BA) which is calculated by dividing the number of base hits by the number of official times at bat. For example, if a player has 25 hits in 100 times at bat, the player’s BA is 0.250. Going 1 for 23 (BA 0.043) is crushing.

* * *

Supreme Court, New York County

Manhattan Criminal Courthouse, 13th Floor

100 Centre Street

New York City, New York

June 17, 2005

The Clerk:
How say you to count number one against the defendant L Dennis Kozlowski, grand larceny in the first degree?

The Foreperson:
Guilty.

The Clerk:
How say you to the second count of the indictment charging defendant L Dennis Kozlowski with the crime of grand larceny in the first degree?

The Foreperson:
Guilty.

The Clerk:
How say you to the third count of the indictment charging defendant with grand larceny in the first degree?

The Foreperson:
Guilty.

The Clerk:
How say you to the fourth count of the indictment charging defendant with the crime of grand larceny in the first degree?

The Foreperson:
Guilty.

The Clerk:
How say you to the fifth count of the indictment charging defendant with the crime of grand larceny in the first degree?

The Foreperson:
Guilty.

The Clerk:
How say you to the sixth count of the indictment charging defendant with the crime of grand larceny in the first degree?

The Foreperson:
Guilty.

The Clerk:
How say you to the eighth count of the indictment charging defendant with grand larceny in the first degree?

The Foreperson:
Guilty.

The Clerk:
How say you to the ninth count of the indictment charging defendant with grand larceny in the first degree?

The Foreperson:
Guilty.

The Clerk:
How say you to the 10th count of the indictment charging defendant with the crime of grand larceny in the first degree?

The Foreperson:
Guilty.

The Clerk:
How say you to the 11th count charging the defendant with grand larceny in the first degree?

The Foreperson:
Guilty.

The Clerk:
How say you to the 12th count charging defendant with grand larceny in the first degree?

The Foreperson:
Guilty.

The Clerk:
How say you to the 13th count charging defendant with grand larceny in the first degree?

The Foreperson:
Guilty.

The Clerk:
How say you to the 14th count charging defendant with conspiracy in the fourth degree?

The Foreperson:
Guilty.

The Clerk:
How say you to the 15th count of the indictment charging defendant with violation of General Business Law 352 C subsection five?

The Foreperson:
Guilty.

The Clerk:
How say you to the 16th count of the indictment charging defendant with falsifying business records in the first degree?

The Foreperson:
Guilty.

The Clerk:
How say you to the 17th count charging defendant with falsifying business records in the first degree?

The Foreperson:
Not guilty.

The Clerk:
How say you to the 18th count of the indictment charging defendant with falsifying business records in the first degree?

The Foreperson:
Guilty.

The Clerk:
How say you to the 19th count charging defendant with falsifying business records in the first degree?

The Foreperson:
Guilty.

The Clerk:
How say you to the 20th count charging defendant with falsifying business records in the first degree?

The Foreperson:
Guilty.

The Clerk:
How say you to the 21st count charging defendant with falsifying business records in the first degree?

The Foreperson:
Guilty.

The Clerk:
How say you to the 22nd count charging defendant with falsifying business records in the first degree?

The Foreperson:
Guilty.

The Clerk:
How say you to the 23rd count charging defendant with falsifying business records in the first degree?

The Foreperson:
Guilty.

The Clerk:
How say you to the 24th count of the indictment charging defendant with falsifying business records in the first degree?

The Foreperson:
Guilty.
1

* * *

By the following day, news of the verdicts was everywhere; the high-profile legal drama had finally reached a conclusion after three
crazy
years. There was an earlier trial of the same Defendants—it ended without a verdict after an exhausting six months that stretched from the fall of 2003 into the first half of 2004. The prosecution and defense teams learned their efforts were for naught and the Defendants remained in legal limbo when the court declared a mistrial during jury deliberations at the end of the first trial. Then in January of 2005, there was a courtroom reunion. Everyone was back for a second trial, this one five months in duration. So when the jury reached verdicts in June of 2005, the decisions were much anticipated and long awaited. It was the end of a prolonged and painful journey. At least Dennis Kozlowski thought it was the end.

He was wrong.

Kozlowski envisioned a different outcome during the eleven days the second jury deliberated. In fact, he anticipated a different outcome since the moment he was indicted nearly three years earlier. “Nothing prepares you for that moment,” Kozlowski said as he remembered the jury’s verdicts and the words that transformed him into a convicted felon.
2
He was guilty of the largest larceny ever prosecuted by the State of New York.
3
In a dark suit and tie, looking every bit the corporate executive he had been for most of his adult life,
4
a stoic Dennis Kozlowski stood and received the verdicts: guilty of twelve counts of grand larceny in the first degree, guilty of one count of conspiracy in the fourth degree, guilty of one count of violating New York General Business Law Section 352-c(5), and guilty of eight counts of falsifying business records in the first degree. Guilty of twenty-two of the twenty-three felony counts for which he was tried.

Guilty.

* * *

Mid-State Correctional Facility

Marcy, New York

March 17, 2011

Dear Cathy,

You asked about my worst moments since January 2002. There were a few. The jury in my second trial returning with a guilty verdict was a horrible moment. The words guilty were repeated over and over. My daughter’s accident in Bali last July 31 was incredibly stressful for me and horrible for her. Not being at her side at such a difficult time was devastating. Sandy continues to recover.

I had a heart problem in January 2007. I was taken to an outside hospital emergency room and spent a week there. I was chained and cuffed. I was scared and my family had no access to me. All is well now. It was the first time I was ever admitted to a hospital. At one point I thought I might die chained to a gurney in a strange emergency room.

Missing happy, joyful events also hurts. I could not attend Cheryl’s wedding some three years ago and missed the births of two grandchildren. The last nine years of my life have been dedicated to two trials and almost 6 years in jail. That’s about 20% of my adult life. It’s difficult seeing violent criminals and child molesters come and go here (serving 2 to 3 years) while my life passes me by. Many investors, employees, vendors, and communities benefited from the 27 years I spent growing Tyco and they continue to benefit today. I feel I deserve better than the rough justice of New York State.

Regards,

Dennis
5

Three

950 Fifth Avenue

In a supposed conversation between F. Scott Fitzgerald and Ernest Hemingway, Fitzgerald said, “The rich are different from us,” to which Hemingway replied, “Yes, they have more money.”
1
If Hemingway had known Dennis Kozlowski, he may have added, “and very expensive shower curtains.”

* * *

In the history of civilization, there have been only two famous shower curtains. The first hung between Anthony Perkins and an unsuspecting Janet Leigh in Alfred Hitchcock’s
Psycho.
2
Since 1960, Hitchcock’s shower curtain has been a widely recognized symbol of suspense and horror; it is an American pop culture icon. More than forty years after Hitchcock’s gruesome shower scene, another shower curtain also reached icon status. The second, with its extraordinary price tag, is not part of pop culture but instead is a damning icon of American corporate culture.

A $6,000 shower curtain came to symbolize the greed and excesses exposed during Enron-era corporate scandals. It was held up as the epitome of failed governance, lax regulatory oversight, and questionable judgment of highly compensated leaders in some of the largest corporations in the world. The garish, overpriced burgundy and gold shower curtain was mentioned in tens of thousands of articles, became a media darling during an appearance on
60 Minutes,
and had a cameo role in an episode of CNBC’s
American Greed.
3
It was photographed, filmed, and the butt of jokes. At the peak of its notoriety, the shower curtain was confiscated by the New York City Police Department and used as evidence in criminal trials. The cloudy plastic curtain through which Hitchcock revealed the blurred silhouette of a knife-wielding Anthony Perkins and vulnerably nude Janet Leigh pales in comparison to the one that draped the shower in a Tyco corporate apartment when Dennis Kozlowski served as the company’s CEO.

After reaching the pinnacle of business success, then being publicly castigated and labeled the “poster child for corporate greed,”
4
despite magazine covers that heralded his talent followed by a very public fall from grace, irrespective of a shocking indictment and two criminal trials that were covered by the media almost every day for three years, it seems Dennis Kozlowski will forever be
best
known as the guy who bought the $6,000 shower curtain. Of all of the wonderful, terrible, fascinating, scandalous, and tragic things that happened in Dennis Kozlowski’s life, it’s the shower curtain that people remember.

* * *

Upper East Side, Borough of Manhattan

New York City, New York

June 23, 2012

I walked with Dennis Kozlowski along the eastern edge of Central Park in Manhattan’s Upper East Side on a sunny Saturday morning during the summer of 2012. As we walked, I talked with the former CEO about his career, his crimes, and his punishment. After six years and nine months in prison and more than four months in the State of New York’s temporary work release program, Dennis Kozlowski received his first full day of furlough time on a Saturday in June of 2012. Kozlowski was, at the time, housed at the Lincoln Correctional Facility on 110th Street in Manhattan. After being approved for the work release program at the end of 2011, he was moved from the Mid-State Correctional Facility in Marcy, New York, to Lincoln in Harlem, and he began working at his approved job in February of 2012.
5
Like the other participants in the program, Kozlowski was permitted to leave Lincoln to go to work during specified weekday hours.
6
Most were eventually granted furlough time in the evenings and on weekends, when they could leave the facility to spend time with friends and family.
7
The program helped inmates transition back into society after years in prison; those adjustments occurred in large part during hours like those Kozlowski enjoyed outside of prison on the day in June when I had the opportunity to speak with him.

As we walked, my objectives for the day were different than Kozlowski’s. He wanted to enjoy his first few hours of quasi-freedom in nearly seven years, to walk the streets without handcuffs and shackles, and to remember how it felt to be without constant supervision. As he acclimated to the world outside of prison walls, I tried to better understand Dennis Kozlowski: a man who once ran a huge multi-national conglomerate, a man who spearheaded the acquisitions of hundreds of companies for billions of dollars, and a man who earned more than $100 million a year during some of the years he was a CEO. He had brains, power, and money and achieved extraordinary success in business and in life. Why was this man charged with a long list of felonies, convicted of twenty-two, and how did he end up in a
New York State prison? And there was one other question, the response to which would probably help answer all of the other questions. How did Dennis Kozlowski come to own a $6,000 shower curtain?

* * *

We made our way south along Fifth Avenue on the shady sidewalk bordering Central Park. As we walked the entirety of Museum Mile, Kozlowski spoke knowledgeably about the park, the buildings, the museums, and the history of the city. He specifically pointed out The Frick Collection on East 70th, a museum he mentioned in a letter he sent to me a year earlier. About the museum, Kozlowski wrote, “it was my favorite destination from my college days until 6 years ago.”
8
Kozlowski first viewed the work of J. M. W. Turner at The Frick house. Turner was a British artist known for his landscape paintings. A significant number of Turner’s paintings are maritime scenes—ships, sails, and the sea—and it was those pieces that attracted Kozlowski to The Frick Collection again and again.
9

In addition to telling me about specific Manhattan landmarks, Kozlowski identified properties where he lived at various times during his adult life. He explained the peculiarities of buying shares of a co-op in New York City, and he shared frustrating experiences of being rejected by two co-op boards in the early 1990s, after which he opted for many years to rent instead of buying apartments in New York City.

Kozlowski stopped at the intersection of Fifth Avenue and East 76th Street and pointed across the street to the property on the northeast corner. He identified the high-rise apartment building as 950 Fifth Avenue. “That’s it,” he said. “That’s where the $6,000 shower curtain once hung.”
10
The beautiful thirteen-story building was located in the affluent Lenox Hill neighborhood of the Upper East Side and the exclusive address came with coveted Central Park views. It was exactly 1.8 miles from the Lincoln Correctional Facility on 110th Street—where Kozlowski would return later that day—to the 950 Fifth Avenue apartment. It was less than a thirty-minute walk and yet a world away.

Standing outside the building that summer morning, Kozlowski recalled that “the shower curtain hung in the bathroom on the first floor of the apartment, near a bedroom at the back of the kitchen that was probably once used as staff quarters. When we remodeled, that bathroom wasn’t renovated.” He also said, “I think the decorator hung the shower curtain there because it was less expensive than restoring the bath.”
11
Kozlowski explained that he stayed in the apartment generally one or two nights a month; he didn’t spend many nights in the city during those years. When he was CEO, Kozlowski lived in New Hampshire, then Nantucket, and then Boca Raton. He never considered New York his home.
12
The transcript of his first criminal trial confirms his recollection of the frequency with which he used the apartment; the housekeeper for the apartment testified that Kozlowski didn’t live
there but he sometimes stayed one or two nights a week, sometimes he stopped by just to change his shirt, and at other times he wasn’t in the apartment for months at a time.
13
As we stood on the sidewalk outside the building, Kozlowski said, “When I stayed here, I slept in an upstairs bedroom. There were three bedrooms upstairs, and I only stayed upstairs, never downstairs.”
14
He distinctly remembered that the shower he used in the upstairs bathroom didn’t have a shower curtain but instead had glass doors. Ironically, Dennis Kozlowski had never seen the $6,000 shower curtain, even though it was irrevocably linked to him.
15

Kozlowski gave the CEO stamp of approval for the purchase of the Fifth Avenue apartment in March of 2000. Dolly Lenz, a Manhattan super-broker with whom he had worked previously, knew that Kozlowski might be looking for an apartment and alerted him when the property became available. Years later when Lenz testified in Kozlowski’s criminal trial, she said she called him about the apartment before it was even on the market. Lenz described the Fifth Avenue property as “ . . . a duplex, probably 6,000 square feet, the 10th and 11th floors overlooking Central Park,” and with an asking price of $18 million.
16

In order to facilitate the sale of the property, Lenz arranged for Kozlowski to be pre-approved by the building’s co-op board to avoid issues he faced with similar boards in the past. In her trial testimony, Lenz explained that in the mid-1990s, she worked with Kozlowski on the purchase of another Fifth Avenue property. That sale was never consummated because, for reasons unknown to Lenz, the co-op board did not grant an interview. Kozlowski said he wasn’t concerned about approval by the 950 Fifth Avenue co-op board because he knew some of the building’s residents who sat on the board including Mort Zuckerman, owner of the
New York Daily News
and perennial presence on the
Forbes
list of richest Americans, Jonathan Tisch, co-chairman of the board of Loews Corporation and co-owner of the New York Giants, former Goldman Sachs executive Bob Hurst, and Steve Schwarzman, chairman and CEO of the Blackstone Group, who was selling the apartment Kozlowski wanted to buy. In addition to the 950 Fifth Avenue apartment, Schwarzman and Kozlowski shared another interesting commonality. Both made headlines for throwing extravagant birthday parties—Schwarzman for himself and Kozlowski for his wife. When Lenz persuaded Kozlowski to purchase the apartment, she used as a selling point the fact that “Schwartzman [
sic
] had just purchased 740 Park, a duplex triplex, the most expensive apartment to date ever sold in New York, so it had a lot of buzz.” The building at 950 Fifth Avenue had only seven units with an elite list of owners who, like Dennis Kozlowski, were well-known, successful, and wealthy men. It’s no surprise he felt comfortable there.
17

Kozlowski made several ill-advised decisions when approving the purchase of the apartment. The co-op board at 950 Fifth Avenue would not allow a corporate owner, which was typical of New York City co-ops, according to Lenz.
18
So Kozlowski allowed the apartment to be titled in his name, even though Tyco funds
were used to purchase the property. He submitted the application to the co-op board in his name, personally.
19

Joshua Berman, a former CEO of Tyco and a member of the Tyco Board of Directors at the time of the purchase, wrote a letter of reference on Kozlowski’s behalf to the building’s co-op board. In the letter, Berman stated that he had known Kozlowski for twenty-five years and the two were good friends; of Kozlowski he said, “Without qualification I know of no finer human being.” Berman described Kozlowski as “a man of his word, thoroughly responsible, exceedingly considerate of others, very giving of himself, scrupulously honest, a devoted family man and a wonderful friend.” The glowing description continued when in the letter Berman noted that “Dennis will always do the right thing.” Berman informed the co-op board that Kozlowski’s success had not changed him one iota, that Dennis Kozlowski did not impose his will on others, and that Kozlowski went to great lengths to avoid controversy.
20
Kozlowski’s habit of avoiding controversy quickly and involuntarily ended very soon after he completed the purchase of the Fifth Avenue apartment.

When the transaction closed in August of 2000 and ownership transferred, the 1,250 co-op shares were titled in Dennis Kozlowski’s name. The purchase price paid by Tyco: $18 million plus $600,000 in transfer taxes.
21
According to Kozlowski, an agreement was drafted and recorded at Tyco that documented the company’s ownership interest in the apartment. The apartment belonged to Tyco, not to Dennis Kozlowski.
22
During the second criminal trial, five years after the real estate closing, Kathy McRae, formerly of the Executive Treasury Department at Tyco, testified that the company entered into a nominee agreement with Kozlowski, which she explained as “ . . . an agreement between Tyco and Dennis Kozlowski to acquire title to 950 Fifth Avenue asking him to acquire title to apartments ten and eleven.” McRae explained that the Tyco legal department requested the nominee agreement and she believed the request was prompted by PricewaterhouseCoopers, Tyco’s independent auditor.
23
The nominee agreement with Kozlowski was just one of several that Tyco executed with its employees. Brian Moroze, a Tyco in-house attorney, drafted nominee agreements for Kozlowski and at least four other Tyco employees.
24

When Kozlowski took the stand in his own defense during his second criminal trial, attorney Steven Kaufman questioned him about the nominee agreement. It read: “Employee and Tyco agree that employee shall hold title to the apartment solely in the capacity as nominee, agent and non-title holder for Tyco. Employee agrees and understands that he will have no discretion or authority to act with respect to the apartment, but may act only upon discretion from Tyco.” Kozlowski assured the jury that it was not his apartment and that the books and records of the company reflected Tyco’s ownership, a fact verified by several witnesses during Kozlowski’s trials.
25
There was no factual dispute; the evidence was uncontroverted. The property at 950 Fifth Avenue belonged to Tyco, not to Dennis Kozlowski.