Tyco boss 'used firm's loan fund'

THE criminal investigation into the tax affairs of former Tyco boss Dennis Kozlowski is focusing on claims that he used a company loan fund to buy art masterpieces, including works by Monet and Renoir.

According to the office of Manhattan District Attorney Robert Morgenthau, who is heading the inquiry, Kozlowski borrowed $35.7m (£24.4m) from the fund during the two years to 30 September. It was originally set up to lend executives money to finance their share option purchases.

Filings from the Securities and Exchange Commission last year show that Kozlowski, who was indicted on Tuesday and faces charges of sales tax evasion on paintings worth $13m, borrowed $23m from the fund in the year to last 30 September and $12.7m the previous year. The Bloomberg financial news service said the company's compensation committee would have had to approve the loans, which were all repaid by the time of the filing.

The allegations open up the possibility of a full Securities and Exchange Commission investigation into the company's financial affairs as well as the criminal proceedings against Kozlowski.

Tyco, built into one of America's biggest industrial conglomerates through a string of aggressive acquisitions, has former Tory Party treasurer Lord Ashcroft on its board. Kozlowski, 55, who quit as chief executive of the conglomerate last week, had been one of America's highest-flying and best-paid bosses, collecting a total of $325m in pay, options, bonuses and share sales over the past four years.

The indictment against Kozlowski alleges that he was at the heart of a sophisticated tax evasion fraud involving galleries and art consultants in New York and London. He is alleged to have escaped payment of New York's 8.25% sales tax on at least six paintings by pretending that the works were shipped to New Hampshire, where there is no sales tax. If he is convicted, he faces a prison sentence of up to a year.

Tyco shares have been out of favour since a poorly thought-out break-up plan for the company in January. The shares have halved since then and Kozlowski was forced to scrap the scheme in April.

The shares are languishing at a five-year low as fears grow about the group's prospects. Lord Ashcroft sold his ADT security business to Tyco for $4bn in 1997.

High-flier's package adds up to rich pickings