A Medical Device Daily
Pricewaterhouse Coopers (PwC; Trenton, New Jersey) has agreed to pay $225 million to settle a class action lawsuit brought by shareholders of Tyco International (Pembroke, Bermuda) regarding a multibillion dollar accounting fraud that sent Tyco's top executives to prison.
The settlement with Tyco's former auditing firm comes on top of one reached in May with Tyco. The company agreed to put $2.975 billion into a fund to settle most shareholder claims over the actions of Tyco's former CEO, Dennis Kozlowski, and the company's ex-CFO, Mark Swartz.
With interest, the Tyco settlement is believed to be the largest ever by a single corporate defendant, according to the law firms pursuing claims for the shareholders.
The total settlement of more than $3.2 billion from Tyco and PricewaterhouseCoopers concludes a four-year legal battle.
The money will be divided among shareholders after attorneys' fees — not yet determined — are deducted, said Jay Eisenhofer, one of the three co-lead counsels in the case.
"Money could be distributed as early as 2008," Eisenhofer said.
The New Hampshire judge overseeing the class-action suit, Paul Barbadoro, is to hold a hearing soon to give preliminary approval to the settlement and then will have a hearing on final approval in November, according to Eisenhofer.
The settlement covers investors who acquired Tyco securities from Dec. 13, 1999, to June 7, 2002.
The shareholders' suit had claimed that as Tyco's independent auditor, PricewaterhouseCoopers failed to uncover fraud in the accounting scandal at the conglomerate. According to the shareholders' legal team, Tyco overstated its income during that period by $5.8 billion.
PwC spokesman David Nestor said the company "has decided to resolve the vast majority of the Tyco litigation involving the firm by joining the global settlement previously announced by Tyco International."
He added: "While PwC was prepared to continue to defend all aspects of its work in the litigation process, the cost of that defense and the size of the securities class action made settlement the sensible choice for the firm."
Investors' losses have been estimated at $1 billion to $2 billion. The settlement was reached after extensive litigation and mediation, according to the shareholders' lawyers.
It's unclear how many shareholders are involved, but Tyco had about 2 billion shares of stock on the market during the period in question, Eisenhofer said.
The class representatives in the suit included several trade unions and public pension funds, among them pension plans for office employees, teachers and state employees in Louisiana, and plumbers and pipe fitters around the country.
Kozlowski and Swartz were convicted of grand larceny and other crimes for looting Tyco of about $600 million to fund extravagant lifestyles and inflating the company's value (Medical Device Daily, June 21, 2005). The pair are serving terms of eight years to 25 years in prison.
News of the settlement comes nearly a week after Tyco International split into two other entities, Covidien , (Mansfield, Massachusetts) and Tyco Electronics (Berwyn, Pennsylvania) (MDD, July 6, 2007).
In other legalities: Sanitec Industries (Sun Valley, California) reported business proceedings would continue without disruption despite a law suit from Texas-based firm. The company filed for voluntarily Chapter 11 protection pending the outcome of this litigation.
According to Sanitec Industries' president, Jim Harkess, "The filing is in the best interest of our customers, creditors and shareholders by allowing us to focus on our business and avoiding the continued distraction of protracted litigation.
Sanitec develops waste disinfection systems for medical centers.