A Medical Device Daily

Dennis Kozlowski, former CEO of Tyco International (Pembroke, Bermuda), and Mark Swartz, the company’s former CFO, on Friday were found guilty of stealing more than $150 million from the company.

Kozlowski and Swartz both were found guilty of 22 counts of grand larceny, conspiracy, fraud and falsification of business records. Each was found not guilty on one charge of falsifying documents.

The guilty verdict was returned on the 11th day of deliberation by a jury of six women and six men in New York.

The two men face up to 25 years in prison on charges of grand larceny. Judge Michael Obus set a follow-up hearing for Aug. 2 to discuss sentencing. Swartz and Kozlowski will remain free on bail, since they are not considered by the judge to be flight risks.

The attorneys of the two men promised appeals of the verdicts.

The prosecutor in the case, Manhattan District Attorney Robert Morgenthau, said the verdict endorsed the principle of “equal justice,” adding: “Crimes committed in corporate offices will be treated according to the same standards as other crimes.”

The men were accused of bilking Tyco of more than $150 million in secretly forgiven loans and bonuses, as well as obtaining $575 million in stock sales while inflating company financial results.

A mistrial was ruled last year as the result of a juror reportedly receiving phone threats.

Highlights of the trial included prosecution charges that Kozlowski had made extravagant purchases with money illegally derived from the company, the largest of these being a birthday party for his wife costing $2 million, half of it paid for by Tyco.

After not testifying in the first trial, Kozlowski testified during the second trial and admitted to receiving “embarrassingly big” compensation. But he denied committing any crimes.

Like Kozlowski, Richard Scrushy, the former CEO of HealthSouth (Birmingham, Alabama), is being tried for heading a fraud conspiracy at his company.

As of yesterday, the jury was continuing its deliberations in that case.

In other legalities, a class-action securities lawsuit has been filed in the U.S. District Court for the Southern District of Texas on behalf of the purchasers of securities of Cyberonics (Houston) from June 15-Oct. 1, 2004. The suit, filed by Scott + Scott (Chagrin Falls, Ohio/San Diego), alleges that defendants violated the federal securities laws during the class period by failing to disclose and misrepresenting material adverse facts known to defendants or recklessly disregarded by them, including that defendants were engaged in “serious violative manufacturing and quality practices” having a serious negative impact on prospects for the company’s VNS (vagus nerve stimulation) product approval. It charges that, “while well aware of the true nature of the serious issues facing FDA approval of the VNS system for the depression indication, company insiders sold more than $1.98 million of stock during the class period.” As a result, the value of the Cyberonics’ stock “was materially and artificially inflated during the class period.”

Cyberonics in February reported receiving an “approvable” letter from the FDA for its VNS system for the treatment of treatment-resistant depression and earlier this month said that it was entering a “quiet period” while awaiting final approval of the system.