IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW HAMPSHIRE ) MDL Docket No. 02-1335-B IN RE TYCO INTERNATIONAL, LTD., 1 This Document Relates To: SECURITIES LITIGATION 1 Securities Action ) CONSOLIDATED SECWTHES CLASS ACTION COMPLAINT TABLE OF CONTENTS Page Number I JURISDICTIONANDVENUE .................................................. 2 PARTIES .................................................................... 3 A. Plaintiffs ...................................................... :..3 B. TycoDefendants ................................................... 3 The Individual Defendants' Guidance To Securities Analysts. .............. .7 C. Defendant PricewaterhouseCoopers .................................. .9 DEFENDANTS' WRONGFUL COURSE OF CONDUCT ............................ -9 A. Material Omitted Information Concerning the Falsification of Tyco's Financial Reporting, Reported Acquisition Costs, and the Purported Success of its Acquisition Strategy ............................................... 11 1. Tyco's Materially False And Misleading - Financial Statements and Financial Disclosures ................... 17 ( a. Tyco's Admission That It Issued ateh hall^ False and Misleading Financial Statements During The Class Period. ....19 b. Tyco's Improper Failure To Disclose Material Related Party Transactions ..................... -29 ... - -. 1. Undisclosed Extraordinary Related Party Compens'ation .................................30 .. 11. Undisclosed Related Party Loans. ..................32 c. Tyco's Improper Accounting For Uncollected Related Party Receivables ....................34 d. Tyco's False and Misleading Accounting for Acquired Companies and Improper Manipulation of Accounting Reserves ............................................ 35 e . ' Tyco's Improper Failure To Timely Record lmpairedGoodwil1 .................................... 44 f . Tyco's Improper Recognition Of Excess Reimbursements From Independent Dealers ................46 g . Tyco's Improper Failure To Disclose Contingent Liabilities And Significant Risks And Uncertainties .......... 50 h. Violations of SEC Regulations .......................... 53 2 . The Tyco Defendants' Failure to Disclose Numerous Acquisitions During the Class Period ...................................... 54 3 . The Tyco Defendants' Withholding of Documents From The SEC During Its 1999-2000 Inquiry ................................. 55 4 . Breakdown of Internal Controls ...... ; ......................... 56 5 . PwC's Participation in the Fraud and its Scienter .................. 61 B . Material Omitted Information Concerning Looting of the Company by its Senior Executives Who Were Conducting Tyco as a Criminal Enterprise .....75 1 . Relocation Programs ........................................ 79 a L . Dennis Kozlowski .................................. 79 b . Mark H . Swartz ......................................80 c. Mark A . Belnick ......................................81 d . OtherExecutiveOfficers ............................... 82 . - 2 . The "TyCom Bonus" Misappropriation .......................... 83 3 . The "ADT Automotive Bonus" Misappropriations ................. 84 4 . Key Employee Loan Program .................................86 a . L . Dennis Kozlowski .................................. 87 b . Mark H . Swartz ......................................88 c. Other Executive Officers ...............................89 . 5 . Attempted Unauthorized Credits to Key Employee Loan Accounts ....90 6. Belnick's Undisclosed Executive Compensation ..................90 7 . Other Undisclosed Perquisites to Kozlowski and Swartz ............ 96 I 8 . Self-Dealing Transactions and Other Misuses of Corporate Trust ..... 97 Kozlowski Evidence Tampering ......................... 97 Kozlowski's Fraudulent New York Home Purchase ..........97 Concealed. Fraudulent Overpayment to Kozlowski for NH Property ............................................ 97 Kozlowski Non-Legitimate Business Expenses ............. 98 Kozlowski Charitable Contributions For Personal Benefit .....98 Walsh Payment ...................................... 99 Swartz Breach of Nominee Agreement ................... 101 Swartz Personal Expense Reimbursement ................. 101 Compensation Committee Deceptions .................... 101 Other Undisclosed Transactions Between Tyco and Its Directors ..................................... 102 9. KozIowski and Swartz Engage in Short Swing Trading ............ 103 THE TYCO DEFENDANTS' MATERJALLY FALSE AND MISLEADING STATEMENTS DURING THE CLASS PERIOD ..................... 103 Materially False and Misleading Statements Throughout the Class Period That Acquisitions Will Be Immediately "Positive" or Accretive" .....................103 1999 Materially False and Misleading Statements And Omissions ................ I09 2000 Materially False and Misleading Statements and Omissions ................ 125 . ... 2001 Materially False and Misleading Statements and Omissions .................197 2002 Materially False and Misleading Statements and Omissions ................ 242 POST-CLASS PERIOD EVENTS ........................................: ..... 290 ADDITIONAL SCIENTER ALLEGATIONS .....................................299 .. CLASS ACTION ALLEGATIONS ..............................................307 INAPPLICABILITY OF STATUTORY SAFE HARBOR ............................309 APPLICABILITY OF PRESUMPTION OF RELIANCE: i FRAUD-ON-THE-MARKETDOCT........................................... 310 LOSSCAUSATION ......................................................... 311 COUNT I Violation of Section' lo@) of the 1934 Act and Rule 1Ob-5 Promulgated Thereunder by All of the Defendants . .312 COUNT 11 Violations of Section 14(a) of the 1934 Act and Rule 14a-9 Promulgated Thereunder the Tyco Defendants . .316 COUNT 111 Violation of Section 20(a) of the 1934 Act by the Individual Defendants . .317 COUNT IV Violation of Section 20A of the 1934 Act by the Individual Defendants . .319 COUNT v ,,.. w.. Violation of Section 11 of the 1933 Act by All ofthe Defendants . ,320 COUNT VI Violation of Section 12(a)(2) of the 1933 Act by the Tyco Defendants . .326 . - -- COUNT W Violation of Section 15 of the 1933 Act by the Individual Defendants . .328 PRAYER FOR RELIEF. .329 JURY TRIAL DEMANDED . .329 IN THE. UNITED STATES DISTRICT COURT FOR THE. DISTRICT OF NEW HAMPSHIRE ' .) MDL Docket No. 02-1335-B IN RE TYCO INTERNATIONAL, LTD., j This Document Relates To: SECURITIES LITIGATION 1 Securities Action 1 CONSOLIDATED SECURITIES CLASS ACTION COMPLAINT Plaintiffs, by their attorneys, on behalf of themselves and the class they seek to represent, for their Consolidated Class Action Complaint (the "Complaintt'), make the following allegations against defendants Tyco International, Ltd. ("Tyco" or the "Company"), L. Dennis Kozlowski, .. MarkH. Swartz, Mark A. Belnick, Frank E. Walsh, Jr., Michael A. Ashcroft (the "Individual Defendants") (Tyco and the Individual Defendants are collectively refened to as the "Tyco Defendants"), and PricewaterhouseCoopers LLP ('TwC'') (Tyco Defendants and PwC are collectively referred to as "defendants"), upon information and belief (except as to allegations specifically pertaining to plaintiffs and their counsel, which are based on personal knowledge) based upon the thorough investigation conducted by and under the supervision of plaintiffs' counsel, which included reviewing and analyzing information and financial data relating to the - - relevant time period concerning Tyco and obtained from numerous public and proprietary sources (such as LEXIS-NEXIS, Dow Jones and Bloomberg), including, among other things, filings with the Securities and Exchange Commission (the "SEC"), publicly available annual reports, press releases, published interviews, news articles and other media reports (whether disseminated in print or by electronic media), and reports of securities analysts and investor advisory services, in order to obtain the information necessary to plead plaintiffs' claims with parficularity. Plaintiffs' investigation also included interviewing or consulting with numerous individuals, including former Tyco employees who worked at the Company during the "Class Period" (December 13,1999 through June 7,2002), and are knowledgeable about Tyco's business and operations andlor the industry and markets in which Tyco operates. Except as alleged herein, the underlying information relating to defendants' misconduct and the parficulars thereof are not available to plaintiffs and the public and lie exclusively within the possession and control of defendants and other insiders, thus preventing plaintiffs &om fixther detailing defendants' misconduct. Plainti& believe that further substantial evidentiary support will exist for the allegations set forth below after a reasonable oppodtyfor discovely. JURISDICTION AND VENUE 1. This Court has jurisdiction over the subject matter of this action pursuant to 28 U.S.C. Sections 1331 and 1337, Section22 of the Securities Act of 1933 ("Securities Act") [15 U.S.C. 5 77~1,and Section 27 of the Securities Exchange Act of 1934 ('Exchange Act") [15 U.S.C. 5 78aal. 2. The claims asserted herein arise under Sections 11, 12(a) and 15 of the Securities Act 115 U.S.C. $5 77k, 771(2) and 7701, Sections lo@), 14,20(a) and 20A of the Exchange Act [15 U.S.C. 5 78j@), 78t(a), and 78t-11, and Rule lob-5 promulgated thereunder by the SEC [17 C.F.R. 5 240.10b-51. 3. In its Trahsfer Order dated August 14,2002, the Judicial Panel on Multidistrict Litigation transferred this action