A five-year shareholder dispute – the largest securities class action settlement by a single corporate defendant – has seen Tyco International pay out $3bn (£1.51bn).
Tyco agreed to pay $2.975bn plus interest to investors who bought the US firm’s securities between 1999-2002.
The claims arose after former chief executive Dennis Kozlowski and other officials were accused of accounting fraud through artificially inflating the company’s value by $5.8bn (£2.93bn).
The settlement specifically excludes Tyco’s former auditor PricewaterhouseCoopers (PwC).
But as part of the deal Tyco has agreed to assign the claims it has against PwC relating to the accounting fraud to the class, which means investors could be in for a windfall if the pending claim goes Tyco’s way.
As Tyco’s auditor, PwC was in a position to uncover the fraud and to prevent damages to Tyco’s shareholders. Instead, PwC is alleged to have failed in its duties as a corporate watchdog.
In addition, Tyco is set to pay out half of any damages it receives from outstanding litigation against Kozlowski, former Tyco chief financial officer Mark Swartz and former board director Frank Walsh.
Zozlowski and Swartz were both sentenced to 25 years in prison after being convicted of grand larceny, falsification of business records and conspiracy for their roles in the alleged scheme to defraud investors. Both men are currently in prison. Defendant Walsh has also pleaded guilty to committing fraud.
The settlement comes as Tyco prepares to split its business into three publicly traded divisions, comprising healthcare, electronics and engineered products.
Schiffrin Barroway Topaz & Kessler name partner Richard Schiffrin, acting for the investors, said: “This is a settlement of historic proportions for the investors, who suffered significant financial losses, and it also sends a strong message to those who would engage in this type of misconduct in the future.”
The investors were represented by US class action specialists Grant & Eisenhofer, led by managing partner Jay Eisenhofer and partner Sidney Leibesman, Schiffrin Barroway led by name partner Richard Schiffrin and Milberg Weiss & Bershad.
Tyco was advised by Cravath Swaine & Moore litigation partner Francis Barron and Boies Schiller & Flexner name partner David Boies.