Underlings get nice perks for staying quiet on scandals

Monday, January 19, 2004

NEW YORK -- Before scandal engulfed Tyco International, Tammy Cross worked behind the scenes as a switchboard operator, receptionist, even as a flight attendant on corporate jets.

Cross says her bosses made sure she knew to keep quiet about who flew and what was discussed. They also gave the single mother a surprise benefit: college tuition for her daughter.

"I was overwhelmed," she testified recently at the ongoing Manhattan trial of L. Dennis Kozlow-ski, the former Tyco chief executive charged with stealing $600 million from the electronic and medical supply conglomerate.

Cross' story reflects a pattern of alleged behavior running through the recent flurry of white-collar criminal cases: executives plying their underlings with expensive gifts and other unexpected perks.

Good management?

Defense attorneys argue that the generosity was meant as good management, not manipulation. But prosecutors and experts on corporate practices contend the real purpose was to buy the support staffs' loyalty -- and silence -- as the higher-ups sought to evade regulators.

In the Tyco case, the jury has heard two former Kozlowski secretaries testify that -- while having affairs with the CEO -- they lived cost-free in Tyco apartments and were later given severance packages and loan payoffs worth hundreds of thousands of dollars.

Cross testified this month that after being assigned to the company's flight department in 1997, Kozlowski told her she "would be seeing different things and to be discreet."

Around the same time, Kozlowski designated her daughter a "Tyco scholar," meaning the company would pay her tuition at prep schools and college, she said. Tyco also forgave a $239,000 mortgage she had secured through the company.

Such arrangements "obviously don't fall within the realm of standard compensation," said Neil V. Getnick, managing partner with Getnick & Getnick, a firm specializing in advising companies on business integrity.

But alleged favors have been frequent in other high-profile corruption cases that have rocked corporate America in the past two years.

Last year, a longtime secretary for former Rite Aide executive Franklin C. Brown testified at his trial in Pennsylvania that he wrote her a personal check for $25,000 in 1998 -- a week after she helped him manufacture backdated documents that qualified him for thousands of shares of stock.

Brown, once chief counsel for the nation's No. 3 drugstore chain, is awaiting sentencing for his conviction on conspiracy, obstruction of justice and other charges.

An attorney for Brown, 75, argued at trial that his client's penchant for giving personal gifts and loans to loyal associates was innocent, and referred to him as "an old man shuffling around, trying to be useful, trying to be involved."

The secretary, Mary Lou Egan, told the jury she tried to turn down the offer to use the money to buy a new car -- "It was an overly generous offer I was uncomfortable with" -- but ultimately relented.

Egan used $22,996 to buy a convertible, and returned the remaining $2,004 to Brown.

"I did not have the feeling that the car was for anything I did," she said.

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