Mr. Kozlowski and Mark H. Swartz, the former chief financial officer, were convicted of grand larceny, falsification of business records and conspiracy, and are now serving sentences up to 25 years in New York state prisons. A former director, Frank Walsh, who received a secret $20 million payment for helping to arrange a merger, pleaded guilty to securities fraud, but was not sentenced to prison.  The case became synonymous with corporate excess after widely circulated reports that Mr. Kozlowski had used Tyco money for lavish parties, including one that featured an ice sculpture of Michelangelo’s “David” dispensing vodka, and for furnishings for a Manhattan apartment, including a $6,000 shower curtain and a $15,000 umbrella stand.  Under the settlement, Tyco will pay $2.975 billion to those who bought its securities from Dec. 13, 1999, through June 7, 2002, a few days after Mr. Kozlowski was forced to resign as chief executive. He had been indicted on charges of sales-tax fraud in New York in connection with avoiding taxes on purchases of paintings.  In addition, the investors will receive half of whatever the company manages to obtain from Mr. Kozlowski, Mr. Swartz and Mr. Walsh. And the investors will continue their suit against the auditing firm, and will also be able to assert accounting malpractice claims on behalf of the company.  The lead PricewaterhouseCoopers partner handling the Tyco account, Richard P. Scalzo, was later barred by the S.E.C. from auditing public companies. The commission said that from 1999 on, Mr. Scalzo had good reason to doubt the honesty of Mr. Kozlowski and Mr. Swartz, but did not pursue auditing procedures that could have uncovered the fraud.  If Tyco does recover more money from the former executives, it will go to Tyco International, not to either of the companies that are being spun off, which will contain Tyco’s health care and electronics businesses.  Richard S. Schiffrin of Schiffrin Barroway Topaz & Kessler, one of the co-lead counsels in the class-action suit, 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.”  Mr. Schiffrin said in an interview that he expected the company to be able to recover “tens of millions” from the former executives. “It should be in the hundreds of millions,” he said, but there is some question of how much money they have left.  As part of their sentences on the criminal charges, Mr. Kozlowski has paid $98 million in restitution to Tyco, and Mr. Swartz has paid $35 million. That money will be kept by the company, but any future payments will be split with the plaintiffs.  It is not clear how much money any investor would recover because that depends on how many claims are filed and on the formula adopted to split the money among the plaintiffs. In addition, the lawyers are likely to seek a substantial percentage of the settlement in fees.  While the Tyco settlement appears to be the largest ever by a company, it ranks fourth in terms of total payments to investors. The other cases, all involving multiple defendants, concerned frauds at Enron, WorldCom and Cendant. Tyco earlier paid $50 million to settle a suit brought by the S.E.C.  Jay W. Eisenhofer, managing partner of Grant & Eisenhofer, another co-lead counsel in the case, said that unless a settlement was reached, the addition of the company’s possible claims against PricewaterhouseCoopers, on suspicion of accounting malpractice, made it possible that there could be two trials involving claims against the auditors.  In trading yesterday, shares of Tyco International closed up 19 cents, at $32.38. The price fell as low as $6.98 in July 2002.  A spokesman said Tyco was “reviewing its financing options” with regard to how to make the payment. Tyco said it would take a $2.975 billion charge to earnings this quarter.  A spokesman for PricewaterhouseCoopers declined to comment.
The settlement, described as the largest payment in such a suit, seeks to put to rest a famous corporate excess case.