Auditor to pay $225m, settle Tyco suit

Accounting firm PricewaterhouseCoopers yesterday said it has agreed to pay $225 million to settle a class-action lawsuit brought by Tyco International Inc. shareholders in the aftermath of the 2002 disclosures of financial abuse at the manufacturing company.

The settlement, which still must be approved by a US District Court judge in Concord, N.H., would be one of the largest ever paid by an accounting firm. Employees of the PricewaterhouseCoopers office in Boston audited Tyco during the years Dennis Kozlowski was chief executive and the company had its headquarters in Exeter, N.H.

Kozlowski is now serving a prison term of up to 25 years in New York for his role in Tyco's multibillion-dollar accounting fraud.

Tyco agreed in May to pay $2.98 billion into a fund for plaintiffs in 32 class-action suits stemming from the fraud. As part of that settlement, stockowners assigned their claims against Kozlowski and two other former senior executives to the current Tyco management, which is suing the trio in a separate case. Any money recovered in that case will be split between the company and the shareowners.

In the new settlement, which effectively ends four years of litigation, PricewaterhouseCoopers admitted no wrongdoing as independent auditor of Tyco's financial books. According to the lawsuit, the accounting firm failed to uncover Tyco income overstatements totaling $5.8 billion from 1999 to 2002.

The firm "has decided to resolve the vast majority of the Tyco litigation involving the firm by joining the global settlement previously announced," said David Nestor , a spokesman for the accounting firm. "While PwC was prepared to continue to defend all aspects of its work in the litigation process, the cost of that defense and the size of the securities class action made settlement the sensible choice."

In 2003, the Securities and Exchange Commission barred Richard P. Scalzo , the Boston partner in charge of auditing Tyco for PricewaterhouseCoopers, from auditing public companies. Commission staffers said Scalzo ignored red flags in documents that signaled Kozlowski might be abusing an employee loan account.

Richard S. Schiffrin , founding partner of the Philadelphia area law firm Schiffrin Barroway Topaz & Kessler, a firm representing Tyco investors, said yesterday's settlement made a statement.

"The monetary component is important," Schiffrin said. "But obviously it's a relatively small amount of the money they'll be receiving from Tyco. But it's even more important that a message has been sent that accounting firms are responsible for protecting the interests of shareholders that are employing these accounting firms.

"None of these frauds -- Enron, Worldcom, or Tyco -- would have been possible if accounting firms had been doing their jobs."

Representatives of the reorganized Tyco International, which is currently based in Bermuda, didn't return phone calls yesterday.

Schiffrin said attorneys for investors will appear before US District Judge Paul Barbadoro in Concord next week and ask him to approve a notice to be mailed to hundreds of thousands of Tyco shareholders with information on how they can be compensated.

Shareholder losses have been estimated at $1 billion to $2 billion, mostly from the plunge in the value of Tyco's stock after the financial abuse came to light.

Once the settlement is approved by the judge, an move that is expected this fall, investors could receive compensation in about a year, Schiffrin said.

The settlement covers investors who owned shares of Tyco from Dec. 13, 1999 to June 7, 2002.

Robert Weisman can be reached at weisman@globe.com.