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Tyco faces SEC probe
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December 9, 1999: 3:06 p.m. ET
Officials launch ‘informal inquiry’ into diversified giant’s spate of acquisitions
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NEW YORK (CNNfn) - Tyco International Ltd., a top maker of security systems and electrical gear, said Thursday U.S. regulators are investigating its accounting for buyouts, affirming market concerns and sending its stock hurtling lower for the second time in two months.
The Bermuda-based maker of ADT Security Systems, facing a cloud of suspicion after one fund manager raised questions about charges it took to pay for dozens of recent buyouts, said the Securities and Exchange Commission has opened a "informal inquiry” of its accounting practices.
"In light of the recent market activity in our stock, which is not justified by any development at the company, we welcome the opportunity to respond to this request," Dennis Kozlowski, Tyco's chief executive, said in a statement. "We remain confident of our accounting methodology, our public disclosures and the continuing strength of our business.”
Tyco said it will provide documents voluntarily to the SEC staff as part of the inquiry.
The announcement caused Tyco (TYC) stock to close down 8 at 28-1/4 on a volume of 115,004,000 shares, making it one of the most active stocks ever in a single day’s trading on the New York Stock Exchange.
The informal inquiry comes two months after David Tice, a portfolio manager and short-seller, questioned the billions of dollars in special and restructuring charges Tyco took in recent years. Kozlowski said at the time the charges were "false and baseless."
Tyco stock, which had climbed steadily for many months prior to Tice’s claims, also fell in October. Tice said then analysts were blinded by the array of charges Tyco took for its purchases, but said it had not necessarily engaged in false accounting.
Neither Tice or a Tyco spokesman could be reached immediately for comment early Thursday afternoon.
Tyco has announced 47 buyouts since 1997, worth a total of $36 billion, Thomson Securities Financial Data Corp. reports. This year its deals have included its purchase of Raychem Corp., a telecommunications component maker, for about $2.9 billion, and AMP Inc., an electrical equipment company for $11 billion.
An informal investigation by the SEC is no assurance either that a formal investigation or a lawsuit will follow.
The situation is somewhat reminiscent of problems faced by diversified realtor and auto rental firm Cendant Corp. (CD), which on Tuesday agreed to pay a record $2.8 billion to settle a raft of shareholder lawsuits about its accounting.
Cendant admitted to accounting errors at CUC International, one of two predecessor firms that merged to form Cendant, back in 1997.
One analyst who has a "strong buy” on Tyco shares said the stock tumble Thursday resulted from the greater credibility of the SEC.
"It’s a different thing when a public entity starts looking into it than when Tice does,” said James Samuels, an analyst at Banc of America Securities. "Even if were accounting improprieties, there are still some legitimate businesses" at Tyco.
Samuels cited Tyco’s presence in the growing health care and telecommunications businesses. The company makes Curity bandages, adhesives, crutches and patient-monitoring equipment.
Aside from that business, Tyco, based in Hamilton, Bermuda but operated out of Exeter, N.H., is the world’s largest maker of electrical and electronic components and fire and security gear.
Tyco is also a leading maker of undersea telecommunications systems. 
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