Americans Head to Final Eight

                            http://www.boston.com/globe/

                         Kit Menkin’s Leasing News

                   www.leasingnews.org  Tuesday June 18, 2002

Textron Celebrates Customers on its First Customer Appreciation Day

   Tyco Sues Ex-Lawyer and Director--New York Times

     Former Tyco CEO Kozlowski May Face More Trouble-Bloomberg

      SEC wants jail for executives in fraud cases-Phil Inquirer

         Sean Wheeler of Fresno, California Stands Up-----

          Kenneth Wheeler Takes On NAELB Legal Counsel Joe Bonanno

           Walnut Equipment Leasing Up-Date ( remember them? )

  Business Leasing News---Latest Edition--David Mayer

   EFJ's Ron Caruso's Past Columns Now Available

     Amtrak's time is running out, USPS stands ready

        SBA deploying Gateway computers

         HPSC, Inc. Discovers Employee Defalcation

          MarCap Promotes Whaley, Names Kappel As Rep.

            Telecom Outlook:

               First the Bad News, Then the Bad News

### Denotes Press Release

Tyco Sues Ex-Lawyer and Director

By ALEX BERENSON

New York Times

Tyco International filed suit yesterday against Mark A. Belnick, its former general counsel, and Frank E. Walsh Jr., its former lead independent director, contending in separate cases that the men wrongly took millions of dollars from the company.

The outlines of the accusations in the lawsuits, which Tyco filed in Federal District Court in Manhattan, had already been disclosed. But the details add to the accusations' impressions that senior executives enriched themselves personally at Tyco's expense.

Mr. Belnick was paid $20 million that was not disclosed to Tyco's board and received $14.9 million in no-interest loans under a program that was supposed to pay for employee moving expenses, according to the suit against him. More than $10 million in loans went to Mr. Belnick's purchase of a vacation home in Utah, the suit contends. Mr. Belnick also falsified records so that his pay and bonuses would not be disclosed to the Securities and Exchange Commission, according to the suit.

In addition, Mr. Belnick refused to cooperate with the company's internal investigation into undisclosed pay and benefits to L. Dennis Kozlowski, Tyco's former chairman, and other executives, according to the suit. On June 10, the day Tyco fired him, Mr. Belnick destroyed confidential company records from his computer at Tyco's offices in New York, according to the suit.

The suit demands that Mr. Belnick immediately repay the loans and any other misappropriated money.

Mr. Walsh and a charity he controlled received a $20 million bonus from Tyco in 2001 that was not disclosed to Tyco's board, according to Tyco's suit against him. Mr. Walsh, who led the committee that determined the pay of Mr. Kozlowski, asked Mr. Kozlowski personally for the bonus. Mr. Kozlowski approved it without consulting anyone else, according to the suit, which demands that Mr. Walsh return the $20 million, plus interest.

Representatives for Mr. Belnick and Mr. Walsh denied the accusations.

"It's a malicious and substance less lawsuit," said Stanley S. Arkin, a lawyer for Mr. Belnick. "He certainly didn't misappropriate any money."

Mr. Arkin said that the files Mr. Belnick destroyed were personal financial records and his children's school records. "That's nobody's business but his," he said.

Mr. Walsh, in a statement, called the lawsuit "an overreaction to the recent and well-reported problems and management changes at Tyco."

Mr. Belnick and Mr. Kozlowski hid details of Mr. Belnick's employment agreement with Tyco from the company's personnel department even before Mr. Belnick began working for Tyco in 1998, the lawsuit contends. The hidden details included provisions that Mr. Belnick would receive a cash bonus at least one-third as large as Mr. Kozlowski's and that his pay and bonuses were guaranteed for three years, even if he left the company.

Mr. Belnick also repeatedly received cash and stock bonuses from Tyco that were approved by Mr. Kozlowski but not disclosed to the board, according to the complaint. In 2000 alone, those bonuses totaled more than $20 million. Mr. Belnick also borrowed $14 million from Tyco using no-interest loans backed only by promissory notes, the suit says.

Late in 2001, Mr. Belnick drafted another $20 million retention agreement, which he presented to the board only after it had been completed, according to the suit.

In all, Mr. Belnick received about $70 million in cash, stock, stock options and loans from Tyco during his three and a half years at the company, according to the suit and people who have been briefed on the company's internal investigation.

In addition, Mr. Belnick did not disclose his loans from Tyco to the S.E.C., as the agency's rules require, and manipulated the company's financial statements so his compensation would not be publicly disclosed, the suit says.

Mr. Arkin, Mr. Belnick's lawyer, said that his client was an outstanding general counsel and that Mr. Belnick planned to countersue. "This lawsuit is an offensive and shabby tactic," he said.

Mr. Walsh received his payment for encouraging Tyco to buy the CIT Group, a financial services company, in late 2000 and early 2001, according to the suit against him. After Tyco agreed to buy CIT for $9.2 billion, Mr. Walsh asked Mr. Kozlowski for a $20 million finder's fee for his part in the deal. Mr. Kozlowski agreed to pay Mr. Walsh $10 million and donate another $10 million to the Community Foundation of New Jersey, a charity advised by Mr. Walsh.

In his statement yesterday, Mr. Walsh said he had negotiated the CIT deal at Mr. Kozlowski's direction and noted that his fee had been disclosed in Tyco's proxy.

________________________________________________________________________   

Former Tyco CEO Kozlowski May Face More Trouble

By Graef Crystal, Bloomberg

Dennis Kozlowski's indictment for failing to pay about $1 million of New York state and city sales taxes on $13.2 million of art purchases may be the least of his problems.

The Securities and Exchange Commission is investigating whether Tyco International supplied the funds to Kozlowski, its now-departed chief executive officer, for the purchase of a 13-room, $18.5 million cooperative apartment on New York City's Fifth Avenue and didn't tell investors. Let's go with that assumption and see what sort of trouble it might cause.

First, there is the issue of fraudulent non-disclosure in Tyco's proxy statements. This could be an issue for Kozlowski as well as the conglomerate if he had a hand in fashioning what was, or in this case what wasn't, reported in those documents.

Miscellaneous economic benefits, even if not paid in cash, must be disclosed in a summary compensation table that reports on the pay of a company's five highest-paid executives. A search of Tyco's proxies for the last five years showed that the value of the apartment wasn't mentioned.

To my way of thinking, the value is at least equal to the interest that Kozlowski would have paid on an $18.5 million loan. Assuming here, for example, that the interest rate would have been 7 percent, then the payment would total $1.3 million a year.

The amount, if any, that Tyco paid for monthly maintenance charges levied by the cooperative's board would have to be added. None of this was reported to shareholders, and hence, his pay was higher than it appeared to be.

Next, Kozlowski may be in trouble with the Internal Revenue Service unless he reported, on his federal income-tax return, the value being conferred on him by what effectively may be considered an interest-free loan.

Under the IRS Doctrine of Economic Benefit, any benefit given to a taxpayer must be declared as ordinary income except for those benefits, such as qualified pension plans, that have been afforded special treatment by Congress.

If Kozlowski didn't declare the value of the apartment, then he faces possible federal income-tax evasion charges. Potentially that's a far more serious problem than the dodging of sales taxes.

But the really interesting issue here is whether Kozlowski can be assumed to be a resident of New York City. If so, he also may be liable for state and local income taxes. The maximum tax rate in New York State is 6.85 percent, while that in New York City is 3.59 percent.

Kozlowski has homes in Boca Raton, Florida, and on Nantucket Island, off the coast of Massachusetts. He also had a home in New Hampshire at one point, and may still have that home; Tyco is run from Exeter, New Hampshire, though it's legally based in Bermuda.

Neither Florida nor New Hampshire levies an income tax on residents. In Massachusetts, the maximum tax rate is 5.6 percent, much lower than the combined New York state/New York City rate of 10.44 percent.

Under New York state law, a person who has a residence in the state and a second, or even a third, residence outside the state can avoid taxes in New York if he declares his domicile to be in the second or third location.

A call to Kozlowski's attorney, Stephen Kaufman, to discuss just what the former CEO claims as his domicile wasn't returned.

Even if Kozlowski can successfully argue that he wasn't domiciled in New York, he isn't off the hook. Under New York law, anyone who spends 184 days or more in the state during the year is deemed to be a full resident.

I know about that part of the law because I ran afoul of it back in 1986. I had apartments in New York City and San Francisco and shuttled between them every two weeks. I claimed San Francisco to be my domicile and monitored my days in New York to stay under the 184-day tripwire.

But then I was audited by New York and had to produce documents proving my location on every day of the year. I was caught by a single day that my plane landed at John F. Kennedy Airport at 11:55 p.m. New York time.

I figured that wasn't a day in New York by any reasonable standard, but I was wrong. A state court decision had held that any part of a day, even one minute, spent in New York was a full day. That landing at JFK cost me $16,000 in income-tax payments.

Regardless of whether Kozlowski counted his days with more exactitude, New York can decide his domicile is in the state. If it makes that judgment, then he could be gone for the entire year and still be fully taxed as a resident.

In the 1980s, you could make a case out of being domiciled in another state if, for example, your driver's license was from that state and you were registered to vote there.

New York has since tightened the rules. As spelled out in instructions from the state's Department of Taxation and Finance, they now say: "Easily controlled factors such as where you vote and where your driver's license and registration are issued are NOT the primary factors in determining where you are domiciled."

To establish domicile now, people must "compare the size, value and nature of use" of residences and also consider "the physical location of items that have significant sentimental value," according to the instructions.

On these counts alone, Kozlowski could be a resident of New York. After all, $18.5 million might buy you the entire town of Exeter. And doesn't some $13 million of art stashed in a Fifth Avenue apartment represent significant sentimental value?

So it's possible that he could be indicted for income-tax evasion not only by the federal government, but also by New York state and New York City. If that happens, the ancient phrase "How hath the mighty fallen" will get an updated meaning.

_____________________________________________________________________

SEC wants jail for executives in fraud cases

The agency is set to help prosecutors bring charges against those who defraud investors or block investigations.

By Bob Fernandez

Philadelphia Inquirer Staff Writer

The Securities and Exchange Commission says it's time for more white-collar criminals who defraud investors to do jail time.

And the federal agency - which is under political pressure in Washington and New York to crack down on corporate wrongdoers - is gearing up to lend its expertise more freely to state and federal criminal prosecutors to make that happen.

"There are some violators for whom the prospect of a civil sanction simply won't do it," said Stephen M. Cutler, the top-ranking enforcement official with the SEC in Washington. Civil penalties, which are the main weapons of the SEC, are typically fines.

That "won't be enough," he said. "There's nothing that speaks as loudly to corporate America as the prospect of jail time."

Cutler made those statements in an interview last Thursday, one day after FBI agents led Samuel Waksal, the former chief executive at ImClone Systems Inc., from his New York duplex loft in handcuffs on charges of violating insider-trading laws. Two days later, a jury returned a guilty verdict in Texas in the Arthur Andersen document-shredding case.

News of Waksal's arrest was the latest revelation of self-dealing in corporate boardrooms that was most vividly dramatized by the collapse of Enron Corp. in late 2001 and the subsequent crisis in corporate governance that has cast a pall over the stock markets and wrecked investor confidence.

Cutler said the word was out that the SEC would work cooperatively with state prosecutors or through U.S. attorneys in the regional offices of the Justice Department to prosecute white-collar criminals.

"We are talking with them on a daily basis," he said.

Though the SEC has offered to cooperate with other enforcement agencies in the past, the process has "accelerated" since late 2001 as prosecutors - who typically view stock-related crimes as complex and time-consuming for themselves and their staffs - appear to be more willing to devote attention to white-collar stock-related crimes because of the public attention, Cutler said.

Earlier this year, the SEC came under criticism for its inactivity when New York state Attorney General Eliot Spitzer investigated Merrill Lynch & Co. Inc. and had said criminal convictions could result from the probe. Spitzer contended that Merrill Lynch financial analysts had misled investors by tailoring research to please investment-banking clients. Merrill Lynch negotiated a $100 million settlement with Spitzer, which was announced last month.

The settlement enables Merrill to avoid possible criminal charges or other penalties, such as spinning off its research department. Merrill also avoided making an explicit admission of wrongdoing that would have made it more vulnerable to investor lawsuits.

The move to nab criminals is part of a broader effort by the SEC to tighten its regulatory oversight. In a separate matter, the SEC on Wednesday proposed expanding the public reporting rules for companies in response to Enron. Among other things, the proposed rules would force companies to report in a regulatory filing a change in credit rating, an unspecified material impairment, a restructuring or a new significant financial obligation.

Another proposed rule: requiring the chief executive officer and chief financial officer to read the corporate annual reports distributed to shareholders and making those executives personally responsible for the truthfulness of that information. Wording attesting to that responsibility would be contained in the financial documents that corporate executives would sign and file with the SEC.

The measures have been applauded, although they have been called overly broad. Peter Knutson, emeritus accounting professor at the University of Pennsylvania's Wharton School, said the "thrust of the proposals" was good, but they were too vague. "The SEC had better be more specific of what they need. This is so open-ended. The only way I'd be a CEO is with a huge amount of insurance."

The proposed requirement that CEOs ensure that the facts in a shareholder report are true is "silly" because of the breadth of data in the reports, Knutson said.

Since Oct. 1, various U.S. attorney's offices have prosecuted 73 defendants criminally on securities law offenses, said Cutler, the director of SEC enforcement. The prosecuted individuals included lawyers and other professionals, in addition to corporate officials. Eleven of those cases involved repeat securities-fraud offenders or those who have interfered with the SEC, he said. Cutler did not have comparable figures from previous years, but "my gut tells me it's up," he said.

One of the 11 occurred in Philadelphia. Patrick H. McCarthy 3d, a former Philadelphia lawyer and top aide to former Pennsylvania Treasurer Catherine Baker Knoll, was sentenced in mid-April to three months in prison and fined $20,000 for obstructing a federal probe into two 1994 state bond refundings.

Harvey Pitt, the SEC chairman who took office last August, has expressed an interest in increasing the criminal prosecutions of three types of white-collar criminals, Cutler said. They are repeat offenders; those who lie or destroy documents or interfere with SEC processes; and those who commit serious violations.

Even before Enron, the SEC's nationwide enforcement staff of 950 was feeling overworked with its responsibilities overseeing stock markets, brokers, the mutual-fund industry and financial information exchanged on the Internet.

Pitt has requested from Congress an additional $20 million to add 100 new positions at the SEC. The agency has 3,031 employees throughout the United States, including those in a district office in Philadelphia, and a budget of $437.9 million for fiscal 2002, which ends in September. About one-third of the new staff, if approved and funded by Congress, would be lawyers, accountants and investigators in the enforcement division, Cutler said.

"Because Wall Street and the stock market have become so omnipresent in the lives of everyday Americans, there is more interest from prosecutors, and I don't think that will go away," Cutler said.

Sean Wheeler of Fresno, California Stands Up-----

“My father (Ken Wheeler, reportedly still active in the leasing industry, kennethwheeler@msn.com) faxed this e-mail to me.  I have no idea in what way what I am doing now has to do with the leasing business.

“ I already received the lease funds from the lender several weeks ago.(application was

dated May 31.editor)  You were not a reference I don’t even know you.  I was on the news a month ago due to losing a large amount of livestock and several organizations were concerned (SPCA, Fish and Wildlife  Service) 

“As for Commercial Equipment Lease, I have received nothing to date.

“We, like other companies were very slow over the past year and fell behind on

lease payments.  I also had a falling out with a former partner.  But I am

not in the leasing business this is the main reason why.

 If you look at what is going on in today’s society children are being taken out of there homes in  the middle of the knight, we are at war, Tyco CEO I see him on CNN all of

the time.  These are real issues I am just working hard in Fresno and would like

to be left alone.  I am sure there are more newsworthy stories than me life

after leasing----why not stick to them?

 “The headline ‘Will the real Sean Wheeler please stand up?’ is really sad and just shows that you and several others learned nothing from 9-11-01.

 “I am not hiding from anyone. I have always responded to your questions and concerns.

“Thank you.”

Sean Wheeler

559-259-8068

: Swheeler00@aol.com

---

After Leasing News ran the story that you were no longer in the equipment leaisng

business, contrary to rumors, a California leasing company on Thursday, June 13 told me you had applied to them for a lease and asked me for a reference about you, as you were once a public figure and well-known in the leasing industry; what kind of character reference and what else did I know. I asked them to fax me a signed copy of the application, which they did.

Leasing News has had many stories about Sean Wheeler and 1lease.  I think once you are a public figure, even when you retire, you remain so.  We have features, such as

“Whatever Happened to...”, plus alerts and bulletin board complaints.

John Nice, Commercial Equipment Lease in Eugene, Oregon, Credit & Special Assets Mgr, (800) 234-1884.has a representative who has been trying to locate you.  He is

available, if you would like to reach him. He would also like those in the leasing industry, if you have any questions or information, to call him directly.

. Editor

---------------------------------------------------------------------------------

Kenneth Wheeler Takes On NAELB Legal Counsel Joe Bonanno

Fair unbiased news about the leasing industry does not seem to me to include

 the fish industry and then to bring up the history  of someone who is not in the industry any longer makes your news letter like  the National Inquirer.

 You ask me a question  and I gave you a straight answer... then you print this trashy story not based on an interview or a request for info but some third person's information that is not correct. I know where you got the info and you can believe that source is not reliable and is the biggest gossip in this town.

Over half the companies in this industry have  financial problems so stick with them or become the Tropical Fish  Newsletter. I have always thought you were fair and

unbiased until today and I am saddened that you wrote that article about  Sean.

 If he is having financial problems that has nothing to do with your newsletter or your need to report it and I honestly do not know if he is since we do not talk about

such things.

 Please Kit in the future call me if you have any questions and

 I will try to get honest answers for you if it pertains to the leasing industry.

---

to further reply to your story was the quote from Joseph Bonanno who is a documented liar and cannot be trusted to ever tell the truth and if you want the documentation I will send it to you.

He is the typical attorney that all the jokes are made about. I sent the

documentation to all members of the NAELB (National Association of Equipment Leasing) when he slandered my company.

I had one employee spend two weeks faxing the info. Bonanno represents everything wrong with this business and hides behind a non profit organization so he can operate without liability and you can print this because I have the documentation in writing and he cannot deny it.

KENNETH WHEELER

<kennethwheeler@msn.com>

(Leasing News confirmed with Mr. Wheeler that his e-mail was for publication. Ironically the new Sean Wheeler story started from a NAELB Listserve by Joseph Bonanno about rumors that Sean Wheeler was back in the equipment leasing business.  Bonanno was doing his job for the association. It was not sent to Leasing News

as “gossip.”

(Here is the reference Ken Wheeler is referring to, and only brought up to clarify today’s news story: editor)

Sean Wheeler/1lease National Association of Equipment Leasing Brokers

In reading your recent newsletter with the comments from Sean Wheeler About

the NAELB, I felt that I must of course set the record straight. By no means

do I wish to open up the entire issue, it is an issue that is done. I just

want to respond to the comments made by Mr. Wheeler about the process. As to

Mr. Wheeler's comments point by point:

1. "One Lease has never been a member of the NAELB." That is correct.

2. "Directional Funding was also never a member." That is incorrect.

Directional Funding was a member, submitted under the name of Marilyn

Delerio. However, once the EFG issue surfaced, a review of the membership

application showed that Directional's membership was paid for with Sean

Wheeler's American Express card. That was one of the factors that showed The

relationship between EFG and Directional Funding.

3. [The sharing of office space] "is the entire reason for the NAELB

thinking there was a connection between the two companies." There were many

factors that were brought to my attention that showed similarities and

connections between the two companies, not just one. One connection would

not raise a suspicion, many connections would.

4. "We had separate phone and fax numbers from EFG throughout this time."

This is incorrect, letterhead shows the same phone, fax and address. At One

point in time, they may have changed but they were not different "throughout

this time."

>From the perspective of the NAELB, please be aware that one isolated

similarity would not rise to the level warranting action by the NAELB. And

in complete hindsight, if there had never been a problem with EFG, then

there never would have been any issues with Directional Funding, Direct

Funding.Net or One Lease. Also, any action taken is only taken by the full

board of directors, not just me.