Former Tyco Auditor Permanently Barred from Practicing before the Commission

FOR IMMEDIATE RELEASE
2003-95

SEC Finds PricewaterhouseCoopers Engagement Partner Recklessly Issued Fraudulent Audit Report and Engaged in Improper Professional Conduct

Washington, D.C., Aug. 13, 2003 -- The Securities and Exchange Commission today issued an Order instituting settled cease-and-desist proceedings and proceedings pursuant to Rule 102(e) of the Commission's Rules of Practice against Richard P. Scalzo, CPA, the PricewaterhouseCoopers LLP (PwC) engagement partner for that firm's audits of the financial statements of Tyco International Ltd. (Tyco) for Tyco's fiscal years 1997 through 2001. The Commission's Order finds that Scalzo recklessly violated the antifraud provisions of the federal securities laws and engaged in improper professional conduct. Simultaneous with the institution of the administrative proceedings, and without admitting or denying the findings contained therein, Scalzo consented to the issuance of the Commission Order, which orders him to cease and desist from violations of the antifraud provisions and permanently bars him from appearing or practicing before the Commission as an accountant.

The Commission's Order finds that multiple and repeated facts provided notice to Scalzo regarding the integrity of Tyco's senior management and that Scalzo was reckless in not taking appropriate audit steps in the face of this information. By the end of the Tyco annual audit for its fiscal year ended Sept. 30, 1998, if not before, those facts were sufficient to obligate Scalzo, pursuant to generally accepted auditing standards (GAAS), to reevaluate the risk assessment of the Tyco audits and to perform additional audit procedures, including further audit testing of certain items (most notably, certain executive benefits, executive compensation, and related party transactions). Scalzo did not take sufficient steps in these regards. Accordingly, Scalzo recklessly failed to conduct the audits in accordance with GAAS. The Order, therefore, finds that Scalzo engaged in improper professional conduct. The Commission denies him the privilege of practicing before the Commission as an accountant.

In addition, for each of the Tyco fiscal years from its fiscal year ended Sept. 30, 1998, through its fiscal year ended Sept. 30, 2001, PwC issued an audit report stating that PwC had conducted an audit of Tyco's financial statements "in accordance with auditing standards generally accepted in the United States of America." As the engagement partner for the PwC team auditing Tyco's financial statements, Scalzo was responsible for those statements, and, at the time those statements were made, Scalzo was reckless in not knowing that the Tyco audits had not been conducted in accordance with GAAS. Accordingly, the Commission found that Scalzo recklessly violated the antifraud provisions of the federal securities laws and ordered Scalzo to cease and desist from violations of those provisions.

"Investors rely on auditors and are betrayed when auditors fail to conduct diligent audits," according to Thomas C. Newkirk, Associate Director of Enforcement at the Securities and Exchange Commission. "In this case, senior management was looting the company, and Scalzo was confronted with numerous warning signs about management's integrity. Scalzo is not being sanctioned because he did not discover the looting; he is being charged because he did not look despite these warnings."

The Commission's investigation is continuing. The Commission acknowledges the assistance and cooperation of the Manhattan District Attorney and the New York City Police Department.

SEC Contacts:
Thomas C. Newkirk, Associate Director, (202) 942-4550
James T. Coffman, Assistant Director, (202) 942-4574