Head of ADT Mexico charged with fraud

Thursday, March 20, 2003

March 20, 2003

MEXICO CITY - Tyco International’s Fire and Security unit, already rocking as the result of bookkeeping problems in Europe and Asia, is now facing new problems in Latin America.

Earlier this month, criminal authorities in Mexico City issued arrest warrants against Philip McVey, president of Tyco Fire and Security Latin America and Patricio Gonzalez, head of ADT’s Mexican operations charging them with fraud.

According to Gary Holmes, Tyco spokesperson, both men left Mexico before they could be arrested. Holmes added that both men are still employed by Tyco and the company had no plans to terminate them. Holmes said it was unlikely that McVey and Gonzalez would return to Mexico to face the charges. “We are seeking to have the cases dismissed,” he said.

The charges stem from allegations by four former ADT dealers based in Mexico City whose ADT authorized dealer contracts were cancelled by the company in August 2001.

According to David J. Hart, a Miami-based attorney representing the four companies, the sudden cutoff caused combined losses of approximately $30 million to his clients. These losses resulted in the shutdown of all four companies and the layoff of approximately 1,000 workers.

The dealers sought criminal charges against the company because they claimed that ADT was allegedly removing equipment legally owned by the dealers from customers that had cancelled their contracts, and was reusing the equipment without any consideration being paid to the dealers, Hart said. This practice amounted to theft of the dealer’s property, he said.

ADT has denied improperly removing any equipment, saying the only removals involved repairs to non-working systems.

Holmes said the case was essentially a contractual dispute between ADT and the dealers, and the dealer contract specifies that such cases are to be settled by arbitration.

“Under the contract, if there is a dispute there is an arbitration provision…and we’re prepared to follow that,” explained Holmes. “Unfortunately, the dealers have sought to abuse the criminal justice system there and have leveraged us into a criminal complaint which we think is unjustified.”

Hart said that his clients had the right to bring their charges before the criminal authorities, and “in their opinion there was enough information to issue an arrest warrant.”

The Mexican charges are the latest blow to Tyco’s Fire and Security unit. According to a Reuters’ report, Tyco Chairman Edward Breen recently fired five ADT executives, including four based in Asia.

The report stated that a company investigation uncovered that company accounting practices were not being followed in Europe and Asia. As a result, Tyco has announced it would take a pre-tax charge of up to $325 million in the current quarter.