Problems arise for Tyco in Mexico

Thursday, May 1, 2003

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

Recently, authorities in Mexico City issued arrest warrants for Philip McVey, president of Tyco Fire & Security Latin America and Patricio Gonzalez, head of ADT’s Mexican operations, charging them with fraud.

The charges stem from allegations by four former ADT dealers based in Mexico City whose ADT contracts were cancelled by the company in August 2002.

Luis Montiel of Alerta 24, one of the four Mexico City-based dealers who brought the charges, said the companies decided to seek fraud charges after ADT cancelled their authorized dealer contracts without warning late last year. The charge alleges ADT failed to pay almost $2.5 million allegedly owed to the four dealers combined.
According to David J. Hart, a Miami-based attorney representing the four companies, the companies sought criminal charges because they claimed that ADT was removing equipment legally owned by the dealers from customers who cancelled their contracts. The dealers say that ADT reused the equipment without any consideration being paid to the dealers. Hart said this practice amounted to theft of the dealer’s property.

A spokesperson for Tyco denied that ADT improperly removed any equipment from customers in Mexico, saying the only removals involved repairs to non-working systems.

But a copy of an advertisement that appeared earlier this year in a Mexico City newspaper shows otherwise.

The advertisement, which is addressed to ADT clients, urges them not to return any equipment to any distributors, saying the equipment belongs to either the customer or ADT.

According to Montiel, a Mexican judge disagreed with ADT’s claims of ownership and issued the arrest warrants for McVey and Gonzalez.

“The judge decided the equipment belonged to us,” said Montiel, who added that the companies had invoices for the equipment and were paying taxes on its value.

McVey and Gonzalez both left Mexico before they could be arrested, and they have not returned to face the charges.

A Tyco official did not return calls by press time seeking comment on Montiel’s allegations or the newspaper advertisement.

In an earlier interview, Gary Holmes, Tyco spokesperson, said it was unlikely that the two men, who are still under Tyco’s employment, would be returning to Mexico to face the charges.

“We’ve hired a lawyer in Mexico and we are seeking to have the cases dismissed,” Holmes said.

According to Holmes, the case was essentially a contractual dispute between ADT and the dealers. “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,” Holmes said.

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 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.