ADT employees face questioning by SEC

May 20, 2004 WEST WINDSOR, N.J. - Former and current employees of Tyco’s ADT Security Services division have been subpoenaed by the Securities and Exchange Commission to testify on how the company accounted for a connection fee it previously charged its authorized dealers. The inquiry comes after Tyco restated its earnings for the first three quarters of 2001, a restatement that lowered the company’s earnings by $125 million. At that time, auditors found ADT had been recording expenses of acquiring new customers as long-term capital costs, instead of an expense. Tyco revealed last week in its 10-Q quarterly report that the SEC subpoenaed current and former employees of ADT. In the report, the company said it has received subpoenas and requests for documents from the SEC, District Attorney of New York, U.S. Attorney for New Hampshire and the Equal Employment Opportunity Commission. Gwen Fisher, a spokesperson for Tyco, could offer few details on the inquiry except to say the company “continues to cooperate with the SEC in making documents and witnesses available.” Fisher declined to name who has been subpoenaed. The subpoena and continued inquiry come as little surprise to Jack Mallon, a security industry analyst and managing director of Mallon Associates. “It reflects the current environment to the super sensitivity for any accounting irregularity,” he said. According to a report in the Wall Street Journal, the dealer connection fee is a former practice that began in the late1990s as part of ADT’s authorized dealer program. ADT would pay a dealer $1,000 for a security contract, but charged the dealer a $200 connection fee. The report said Tyco booked the $1,000 as a capital expense, but the $200 connection fee was booked as an immediate profit. For more on this story see the June issue of Security Systems News.