Dennis the dealmaker given a new nickname: the artful tax dodger

Dennis Kozlowski, the son of a New Jersey police captain, grew to be one of America's most feared and wealthy corporate titans. Deal-a-month Dennis, as Wall Street called him, built his company, Tyco, into a business colossus. Today he has a new nickname, the artful dodger.

As the owner of three luxurious homes, a giant yacht, a plane and a fleet of Harley-Davidsons, Mr Kozlowski now finds himself charged with the grubby crime of tax evasion. At issue is $1m in sales taxes he has allegedly failed to pay on a string of recent fine art acquisitions.

This is yet another story of reversed fortunes in the highest realms of American business that has investors and analysts gawping. The Tyco board, which forced Mr Kozlowski's resignation on Monday, includes the British Tory peer, Lord Ashcroft, among its members. Some of the art apparently came from an exclusive New Bond Street gallery.

Yesterday, Mr Kozlowski, 55, appeared to have vanished from his New Hampshire mansion, a day after pleading innocent in a Manhattan court to 11 different charges of tax evasion, conspiracy and fraud. Free on $3m bail, he could face a prison term of 44 years.

His accuser is the Manhattan District Attorney, Robert Morgenthau, who released startling details of the chief executive's cost-cutting capers. His favourite ruse, allegedly, was to buy paintings by artists such as Renoir and Monet for his plush Fifth Avenue apartment, while falsely claiming they were being shipped out of state, which would make them exempt from sales tax.

Mr Morgenthau alleges that one picture was removed from the wall of the apartment and taken by an employee to Tyco's US headquarters in New Hampshire by car, where papers were signed to acknowledge receipt, and then driven straight back to Manhattan. Another time, crates labelled as bearing newly acquired pictures were dispatched to New Hampshire, when in fact they were empty.

In an apparent effort to impress his new wife, Karen Mayo, a Florida restaurateur, Mr Kozlowski bought fine art costing $13m in about nine months. Besides Renoir and Monet, he and his wife bought paintings by Sir Alfred Munnings, Adolphe-William Bouguereau and John Atkinson Grimshaw.

Most of his shopping was done with the help of an art advisory service based in Florida. The main vendors are thought to have been Alexander Apsis, a private dealer in New York, and the Richard Green gallery in London, to which Mr Kozlowski made at least two trips last year.

So far no one else has been charged in the case, although Mr Morgenthau made clear that his investigation was incomplete. "We take these kinds of cases extremely seriously," he said when he announced the charges. "For somebody who was highly paid to fail to pay over a million dollars in sales tax is a serious crime and will be treated seriously."

New York charges sales tax on any goods that remain in the state and an equivalent-use tax on property acquired elsewhere and brought to the state.

A spokeswoman for Richard Green on New Bond Street acknowledged last night that Mr Kozlowski had been a customer. "We have been aware of an investigation for two weeks and we are co-operating fully," she said. "We don't believe we have engaged in any violation of New York laws and this is now in the hands of our New York attorney."

Mr Kozlowski's rags-to-riches tale has its roots in the Polish neighbourhood of Newark, New Jersey, where his father was a police officer. The younger Kozlowski earned his keep playing guitar in a wedding band, before joining Tyco in 1975 as an accountant, when the company was relatively obscure. He rose through the ranks to lead the company in 1992, after which Tyco expanded fast. His ambitions were clear.

He wanted to build one of America's largest corporations and turn himself into the new Jack Welch, the once-vaunted chief of General Electric. Last year, Business Week put him on its cover and called him the "most aggressive CEO".

Apart from the $18m pied-à-terre on Fifth Avenue and the New Hampshire mansion, Mr Kozlowski has homes in Nantucket and Florida. And he likes the wind in his hair. He skippers his own yacht, Endeavour, at international regattas and rides motorcycles from his fleet of Harley-Davidsons.

Among the companies Tyco acquired in recent years was ADT, the giant security firm built up by Lord Ashcroft, the former Tory Party treasurer whose other main interests lie in Belize. Through the 1997 deal, Lord Ashcroft, who has not been charged in connection with the case, attained a seat on the Tyco board and pocketed about $5.4bn in Tyco stock. The value of those shares has dropped by millions of dollars since Mr Kozlowski's fall.

The similarities with the developments at the energy conglomerate Enron, which reported the biggest US bankruptcy in history last December, are obvious. Even before Mr Kozlowski was charged, Tyco was being questioned over its corporate governance and accounting transparency.

Since the beginning of this year, Tyco has lost $80bn in stock capitalisation as investors have fled.

Enron also comes to mind because it too had a British peer on its board, suddenly snared in an American corporate collapse. Lord Wakeham responded to the Enron allegations by stepping down as chairman of the Press Complaints Commission.

Conservative peers, it appears, have had bad luck – at least in choosing their corporate bedfellows in America.

A lawyer for Mr Kozlowski, Stephen Kaufman, played down the charges. "It's an unproven case. It is nothing more than allegations," he said.

Mr Morgenthau, however, revealed that he had a note sent from one of the defendant's art consultants to a haulier. "Here is the the list of the five paintings to go to New Hampshire (wink, wink) ... Make cardboard boxes, or use crates, to match the piece count," the memo said.

That was apparently enough to get Mr Kozlowski into a mess. "Over the years, there has been too much winking at this kind of activity," Mr Morgenthau said. "And we don't intend to wink."

As head of Tyco, which makes everything from surgical staplers to underwater optical cables, Mr Kozlowski has become astonishingly rich. He made $293m from 1998 to 2001 through salary, bonuses and stock proceeds, public accounts reveal. Unsurprisingly, his lifestyle is lavish.