Scandals put Wall St fat cats in the dock

The trial of Tyco executives is a crucial test of the US government's determination to stamp out boardroom sleaze

It was the third day of testimony in the trial of Dennis Kozlowski, and, after a brief coffee break, the prosecutor shot up from his seat and called his next witness.

He was met by a loud peal of laughter. Such was his haste, he had failed to notice that the jury was not yet back in the courtroom.

Even Mr Kozlowski, a man with a shaved head and bulldog frame, managed a broad grin. He was probably thinking the same as everyone.

Such is the importance of his case to the United States government that prosecutors can barely restrain themselves, now that they finally have him in the dock.

Mr Kozlowski, 56, is the former chief executive of Tyco, which he built up into a congomerate with operations in 100 countries. A hero to investors in the stock market boom of the 1990s, he and his former chief financial officer, Mark Swartz, are now on trial in the New York State Supreme Court, accused of looting about $600m (£360m) from the company over several years to fund unusually lavish lifestyles.

Two blocks south, a second trial has also got under way. Frank Quattrone, formerly one of America's most powerful bankers, is accused of obstruction of justice by ordering underlings at Credit Suisse First Boston to destroy documents when he heard that the government had opened an investigation into the bank's dealings. He too has pleaded innocent.

The trials are being painted by the government as symbols of corporate scandals that broke out in the wake of the dotcom collapse, stirring disgust in the general public and small investors asmarkets imploded. They will set the tone for other prosecutions expected against corporations such as Enron, Adelphia and WorldCom. The defendants are the first top-rank executives to take on the government by pleading innocent and going to court, rather than agreeing to a "plea bargain". For that reason alone, the prosecution is under pressure to win. "It's critically important that the government emerge at the end of the day with a victory," said a former prosecutor, Robert Mintz. If the Tyco case collapses, other executives may be encouraged to take their chances in court.

By week's end, the Tyco trial was already subsiding into steady tedium. Jurors struggled after their coffee on Thursday morning to stay alert, as both sides took them through the obscurities of the by-laws of Tyco's board of directors, each side trying to build their case. But if the air seemed stagnant in the courtroom of Judge Michael Obus, that was hardly so during opening statements two days earlier. Prosecutors accused both defendants of "lying, cheating and stealing" as they siphoned cash from Tyco to feed their greed. "These two did not win the jackpot," exclaimed district attorney Kenneth Chalifoux. "They stole it."

By contrast, the defence insisted that their clients had only taken advantage of a Tyco loan programme to access the funds in question and had done so with the knowledge of the full board of directors and of the outside auditors. "There's this suggestion that Dennis Kozlowski was the godfather, the head of a criminal enterprise," said Stephen Kaufman, leading the Kozlowski defense team. "There is no second set of books. There is no person who is going to come in here and speak in hush-hush tones about secret payments."

What is unlikely to help Mr Kozlowski, however, are the already well-rehearsed details of his extravagant way of life. Most infamously, there was the $2m birthday party he threw for his second wife in Sardinia, complete with waiters in togas and a full-sized replica, in ice, of Michelangelo's David with vodka flowing from his genital area into waiting cocktail glasses. Tyco footed half the bill.

Prosecutors are expected to make the most of the excesses of Mr Kozlowski, who is also reported to have spent $6,000 on a shower curtain for his Manhattan apartment and $12,000 on an umbrella stand. Then there is his racing yacht and his sprawling beachfront estate in Nantucket.

Judge Obus tried to warn the jury at the outset not to let the significance of the trial colour their thinking. "We are not here to send a message," he said. "It is not a case of Enron or WorldCom or any other company you may have heard about."