(Bloomberg) - Former Tyco International Ltd. executives Dennis Kozlowski and Mark Swartz can tell jurors at their upcoming trial that loans and other compensation they're accused of getting without authorisation were approved by company auditors, a judge said.

State Supreme Court Justice Michael Obus turned aside a request by the Manhattan district attorney's office to block a defence Kozlowski and Swartz are expected to rely on when their trial begins next week. Jury selection starts on Monday.

"There is a limit to this," Obus said. "The fact that a loan was submitted to auditors is not a complete defence. We are not here to have a jury decide whether the auditors did a good job."

Kozlowski was chief executive officer at Bermuda-based Tyco, the biggest maker of industrial valves and electrical connectors, and Swartz was chief financial officer. The two men are accused of stealing $170 million in unauthorised pay and making $430 million through stock fraud.

Obus dismissed two of the 39 charges against them at today's hearing. The two counts of falsifying business records in proxy statements will be dealt with in the civil lawsuit brought against Kozlowski and Swartz by the US Securities and Exchange Commission, lawyers said.

They were considered lesser charges in the criminal case.

Defence lawyers said it's "crucial" that they be allowed to cite the auditor's role as part of their case. Austin Campriello, an attorney for Kozlowski, told Obus that the presence of outside auditors negates any theory that the two men were secretly embezzling money from Tyco.

"Embezzlement can't succeed without stealth, without secrecy," Campriello said. "If this evidence comes in, we are quite confident the defendants will be acquitted."

Obus agreed, saying the issue is "arguably relevant" and that Kozlowski and Swartz "have a right to present such evidence," though he cautioned against over-reliance on the auditors.

PricewaterhouseCoopers LLP has audited Bermuda-based Tyco's financial statements since 1998 when Price Waterhouse and Coopers & Lybrand, which had the Tyco account, merged.

A PricewaterhouseCoopers partner, Richard Scalzo, was barred from auditing public companies by the SEC in August. The SEC said Scalzo "recklessly" issued fraudulent audits after ignoring evidence that Tyco executives were looting the company.

Assistant District Attorney Marc Scholl asked Obus to prohibit Kozlowski and Swartz from using the auditors to bolster their defence, saying accountants are "far from the corporate cops" they are generally portrayed as.

Prosecutors plan a vigorous counterattack if the two men argue they didn't illegally obtain money from corporate loan programs because the loans were thoroughly audited, Scholl said.

Prosecutors will show that Kozlowski and Swartz gave "misleading answers" to auditors; that the auditors didn't pay attention to the corporate loan programs because they didn't affect the bottom line and that many auditors were "low-level" employees under "significant time pressure," Scholl said. In addition, he said, prosecutors will tell jurors that the SEC "punished" Scalzo, "the chief auditor in this case."

"Educating the jury" about the true role of auditors at a public company such as Tyco will lengthen the trial, Scholl said. It's expected to last three to four months. Tyco shares rose 3 cents to close at $21.85 in New York Stock Exchange composite trading.