(Bloomberg) ? A Tyco International Ltd. accountant testified that former chief executive L. Dennis Kozlowski used Tyco loans to pay for a gathering in Sardinia that prosecutors say was actually a birthday party for his wife.

Testifying at the fraud and larceny trial of Kozlowski and his finance chief, Mark Swartz, accountant Linda Auger said four loans totalling more than $700,000 were labelled ?Carlson Marketing Group.?

?I believe they related to a Sardinia meeting, something in Italy,? Auger, a government witness, said in state court in New York. Prosecutors have said the meeting actually was a Roman- themed birthday party Kozlowski threw for his wife in 2001 on the Italian island of Sardinia, splitting the $2 million tab with the company. Prosecutors say Kozlowski, 58, and Swartz, 44, gave themselves and others $150 million in unauthorised compensation, including cash bonuses and forgiveness of company loans, without getting approval of the board. They are being retried in New York after their first case ended in a mistrial in April. The defence claims that Kozlowski and Swartz made no effort to hide their actions from the board or company auditors.

Auger also testified that in August 1999, Swartz and Kozlowski received $37.5 million in forgiveness of loans used to cover tax liabilities on grants of company stock. Their remaining debts were then shifted to an employee-relocation loan program, she said.

The following year, as a bonus for the initial public offering of shares in TyCom Ltd., a Tyco subsidiary, Kozlowski and Swartz had $28 million worth of relocation loans forgiven, she said.

Swartz?s bonus forgave more than he owed, leaving him with a credit of $1.4 million, ?which was wired to him,? Auger said.

Kozlowski, who presided over more than $64 billion of acquisitions in the last five years of his decade as chief executive, built Tyco into the world?s biggest maker of electronic connectors, industrial valves, plastic hangers and security systems.

He and Swartz face 31 charges of grand larceny, conspiracy, falsifying business records and securities fraud. The most serious charge of grand larceny carries a maximum 25-year sentence. Kozlowski resigned from Tyco in 2002 the day before he was charged with evading sales taxes on $13.2 million in art purchases. He is to be tried separately on those charges. Swartz left the company in September 2002. Auger now works in Tyco?s tax department.

Tyco shares have more than doubled since Kozlowski was indicted.