BOSTON (Reuters) - US regulators yesterday said they barred the former outside auditor of Bermuda-based Tyco International Ltd., finding that he was "reckless" and stood idle as the conglomerate's leading figures manipulated accounting entries to conceal their lavish spending and pay.

A cease-and-desist settlement with the US Securities and Exchange Commission bars Richard Scalzo, a 46-year-old PriceWaterhouseCoopers partner in Boston, from ever again preparing financial statements of publicly traded companies. Such an action against a lead partner is considered rare.

Scalzo did not admit or deny the SEC's findings, which touched on a special loan account former Tyco executives used to fund improper spending on anything from expensive wine to a yacht and a $6,000 shower curtain.

Days before a 1998 earnings release, PwC uncovered a $40 million compensation charge that would have caused Tyco to miss Wall Street estimates by several cents a share.

The SEC said Tyco then scrambled to negate the impact of the charge with a series of entries.

"All of these issues provided further notice to Scalzo regarding the integrity of Tyco's management," the SEC said, adding that the "fire-drill" happened again a year later.

The SEC action gives PwC another black eye over its Tyco audits. Tyco recently restated 5- years of financial statements dating to 1998 amid an SEC investigation.

Former Tyco executives are accused of looting Tyco out of $600 million through unauthorised pay and fraudulent stock sales on PwC's watch. In New York, Manhattan District Attorney Robert Morgenthau said on Wednesday PwC's conduct in the Tyco audits did not rise to criminal behaviour.

"Mr. Scalzo failed to do his job..." Morgenthau said.

As PwC's lead partner on the Tyco account, Scalzo signed off on financial statements for fiscal years 1997 to 2001, the SEC said. Those clean bills of health were vital to Tyco to beat back growing criticism over its accounting methods.

In March, PwC said Scalzo had been replaced as the lead partner after Tyco's new management asked for more resources.

The Tyco account has been lucrative, paying PwC some $100 million in fees for audit, tax and consulting work during fiscal 2001 and 2002, according to Tyco proxy statements.

"We support and respect his decision to agree to the SEC settlement," PwC spokesman David Nestor said. "We still stand behind the work we did for Tyco."

But, according to the SEC: "Scalzo was reckless in not knowing that the Tyco audits had not been conducted in accordance with (generally accepted accounting standards)."

PwC remains Tyco's outside auditor. But Tyco plans to review that engagement for fiscal 2003.

The SEC continues to investigate Tyco's accounting.

The SEC contended Scalzo ignored red flags that former Tyco leaders such as Dennis Kozlowski, who resigned as chairman last year amid a criminal investigation, used a company loan program for personal expenditures. The so-called key employee loan program was designed to encourage stock ownership.

In June 2002, Reuters reported how Tyco executives and two PwC leaders, including Scalzo, helped raise millions of dollars for a non-profit school championed by Kozlowski and his daughter.

In 2001, the dinner committee for the Boston-based school's annual fund-raiser included Scalzo and several Tyco executives.

John O'Connor, vice chairman of services at PwC, received an award from the school for his fund-raising help, and a press release described him as "our quiet hero."

O'Connor continues to sit on the school's board of directors with Cheryl Kozlowski, the daughter of the former Tyco chairman, according to the school's Web site.