WASHINGTON (Dow Jones/AP) — The Securities and Exchange Commission yesterday charged two former executives of Bermuda conglomerate Tyco International Ltd. executives in connection with frauds that inflated the company’s operating income by hundreds of millions of dollars.Richard Power, who reported to now-jailed chief executive Dennis Kozlowski, and Edward Federman, who once served as controller and later chief financial officer of a major Tyco division, were accused of using improper accounting and structuring sham transactions, among other things.

Attorneys for Power, a resident of Palm Beach, Florida, and Federman, a resident of Boca Raton, Florida, didn’t immediately return phone calls.

Kozlowski is serving a sentence of eight years to 25 years in prison after he and chief financial officer Mark H. Swartz were convicted last year of looting the Bermuda conglomerate. They are appealing those sentences. A third former executive, Richard “Skip” Heger, was accused of separate securities violations. He agreed to pay $450,000 to settle with the SEC. Heger had served as vice-president for finance of Tyco’s fire and security services division until he retired in 2002. He settled without admitting or denying wrongdoing.

The SEC said that Power devised a sham transaction involving Tyco’s security-services business. The ADT Securities Services Inc. unit sold alarm systems and services directly to customers and also purchased security-monitoring contracts from independent security-alarm dealers.

In the sham transaction, Tyco imposed a $200 “dealer connection fee” that it purportedly required independent dealers to pay. Tyco simultaneously increased the price it paid each dealer by the same $200, the SEC said. The transaction had no economic substance, but boosted income because the connection fee was recognised immediately as income and the $200 dealer payment was treated as a capital expenditure that was amortised over 10 years, the SEC said.

The SEC said that PricewaterhouseCoopers LLP, Tyco’s outside accountant, raised concerns about the $200 payment to dealers. In response, Tyco stopped calling the $200 payment a “growth bonus” and repackaged the payment as a $200 increase in the purchase price for each monitoring contract, the SEC said.

A PricewaterhouseCoopers spokesman couldn’t immediately be reached for comment.

The SEC also accused Power and Federman of playing “significant” roles in the implementation of improper accounting for acquisitions.

SEC charges Tyco pair with fraud