Mark Swartz, Tyco's former chief financial officer, admitted that a $12.5m special bonus awarded to him was "a mistake", a court heard on Monday.
The testimony by David Boies, a lawyer who conducted an internal investigation into Tyco, contradicted evidence given by Mr Swartz last month.
Prosecutors called Mr Boies to challenge the former CFO's explanations for taking bonuses. Mr Swartz testified that more than $100m in special bonuses were early payments of approved annual bonuses for himself and Dennis Kozlowski, his former chief executive.
Mr Boies testified that Mr Swartz said the bonus was an error. "He said it was a mistake; it should never have happened."
Mr Kozlowski and Mr Swartz are accused of stealing $600m and face up to 30 years in prison if found guilty. They deny grand larceny, conspiracy, securities fraud, falsifying business records and enterprise corruption.
The defence teams chose to call Mr Swartz as their only witness. He testified that Mr Kozlowski told him the special bonuses were approved by Phil Hampton, a board member who is dead. Mr Swartz's evidence contradicted that of six former Tyco directors, who said they never approved special bonuses.
Mr Boies said on Monday that he called Mr Swartz in for a meeting on July 17 2002 after he found loan forgiveness worth $25m to Mr Kozlowski, $12.5m to Mr Swartz and $1m to another employee.
"I could not see any justification. It had not been approved by the board of directors, not been approved by the compensation committee, not been revealed in the company's proxy statements and not reported to the Internal Revenue Service," Mr Boies said.
Mr Boies and Tyco then asked Mr Swartz to repay it with interest and he agreed.
Defence lawyers have challenged Mr Boies's motives, arguing that he is a lawyer for Tyco and that he negotiated a severance package with Mr Swartz.
Judge Michael Obus of New York State Supreme Court dismissed the jury until Monday, when closing arguments are due.