Cendant Corp.'s former Chairman Walter A. Forbes and
former Vice Chairman E. Kirk Shelton were indicted
yesterday in what prosecutors say may be one of the
biggest securities fraud cases ever.
Forbes and Shelton were charged with conspiracy and
wire fraud for conspiring with subordinates to routinely use
fraudulent accounting methods to inflate income, the U.S.
attorney's office said.
Cendant, owner of such recognizable companies as Days
Inn, Howard Johnson, Ramada Inn, Century 21 and
Coldwell Banker, was created in 1997 when CUC,
primarily a marketer of discount membership clubs, merged
with HFS Inc., a hotel and real estate franchiser.
Cendant has said the alleged fraud inflated earnings before
charges to the tune of some $500 million. In addition, the
Securities and Exchange Commission filed a civil fraud
lawsuit in Newark federal court.
Forbes and Shelton resigned from Cendant in 1998, shortly
after Cendant discovered irregularities in CUC's accounting
The indictment was preceded by a guilty plea from the
duo's alleged co-conspirators, CUC's former chief financial
officer, CUC's former director of accounting and former
accountant. They pleaded guilty to conspiracy and acting
under the instructions of their superiors last year.
Forbes and Shelton face a maximum of five years in prison
and a $250,000 fine on each of the two counts. They also
face possible fines in the SEC case.
Cendant has said it will seek "substantial monetary
damages" from Forbes - who received a $47 million
severance package when he resigned - if he is convicted or
pleads guilty. The company is also currently seeking
compensation from Shelton.
"It is a very significant case given the magnitude and
complexity of the fraud," New Jersey U.S. Attorney
Robert Cleary told The Post.
"It is very important for publicly held companies not to
misrepresent themselves. Justice will take steps to stop this
[type of fraud] in the future," he added.
Prosecutors told Bloomberg the case may be one of the
biggest cases of securities fraud ever.
Both parties proclaimed their innocence.
"I am totally innocent of the charges brought against me and
will fight them in court," Forbes said through a
Attorneys for Shelton, echoed that statement, but with
vigor and finger-pointing. They said in a statement: "Shelton
worked with an unflinching commitment to honesty and the
truth during his 17 years at CUC/Cendant. His trust, and
the trust of CUC/Cendant's employees and investors, was
betrayed by those few CUC/Cendant financial executives
who already have pleaded guilty to committing this fraud."
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