Friday, February 10, 2006
The prosecution of former Cendant executive Walter Forbes ended in a second mistrial after 27 days of jury deliberations. Forbes was CEO of CUC International before its merger with HFS, which created Cendant. Shortly after the merger, details of significant accounting fraud at CUC emerged, leading to multibillion dollar settlements of securities fraud civil suits and the prosecution of CUC's CFO, another senior executive, Kirk Shelton, and Forbes. The CFO entered a guilty plea and was the star witness in the two trials, the first ending in a guilty verdict on some counts for Shelton -- who has been sentenced to a ten-year prison term -- and a hung jury for Forbes. That jury was out 33 days, so the case is clearly a close one. Whether the government will try a third time is not clear at this point, and after two trials it may be that the case cannot be won.
In his trial, Forbes offered the "honest-but-ignorant CEO" defense. A New York Times column by Floyd Norris (here) notes Forbes' testimony that he did not read the company's quarterly filings with the SEC (Form 10-Q): "I don't think they would have expected me to be reading 10-Q's." All that accounting stuff is really confusing, anyway. Much of the government's case hung on the testimony of the CFO, who was permitted to retain $5 million from his days at CUC as part of the plea agreement, a decision that opened him to significant impeachment. A Bloomberg story (here) discusses the government's prosecution of Forbes. (ph)