Wednesday, November 1, 2006
Former CUC International CEO Walter Forbes, who became chairman of Cendant Corp., which was formed when his company merged with HFS in 1997, was convicted of one count of conspiracy and two counts of making false statements to the SEC. The jury acquitted him of a securities fraud charge. The prosecution came after an accounting fraud at CUC was disclosed that caused Cendant's stock to drop 46% in one day, wiping out over $14 billion in the company's value, a loss that it never recovered from. In the first trial, former CUC president E. Kirk Shelton was convicted and sentenced to a ten year prison term. The maximum penalty for the false reporting counts is ten years each, and courts rarely impose consecutive sentences in white collar crime cases so Forbes is unlikely to receive a longer sentence than Shelton.
The first two trials ended with a hung jury for Forbes, with the jury deliberations dragging out 33 and then 27 days before the court declared mistrials. The third proceeding was before a different district court judge, who sped up the process and the jury returned its verdict in only three days. One difference in the evidence presented at the third trial was calling Henry Silverman, the CEO of of HFS and then Cendant (which has now been broken up), to testify about Forbes' role in attempting to cover-up the accounting problems at CUC. Forbes' attorney, high-profile defense lawyer Brendan Sullivan, has vowed to appeal. A Bloomberg story (here) discusses the prosecution.
The Cendant prosecution was the first case in the most recent wave of accounting frauds that involved senior corporate executives, and the sentence given to Shelton was among the most severe handed out before the verdicts in the WorldCom, Adelphia Communications, and Enron cases. With a ten year statutory maximum sentence on the false statement counts, it will be interesting to see if the judge gives Forbes a sentence close to the one received by Shelton. (ph)