Officials Charged in Largest Accounting Fraud Ever
In a civil suit filed by the SEC in federal court Wednesday, the former chairman and vice chairman of Cendant Corporation were indicted for conspiracy and wire fraud and accused of doctoring the books of predecessor company, CUC International Inc., for the purpose of misleading shareholders. The two had resigned from the company in 1998.
Cendant, a conglomerate which controls such diverse companies as Avis car rental, Days Inn motels, Century 21 Real Estate, and Jackson Hewitt tax preparation service, was formed when CUC merged with HFS Inc. in 1997.
The case is described as the largest accounting fraud ever, with investors reportedly losing $19 billion.
Walter A. Forbes, the former chairman of Cendant, and Kirk Shelton, the former vice chairman, were indicted for fraud by a grand jury Wednesday in New Jersey at the same time that the SEC civil charges were filed. The two former executives are charged with conspiring to inflate quarterly and annual earnings reports while shareholders helplessly watched the value of their stock plummet.
The SEC suit claimed that, "By inflating income and earnings, CUC management intentionally created for investors the illusion of a growing, highly profitable and successful enterprise." The SEC added that from 1995 to 1997, pre-tax operating income was inflated by more than $500 million.
The SEC hopes to make the two men personally responsible for repaying the gains they made and to bar both men from serving in executive positions in a publicly-held company. Three other officials of Cendant were charged with similar offenses last year.