Cendant Case Scorecard: Government 3; Book-Cookers 0
(FORTUNE Magazine) – Federal prosecutors got closer to unraveling the landmark book-cooking scandal at Cendant recently, after three former top accounting executives pleaded guilty to federal fraud charges. Now they're zeroing in on the big target: former Cendant chairman Walter Forbes.
Cendant, created in a late-1997 "merger of equals" between Forbes' CUC International (a direct-marketing operation) and Henry Silverman's HFS (a franchising giant), was supposed to be a Wall Street powerhouse. But just months after the merger, Silverman's deputies learned that CUC executives had been cooking the books for years, reporting more than $500 million in phony profits. The resulting stock meltdown vaporized $29 billion in market value (see "A Merger from Hell," in the fortune.com archive). Forbes, who insisted he neither knew about nor bore any responsibility for the scandal, extracted a $47.5 million severance package as the price for his resignation.
But when Cosmo Corigliano, CUC's 40-year-old former CFO, pleaded guilty in a Newark courtroom, he told a federal judge that the bogus financial reporting had been going on at CUC since the late 1980s, with the knowledge and encouragement of his "superiors." And who were Corigliano's superiors? His predecessor as CFO, the company's former chief operating officer, and Forbes. As part of their plea agreements, Corigliano and the two other fraudsters have agreed to cooperate in ongoing criminal and SEC investigations of those higher-ups.
Although Forbes (who has retained Washington criminal-defense attorney Brendan Sullivan) and the others say they're innocent, Cendant CEO Silverman--who attended the court hearing with his wife--is already going after each of them. The company is seeking damages against two of the men to recoup a sliver of the $2.85 billion Cendant has agreed to pay out in class-action settlements. And it has filed papers in private arbitration proceedings to force Forbes to repay his entire severance, arguing that the former Cendant chairman should have been terminated for cause for racking up more than $2 million in expense-account abuses. "Walter has succeeded for two years in being the absent man," says a source close to the situation. "That's over now."