Walter Forbes goes down

Eight years later, the former CEO of Cendant finally gets convicted for his involvement in the financial fraud scandal. Fortune's Carol J. Loomis reports.

By Carol J. Loomis, Fortune editor-at-large

(Fortune Magazine) -- It took eight years and three trials, but on Halloween, Walter Forbes, the top-ranking suspect in the Cendant scandal, finally was convicted of financial fraud. Like Tyco's (Charts) Dennis Kozlowski, Forbes, now 64, proved hard to bring down.

The charges against Forbes refer way back to his days as head of CUC International, a membership marketing company that merged in 1997 with franchising powerhouse HFS to form a new conglomerate, Cendant.

At marriage time CUC appeared to be pristinely profitable. But when the merged companies attempted to combine their accounts in early 1998, CUC's financial statements couldn't stand close inspection and the company was suddenly exposed as having cooked its books for years. On the news, Cendant's market value dropped by about $14 billion in one day.

Naturally, investigators preparing an extensive report for Cendant's board questioned Forbes, but he adamantly denied any knowledge of wrongdoing. To that, Fortune said in an Aug. 2, 1999, article ("Lies, Damned Lies, and Managed Earnings" ), "If Forbes truly did not know, at least one reader of the report - this writer [of both that piece and this item] - thinks Forbes was a pathetically uninformed CEO and probably one of the worst ever to head a major company."

Despite his claim of innocence, Forbes was indicted in 2001. Certain financial officers who worked for him pleaded guilty and began to testify against him. But two different juries deadlocked after trials that lasted months.

The "I didn't know" defense finally failed Forbes in the third trial, just finished. This trial was streamlined, lasting only 17 days, and it featured the first appearance of Henry Silverman, long the CEO of Cendant and now head of its spinoff, Realogy (Charts).

Silverman added to the weight of the evidence by testifying that in the run-up to the 1997 merger, Forbes displayed a detailed knowledge of CUC's financial data. Something got through to this jury: Deliberating only two days, it found Forbes guilty of conspiracy and false statements (but not of another charge, securities fraud). For those wanting "justice," said U.S. Attorney Christopher Christie, "this is a great day."

Unsurprisingly, Forbes is expected to appeal.

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