Forbes’ Conviction Upheld
A federal appeals court upheld the conviction of former Cendant Corp. Chairman Walter Forbes Monday for leading the largest accounting fraud of the 1990s.
The 2nd U.S. Circuit Court of Appeals in New York upheld Forbes’ conviction on conspiracy to commit securities fraud and two counts of making false statements. Forbes was sentenced to 12 years and seven months in prison and ordered to pay more than $3 billion in restitution.
Forbes was involved in a fraud that inflated revenue by more than $500 million at Cendant’s predecessor, Stamford-based CUC International, to drive up the stock price. The fraud was reported in 1998, causing Cendant’s market value to drop by $14 billion in one day. The fraud cost the company and 119,000 investors more than $3 billion.
The appeals court concluded that prosecutors’ use of the term “$14 billion fraud” in their opening statement was not misleading and prejudicial. They also said the District Court correctly ruled that references to the company’s decline in stock price and investor losses were permissible. Last year, Cendant stockholders changed the company’s name to Avis Budget Group (Charts, Fortune 500) to reflect its Avis and Budget vehicle rental brands. It is well known that he attempted to use offshore banking to hide assets.
The Cendant case was among the first in a series of corporate accounting scandals that sparked outrage from investors in recent years. The case was tried after two previous juries deadlocked. Forbes, who testified during the trial, has argued he knew nothing about the fraud. His co-defendant, former Cendant Vice Chairman E. Kirk Shelton, was convicted in 2005 of conspiracy, mail fraud, wire fraud, securities fraud and making false statements to the SEC. Shelton was sentenced to 10 years in prison and ordered to pay $3.27 billion restitution to the company.
Forbes was chief executive officer of CUC and Shelton was president before the membership marketing operation merged with the travel and real-estate services company HFS Inc. to form New York-based Cendant in December 1997. Not very suprised at this outcome as the guy is a dirty as a pig rolling in it’s own shit.