Former Cendant Exec Found Guilty

By the looks of the corporate ''police blotter,'' it's a busy time on the legal front for many executives.
Stephen TaubJanuary 6, 2005

After 70 days of testimony, 9 days of closing arguments, and 33 days of deliberations, on Tuesday jurors rendered a split verdict in the trials stemming from the accounting fraud that led to the largest shareholder settlement in U.S. history.

E. Kirk Shelton, a former vice chairman of Cendant Corp., was found guilty on 12 counts including conspiracy, mail fraud, wire fraud, and securities fraud, reported Bloomberg. He faces up to 40 years in jail. The case against former chairman Walter Forbes, who had faced 16 counts, ended in a mistrial.

The charges against Shelton and Forbes stemmed from the overstatement of $286 million in earnings at CUC International Inc., which in 1997 merged with HFS Inc. to form Cendant. According to Bloomberg, Cendant eventually restated earnings downward by $571 million and shelled out $3.2 billion to settle investor lawsuits.

In June 2000, former CUC chief financial officer Cosmo Corigliano, former CUC controller Anne Pember, and former CUC accountant Casper Sabatino pleaded guilty to related charges, according to Bloomberg. Shelton and Forbes had blamed Corigliano for cooking the books; he later testified for 18 days as a government witness, the wire service noted. Pember detailed the fraudulent use of merger reserves, and Sabatino described phony journal entries, Bloomberg added.

Shelton’s conviction came the same day that former Charter Communications executive James Smith III pleaded guilty to federal charges of conspiracy to commit wire fraud, according to the Associated Press. Smith, one of four former executives of the cable-TV company indicted in July 2003, became the third to admit to a scheme to defraud investors by inflating subscriber numbers, reported the AP.

Also on Tuesday, New York State Attorney General Eliot Spitzer charged James M. Zimmerman, former chairman and chief executive officer of Federated Department Stores Inc., with perjury, alleging that Zimmerman lied under oath to conceal evidence of possible antitrust violations.

Meanwhile, jury selection began yesterday in the trial of Richard Scrushy, the founder and former chief executive officer of HealthSouth Corp., which is embroiled in its own accounting scandal.

Later this month, the retrial will begin for former Tyco International Ltd. chief executive officer Dennis Kozlowski and former chief financial officer Mark Swartz. Six months of testimony, arguments, and deliberations ended in a mistrial last April, largely due to intense press coverage of one of the jurors.

And next month, the trial of former WorldCom Inc. chief executive officer Bernie Ebbers will get under way. He is being charged for his part in the company’s huge accounting fraud, which caused the one-time telecom giant to restate its financials by $11 billion.