Risk Management

Second Mistrial Declared in Cendant Case

Company's accounting fraud was the largest before Enron and WorldCom.
Stephen TaubFebruary 9, 2006

For the second time in 13 months, the proceedings against former Cendant Corp. chairman Walter Forbes ended in a mistrial after jurors could not come up with a unanimous verdict after 27 days of deliberations, reported Bloomberg. Forbes faces federal charges that he led the largest accounting fraud of the 1990s.

The looming question: Will Forbes be tried for a third time?

“It’s very unusual for prosecutors to go after people a third time,” John Fahy, a former federal prosecutor, told Bloomberg. “If the government can’t get a verdict after two trials, they know they have major problems with the case.”

In August 2005, E. Kirk Shelton, a former Cendant vice chairman, was sentenced to 10 years in prison for his role in the accounting scandal. U.S. District Judge Alvin W. Thompson also ordered Shelton to pay $3.28 billion in restitution to Cendant. Forbes and Shelton were charged with supervising a decade-long accounting scheme that inflated income at Cendant predecessor company CUC International, which in turn helped sustain increasing stock values at CUC and then Cendant.

Forbes was accused of inflating earnings by $252 million at CUC, where he was chief executive officer. When the fraud came to light, Cendant’s market capitalization plunged by $14 billion in one day.

Cendant’s accounting fraud was the largest before Enron and WorldCom.

According to Bloomberg, Forbes told jurors he knew nothing of the fraud and little about accounting.

Like former HealthSouth head Richard Scrushy and former Enron chief executives Kenneth Lay and Jeffrey Skilling, Forbes asserts he left CUC’s daily operations to others and relied on CUC accountants and auditors at Ernst & Young LLP, according to the wire service.

Earlier this week, one member of the 12-person jury was dismissed after conducting private research into the case, added Bloomberg.