Anne Pember and Casper Sabatino, both former Cendant financial execs received sentences this week based on their their prior pleas. Both were spared jailtime and instead received probation, two years apiece. Apparently they were quite contrite (and helpful to the prosecution). Another helpful fellow, former Cendant CFO, Cosmo Corigliano, is expected to be sentenced later this week. Look for another wrist slapping, as Corigliano was a key source for the prosecution.

-- MDT

Labels: Anne Pember, Caspar Sabatino, Cendant, Cosmo Corigliano, Fraud, sentencing

Cendant CEO, Walter Forbes's was convicted in October '06 of conspiracy to commit securities fraud as well as two counts of making false statements in relation to the massive accounting fraud at Cendant. His sentence, handed down yesterday: twelve years, seven months and $3.3 billion dollars in fines. That's gotta hurt.

Cendant is the company behind such prominent brands as: Ramada, Howard Johnson, Avis, Coldwell Banker and Century 21, among others.

-- MDT

Labels: Cendant, Conviction, Walter Forbes

In addition to the ten year prison sentence and more than $3 billion in fines and restitution former Cendant vice Chair, E. Kirk Shelton has otherwise been facing, he has now been placed under house arrest while he awaits the outcome of his appeals. Shelton was previously convicted on a variety of charges relating to his role in artificially inflating Cendant's revenues by some $500 million. When the fraud was discovered back in 1998, Cendant's value dropped by $14 billion in a single day. Ouch.

More here.

-- MDT

Labels: Cendant, Conviction, E. Kirk Shelton, Fraud

Walter Forbes, the former CEO of Cendant is facing a guilty verdict on securities fraud charges as well as charges of making false statements in relation to the extensive internal fraud disclosed by Cendant back in 1998. This would be Forbes' third trial and Forbes is not the first former Cendant brass to get sent down the river. He follows former Cendant vice-chair, E Kirk Shelton who was convicted last year on 12 colorful fraud-related counts. Forbes has continually denied any participation in the fraud at Cendant, and there are those who certainly believe him in that regard. Others less so (including his jury). More details here.

-- MDT

Labels: Cendant

I hope everyone is fat and happy after yesterday's indulgences. I for one, can claim consumption of three separate types of pie. Speaking of gluttony...BusinessWeek, just before the holiday, gave a run-down of the current happenings in the major corporate scandals of moment:

Status of high-profile corporate scandals

November 23, 2005
By The Associated Press

A look at some of the high-profile corporate scandals of recent years and the status of legal action in each.

ADELPHIA COMMUNICATIONS CORP. -- Michael Rigas, a son of the founder of Adelphia Communications Corp., pleaded guilty on Wednesday to a charge of making a false entry in a financial record, eliminating the need for his retrial on securities fraud and bank fraud charges in a scandal that forced the cable giant into bankruptcy. John Rigas and his son Timothy were convicted in federal court last year of conspiracy, bank fraud and securities fraud. On June 20, John Rigas was sentenced to 15 years in prison, and Timothy Rigas to 20 years. They are free pending appeal. A fourth executive, Michael Mulcahey, was found not guilty of conspiracy and securities fraud. Last month, John and Timothy were indicted in Philadelphia on charges they and other family members didn't pay $300 million in taxes.

WORLDCOM INC. -- Bernard Ebbers, who as CEO of WorldCom oversaw the largest corporate fraud in U.S. history, was sentenced on July 13 to 25 years in prison. The sentence was handed down in Manhattan three years after WorldCom collapsed in an $11 billion accounting fraud, wiping out billions of investor dollars. A judge ruled in September that Ebbers can stay out of prison while he appeals his conviction.

HEALTHSOUTH CORP. -- Former CEO Richard Scrushy was acquitted on June 28 on all 36 counts of conspiracy, false reporting, fraud and money laundering in an alleged $2.7 billion earnings overstatement at the rehabilitation and medical services chain over seven years beginning in 1996. He blamed the fraud on 15 former HealthSouth executives who pleaded guilty. Hannibal "Sonny" Crumpler, a former HealthSouth executive, the second person to stand trial in the fraud was convicted last Friday of conspiracy and lying to auditors for his role in the fraud.

TYCO INTERNATIONAL LTD. -- Former Chief Executive L. Dennis Kozlowski and Chief Financial Officer Mark H. Swartz were convicted June 17 on 22 of 23 counts of grand larceny, conspiracy, securities fraud and falsifying business records. Prosecutors accused the two of conspiring to defraud Tyco of millions of dollars to fund extravagant lifestyles. The two were sentenced Sept 19 to eight and one-third to 25 years in prison. A judge refused to release Kozlowski and Swartz on bail while they are appeal their convictions.

ENRON CORP. -- Enron founder Kenneth Lay, former CEO Jeffrey Skilling and former top accountant Richard Causey are scheduled to go to trial in January on federal fraud and conspiracy charges. Former CFO Andrew Fastow pleaded guilty in January 2004 to two counts of conspiracy, admitting to orchestrating schemes to hide the company's debt and inflate profits while pocketing millions of dollars. He agreed to serve the maximum 10-year sentence, which will begin in July 2006, after he testifies against his former bosses.

Fastow's wife, Lea Fastow, completed a yearlong sentence in July on a misdemeanor tax charge for failing to report her husband's kickbacks. Former Enron treasurer Ben Glisan Jr. is serving a five-year sentence for his role in the scandal. And two former Merrill Lynch & Co. executives were sentenced to short prison terms for their roles in a bogus Enron sale of power barges.

CREDIT SUISSE FIRST BOSTON -- The company's former investment banking star, Frank Quattrone, was convicted in May 2004 on federal charges of obstruction of justice, after his first trial ended in a hung jury. Quattrone, who made a fortune taking Internet companies public during the dot-com stock boom, was sentenced to 18 months in prison. He is free on bail, appealing the conviction.

MARTHA STEWART: The founder of the homemaking empire was released March 4 after serving five months in prison, and finished serving an additional five months and three weeks of home confinement at the end of August. She was convicted in federal court last year of conspiracy, obstruction of justice and making false statements related to a personal sale of ImClone Systems Inc. stock. Her former broker at Merrill Lynch, Peter Bacanovic, served a five-month sentence and was released June 16. He still faces five months of home confinement. Stewart's conviction was not related to the company she founded, Martha Stewart Living Omnimedia Inc.

CENDANT CORP.: Former Cendant Corp. Vice Chairmen E. Kirk Shelton was convicted in January of conspiracy and securities, wire and mail fraud. He was sentenced on August 3 to 10 years in prison and ordered to pay full restitution for his role in an accounting scandal that cost investors and the company more than $3 billion. Shelton was ordered to pay $3.27 billion to Cendant including an initial "lump sum" payment of $15 million last month. Shelton delivered cash, company stock and company-funded insurance policies, a combination that Cendant said is at least $2.4 million short and fluctuates daily. Shelton stood trial with former Cendant Chairman Walter Forbes, whose case ended in a mistrial and will be retried. Four other former executives have already pleaded guilty.

Pass the indictment...and the giblet gravy.

The original article appears here.

-- MDT

Labels: 2006, Andy Fastow, Cendant, Dennis Kozlowski, Enron, Health South, money laundering, Tyco

News agencies reported today that Walter Forbes, the former Chairman of Cendant, took the stand yesterday at his retrial on fraud charges. This story is long played out in the press and has been called the largest accounting scandal of the 1990s. The gist of the story is straightforward. Forbes denies charges that he inflated income at his company (CUC) prior to its 1997 merger with HFS. (CUC and HFS then formed Cendant.) According to Bloomberg News, “Cendant shares lost $20 billion in value in 1998 after the company disclosed the prior accounting problems at CUC.”

Yesterday Forbes testified that he was not involved in daily operations at the company (CUC), and that he relied on subordinates to prepare accurate financial statements. Isn’t that what they all say? Look, I am not working on this case. I don’t know all of the details. I don’t know Forbes and I never worked at Cendant. I am even willing to believe him. But, my experience in interviewing former employees who worked for people in senior leadership just like Forbes says that I should trust my gut. It’s almost impossible for me to believe that he was not involved in daily operations, did not see the numbers and did not know of any manipulations taking place.

At Caveat, we spend a lot of time working on matters that require identifying and interviewing former employees. In cases where the accusations are remarkably similar to those leveled against Forbes, we find over and over again that senior leadership is almost always involved in the day-to-day operations of the company. We learn this from former employees. We have conversations with people who used to work at the company. Administrative Assistants, middle managers, and VPs all offer a wealth of knowledge. And, it’s not always relayed to us in a mean-spirited, vengeful fashion because the person got laid off or carries some kind of grudge against the company.

For example, we often interview people who had wonderful experiences at their former company, but will tell us matter-of-factly that they always copied their boss on emails containing financial information. This revelation can be a goldmine if those same bosses (now Defendants) claim they never participated in daily operations or saw the numbers.

Formers typically tell us that their bosses were highly involved in operations and when things were going well at the company, these bosses boasted about the success and prided themselves on being hands on. Unfortunately, when things start tanking as they did at Cendant, these same bosses all seem to sing the same song … “I trusted those who reported to me!” “I did not need look at the numbers!” “If there was a manipulation, it happened at a level below me!” “I was busy doing ____!”

It’s worth finding and interviewing former employees. In fairness, on occasion we interview formers who tell us about a Forbes-like creature out there in corporate America who is so out of it and clueless, it would be impossible for he or she to participate in fraud because this leader truly has had no idea what is happening at their own company.

I hope Forbes is telling the truth and wish him well. But, in matters like these it’s a valuable exercise to talk to those who were really in the trenches.

Labels: Cendant

Via SearchCIO.com:

Spotlight turns to chief compliance officers

By Linda Tucci
Senior News Writer
August 25, 2005
SearchCIO.com

Eastman Kodak Co. this week named Patrick Sheller as its first chief compliance officer, joining a growing pack of companies that want a single person representing their slew of new compliance practices and policies.

For the Rochester, N.Y.-based Kodak, the hiring of Sheller appears timely. His appointment comes two weeks after Kodak revealed that the Securities and Exchange Commission is conducting an "informal" probe into the company's restatement of earnings from 2003 and 2004. In April, Kodak said accounting mistakes had led the company to overstate its 2004 profits by $93 million, and its 2003 profits by $12 million. And other bottom-line issues are looming. The troubled photography company, scrambling to keep up with the digital revolution, is also undergoing a massive restructuring that will eliminate as many as 25,000 by mid-2007.

Asked about the connection between the SEC investigation and the new position, company spokesman David Lanzillo said there is "no connection." The position is new, but its requirements have always been handled by Kodak's general counsel, he said.

For all its particular problems, Kodak is hardly alone in adding a CCO to its roster of top executives. The defense industry was ordered to get busy on compliance programs, following an era of financial and ethical abuses in the late 1980s. Financial services firms have long had compliance officers in place. Mutual funds are now required by the SEC to have compliance offices. And, while the office is not mandatory for most companies, the recent regulatory environment has convinced a much wider group of industries to hire compliance officers.

"If the Federal Sentencing Guidelines issued in November 1991 created the ethics profession, Sarbanes-Oxley created an entire industry," said Keith Darcy, executive director of the Ethics Officer Association (EOA), a not-for-profit based in Waltham, Mass.

Scott Cohen, editor and publisher of Compliance Week, dates the proliferation of CCOs to a 2002 speech by SEC commissioner Cynthia Glassman, in which she called on companies to designate a "corporate responsibility officer." Many companies, including Boeing Co., Kodak, Sunoco Inc. and Walt Disney Co., heeded the call. "At each company it means something slightly different. In some companies, that officer is involved in overseeing investigation of potential wrongdoing -- whistleblower provisions; in others, its compliance issues for the board," Cohen said.

Cohen, whose newsletter conducts a weekly interview with a CCO or person directly involved in compliance issues, said the duties of CCOs vary from industry to industry and training is "all over the map." However, it's not uncommon for a CCO to have served as the company's general counsel. Sheller of Kodak, for example, worked for many years in Kodak's legal department; he will report to both Laurence Hickey, the corporate secretary and chief governance officer and to the audit company of the Kodak board of directors.

While IT executives are rarely tapped for the job, Cohen said, compliance officers are increasingly involved with IT issues, citing the example of the CCO at Cendant, the New York real estate and travel services giant, Cohen said.

"Their chief compliance officer Richard Wolf, a lawyer, is overseeing a huge management records program, many millions of dollars, and some of it that you would traditionally think of as a CIO responsibility," Cohen said.

Big perks, top salaries for CCOs

Established in 1992, EOA has seen its membership double over the past five years, to 1,200, Darcy said. Companies are not only hiring, he said, but paying handsomely for compliance officers. A survey published this month by EOA in conjunction with Salary.com, a compensation data provider in Needham, Mass., shows that total compensation for the top compliance executives at large multinational companies is approaching $750,000.

"One corporate scandal after another has elevated this position to a much more prominent role. In most of these positions, the person is reporting to the board or the CEO," said Joseph Kilmartin, director of surveys at Salary.com.

The perks reflect that. "In the case of the global ethics and compliance executive -- people responsible for worldwide operations -- you're looking at over $300,000 in stock options as the median in the market." The salary data, which includes long-term incentives, was derived from 109 companies. The survey also found that about 79% of these top executive have a law degree or a master's degree.

The original article appears here.

-- MDT

Labels: Cendant

Via Boston.com:

Former Cendant executive ordered to pay billions in restitution

By Susan Haigh
Associated Press Writer
August 3, 2005

HARTFORD, Conn. --Former Cendant Corp. Vice Chairman E. Kirk Shelton was sentenced Wednesday to 10 years in prison and ordered to pay full restitution for his role in an accounting scandal that cost investors and the company more than $3 billion. U.S. District Judge Alvin Thompson ordered Shelton to pay $3.27 billion to Cendant, including an initial payment of $15 million by October, and monthly payments of $2,000 per month once he is out of prison.

"I think it's what the law requires," said New Jersey's U.S. Attorney Chris Christie, whose office prosecuted the case. "It's obviously always based upon his ability to pay." The $3.27 billion figure would cover what Cendant spent to settle shareholder litigation, pay its legal fees and conduct various financial audits, prosecutors said.

Shelton, 50, of Darien, showed little emotion when the sentence was read. His wife, Amy, was comforted by friends and family. Shelton must voluntarily surrender to the Bureau of Prisons by Sept. 2. He asked to be located at a federal prison in Pennsylvania. A Yale graduate, the father of two was convicted Jan. 4 of 12 counts of conspiracy, mail fraud, wire fraud, securities fraud and making false statements to the U.S. Securities and Exchange Commission.

Prosecutors said Shelton inflated revenue by $500 million at Cendant's predecessor, 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 allegations of fraud at Cendant were among the first in corporate accounting scandals in recent years that sparked outrage from investors. At the time, the $3 billion fraud was the largest case of accounting fraud in the country, prosecutors said.

The U.S. Securities and Exchange Commission urged the judge to send a message to the business community when sentencing Shelton. In a letter to Thompson, the SEC said the Cendant fraud adversely affected the public's perception of the nation's securities markets, which could hurt the ability of companies to raise capital.

Prosecutors had also argued for a harsh sentence, saying Shelton showed no remorse for his actions...

More here.

-- MDT

Labels: Cendant