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Jury convicts ex-Cendant exec of fraud

A former top executive at Cendant Corp. was convicted Tuesday of fraud and other charges, but jurors could not reach a decision about the role of another executive in the case.
/ Source: The Associated Press

A former top executive at Cendant Corp. was convicted Tuesday of fraud and other charges, but jurors could not reach a decision about the role of another executive in the case.

E. Kirk Shelton, the company's former vice chairman, was convicted of 12 counts of conspiracy, mail fraud, wire fraud and securities fraud.

U.S. District Judge Alvin Thompson declared a mistrial for former chairman Walter Forbes after jurors said they were unable to reach a verdict on 16 counts.

Shelton, 49, and Forbes, 62, were accused of inflating 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 jury had been deliberating since Nov. 8.

Forbes, of New Canaan, and Shelton, of Darien, had pleaded innocent to charges of conspiracy, securities fraud, mail fraud, wire fraud and lying to the Securities and Exchange Commission. Forbes also was charged with insider trading for selling $11 million worth of Cendant stock a few weeks before the accounting scandal was made public.

Prosecutors said they arbitrarily adjusted revenue and expense figures each quarter to meet the targets of analysts. At the end of each fiscal year, the fraud would be concealed by transferring money from a fund for merger-related costs to make it look like revenue.

Forbes and Shelton and their lawyers would not comment following the verdicts.

Christopher J. Christie, the U.S. Attorney in Newark, N.J., whose office prosecuted Forbes and Shelton, said in a statement he was "gratified by the jury's verdict on Kirk Shelton."

"His actions were reprehensible and cost shareholders a fortune in losses," Christie said.

Cendant is based in New York and the trial was in Connecticut because the CUC division was headquartered in Stamford when the fraud occurred. The case was prosecuted by the New Jersey U.S. attorney's office because HFS was based in Parsippany, N.J.

CUC, which ran a membership marketing operation, merged in 1997 with HFS Inc., a travel and real-estate services company, to create Cendant. Cendant's brands include Ramada, Howard Johnson, Avis, Coldwell Banker and Century 21.

During the trial, Casper Sabatino, a former accountant at CUC, testified that Shelton was aware of falsified budget numbers. He detailed how accountants changed revenue and expense data in news releases and other public documents, saying the changes were "adjustments" to income and expenses such as marketing and general and administrative costs.

Sabatino has pleaded guilty to wire fraud charges and cooperated with federal prosecutors.

Cosmo Corigliano, a former CUC chief financial officer, testified that for years he drew up what he called "cheat sheets" to falsify profits at CUC. Corigliano pleaded guilty to fraud charges.

The federal trial in Hartford began in May and drew 26 witnesses for the prosecution and 21 for the defense. Jurors examined 770 exhibits during the trial.

The conspiracy count and mail and wire fraud counts each carry a maximum penalty of five years in prison and a $250,000 fine. The charges of making false statements to the SEC, securities fraud and insider trading carry maximum penalties of 10 years in prison and a $1 million fine on each count.

Shelton's sentencing was scheduled for March 24.