Use of ‘Cheat Sheets’ at CUC Is Alleged

A former Cendant Corp. vice president told jurors Monday that he regularly met with former executives Walter Forbes and E. Kirk Shelton to discuss “cheat sheets” and ways to use reserves to make up shortfalls in earnings.

Cosmo Corigliano testified in the criminal trial of Shelton, 49, and Forbes, 61, former executives of Cendant’s predecessor CUC International Inc. Corigliano said the meetings were frequent and informal and revolved around meeting analysts’ expectations.

Forbes, CUC’s chief executive, and Shelton, its president, are accused of ordering CUC employees to make up numbers and convert one-time merger reserves to earnings to meet analysts’ expectations and make it a more attractive merger partner. CUC merged with HFS Inc. in 1997 to create Cendant, the largest U.S. travel and real estate services company.

Under questioning by Assistant U.S. Atty. John Carney, Corigliano, 44, said most discussions took place with Shelton, whose office was next to his, and “on several occasions Walter was there as well.”

“I have a very clear memory of a lot of us being concerned we were not going to hit earnings,” Corigliano, CUC’s former chief financial officer and vice president, testified.

Corigliano told the U.S. District Court in Hartford, Conn., that toward the end of 1996 and the beginning of 1997, company executives knew that they weren’t going to make the earnings target. Analysts expected 25% to 30% earnings growth. Corigliano testified that he discussed with Shelton how to get to 25% instead of 30% because “it was hard enough getting to 25.”

A government witness, Corigliano pleaded guilty to one count of conspiracy to commit mail and wire fraud, one count of wire fraud and making false statements to the Securities and Exchange Commission. He’s testifying in hopes of a lenient prison sentence.

Forbes and Shelton each face as many as 40 years in prison if convicted on charges of wire, mail and securities fraud. Forbes and Shelton have argued that they didn’t know what CUC’s accountants were doing, and were innocent. The trial, which started in April, is expected to last into the fall.

Corigliano testified that the acquisition of Ideon Group Inc. and other software companies had left CUC with a $75-million reserve cushion that was almost gone by the end of 1996. He said executives needed a plan or would have to tell Wall Street the company would be 15% below analysts expectations.

Corigliano said that at several meetings Shelton talked about acquiring more companies to meet the shortfall. Corigliano testified that at one meeting Shelton noted that companies with reserves like Ideon were “hard to find.”

Shares of New York-based Cendant, which reported $18.1 billion in sales last year, fell 11 cents Monday to $24.50 on the New York Stock Exchange.