Witness Says Cendant Execs Reviewed Fake Earnings

From Bloomberg News

Former Cendant Corp. Vice President Cosmo Corigliano on Tuesday told a jury in the criminal trial of former executives Walter Forbes and E. Kirk Shelton that he discussed fake earnings figures with them.

Corigliano said that when he was appointed chief financial officer of CUC International Inc., a Cendant predecessor, in early 1995, he reviewed manipulated numbers with Forbes and Forbes told him, “This is something we need to keep doing.”

After showing Shelton and Forbes a schedule containing the revenue adjustments, “I destroyed it,” Corigliano, 44, said in federal court in Hartford, Conn. “It was a secretive document.”

Forbes, 61, who was Cendant’s chairman, and Shelton, 49, the former vice chairman, are accused of ordering employees at CUC to make up numbers and illegally convert one-time merger reserves into earnings to meet Wall Street expectations and pump up the stock price.


Buying-club marketer CUC merged with franchiser HFS Inc. in December 1997 to form Cendant, the largest U.S. travel and real estate services company, with brands including Avis, Days Inn and Coldwell Banker.

Forbes was chief executive at CUC and Shelton was its president before the merger. Corigliano pleaded guilty to conspiring to cook the company’s books and is testifying as the government’s main witness.

Under questioning by Assistant U.S. Atty. John Carney, Corigliano said he helped prepare numbers for a 1994 CUC news release that quoted Forbes as saying earnings were “at the top end of analysts’ projections.”

Corigliano said the release was not accurate because it contained manipulated numbers.


Corigliano testified that in the early 1990s, before he became CUC’s chief financial officer, the company intentionally did not record some credit-card rejections of membership payments and kept the fees on the books. The company also recorded fees for shopping club members as immediate revenue, when they should have been recognized over a 12-month period.

Corigliano said CUC books illegally reflected “tens of millions of dollars” in bogus revenue “based on the need to find more operating income” and “to hit the numbers the financial community was expecting.”

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 is testifying in hopes of receiving a lenient prison sentence.

Forbes and Shelton, who hold business degrees from Harvard University, have said they were unsophisticated in accounting and didn’t know Corigliano and others were making up earnings.

If convicted of wire, mail and securities fraud, Forbes and Shelton each face as many as 40 years in prison.

Forbes is also charged with insider trading for selling $11.3 million in Cendant stock just before the company revealed accounting irregularities.

Shares of New York-based Cendant fell 11 cents to $24.13 on the New York Stock Exchange.