Former Executive at Cendant Sentenced to 10 Years in Prison
A former top executive at Cendant Corp. was sentenced Wednesday to 10 years in prison for his role in a $500-million accounting fraud in the late 1990s.
Former Cendant Vice Chairman E. Kirk Shelton was allowed to remain free until his voluntary surrender to authorities on Sept. 2. He expressed little emotion when the sentence was handed down.
Shelton, 50, could have received as many as 14 years in prison. U.S. District Judge Alvin Thompson told Shelton he was imposing less prison time in part because the “wrongful conduct, in my view, is not representative of your otherwise exemplary life.”
But the judge said harsh penalties were required. “The impact on the integrity of our capital markets, while perhaps difficult to quantify, cannot be denied,” he said.
The judge also ordered Shelton to pay nearly $3.3 billion in restitution, a largely symbolic amount, starting with a $15-million payment due Aug. 24. Shelton must pay $2,000 a month for 35 months after he gets out of prison, with the balance due 15 years following his release, the judge said.
Shelton was convicted in January of 12 counts of conspiracy, mail fraud, wire fraud and securities fraud.
Prosecutors said he participated in a scheme to artificially inflate revenue to drive up the stock price at the travel and real estate company and one of its predecessor companies, CUC International.
At the same trial, a mistrial was declared in the case of the company’s former chairman, Walter Forbes, when jurors were unable to reach a verdict on 16 counts. He is set to be retried in September.
The evidence showed that when the inflated earnings were disclosed on April 15, 1998, Cendant’s stock fell from $41 to $7.50, erasing $14 billion in shareholder value in one day.
The scandal led to a settlement with investors valued at $2.85 billion.
Since the Cendant scandal, both Enron Corp. and WorldCom Inc. collapsed, leading to wide-ranging business reforms in corporate America. Government prosecutors have won a string of fraud convictions against former high-ranking U.S. executives such as ex-WorldCom Chief Executive Bernard J. Ebbers and former Tyco International CEO L. Dennis Kozlowski.
New York-based Cendant, which owns Avis car rental service, online travel agency Orbitz and the Century 21 real estate business, has been reorganizing operations, including shedding non-core units. Last week, it struck a deal to sell its marketing service division to a private equity firm for $1.83 billion.