Wednesday June 14 1:36 PM ET
By JEFFREY GOLD, Associated Press Writer
NEWARK, N.J. (AP) - Three former executives at franchising giant Cendant Corp. (NYSE:CD) pleaded guilty Wednesday
to inflating revenues in an accounting scandal that led to the largest-ever settlement in a shareholder class-action
suit.
All three held senior financial posts at CUC International of Stamford, Conn., which merged with HFS Inc. of Parsippany,
N.J., to create Cendant in December 1997. Cendant is now based in New York.
Under oath, they said their actions were done at the behest of their superiors at CUC and that they will cooperate
in a continuing investigation that involves the FBI and the Securities and Exchange Commission.
``It was a culture that had been developed over a period of years. It was ingrained ... ingrained in us by our
superiors,'' said one of those pleading guilty, Cosmo Corigliano, CUC's former chief financial officer.
The defendants said CUC's quarterly earnings were inflated in the two years leading up to the merger through improper
accounting methods, including underfunding a reserve on membership cancellations and drawing money from a merger
account in efforts to boost revenues.
``Don't we call that `cooking the books?''' U.S. District Judge William H. Walls asked Casper Sabatino, a CUC accountant
in charge of external reporting.
``Yes, sir,'' Sabatino replied. ``Honestly, your honor, I thought I was doing my job.''
Also pleading guilty was Anne Pember, CUC's former controller, who said their actions led CUC to overstate its
operating income by $116 million in the two years before the merger, and Cendant to overstate its operating income
by $170 million for 1997.
Corigliano, 40, of Old Saybrook, Conn., who became Cendant executive vice president for international operations
after the merger, pleaded guilty to conspiracy and wire fraud.
Pember, 40, of Madison, Conn., who became Cendant's senior vice president for accounting, pleaded guilty to conspiracy.
Sabatino, 47, of Sherman, Conn., who became Cendant's vice president for business development, pleaded guilty to
aiding and abetting wire fraud.
All remain free on $100,000 bond pending sentencing Sept. 12, when each faces a term of up to several years in
prison.
Shares of Cendant, which were trading around $40 when the scandal was revealed in early 1998, were trading up 18.875
cents to $12.438 Wednesday on the New York Stock Exchange.
In December, accounting firm Ernst & Young LLP agreed to pay Cendant shareholders $335 million to settle a
lawsuit brought against it in connection with accounting irregularities.
Also that month, Cendant said it would pay its shareholders $2.83 billion to settle similar allegations. Lawyers
for the shareholders say the settlement was the largest ever achieved in a securities class-action lawsuit.
Cendant has acknowledged that CUC used irregular accounting practices to inflate earnings. Ernst & Young was
the accounting firm representing CUC at the time but has since severed ties.
Cendant is the franchiser of brand names such as Ramada, Avis and Century 21. CUC was a direct marketing firm that
sold memberships in discount buying clubs.