Case 9: Cendant/CUC (1998)

• Prof. Dr. Klaus Henselmann
• Dr. Stefan Hofmann

The Cendant Corporation was formed in December 1997 by a merger of two companies: Comp-U-Card International Inc., known as “CUC” (a Stamford, Connecticut- based company that sold various types of club memberships to consumers), and HFS Inc. (a hotel, car rental and real estate company based in Parsippany, New Jersey). In April 1998, only a few months after the merger and the creation of Cendant, a significant accounting fraud came to light at the CUC division. Before Enron, the case was considered the biggest accounting fraud ever. From its beginnings in 1983, the fraud was directed by Walter A. Forbes, CUC’s chairman and CEO, and his top lieutenant, E. Kirk Shelton, CUC’s president and COO. Commenting on the fraud, one FBI agent said: “Some people have referred to this as a case of earnings management. But this is an attempt to sterilize the crime. This case boils down to greed, ego and arrogance. It’s about lying and deceit.” Former Attorney General Janet Reno said in a statement that the case “involved a grave betrayal of the public trust”.

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