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Former Cendant executive indicted.

Walter Forbes Was accused of inflating profit reports by more than $250 million whiIe he was chairman.

By Joseph N.DiStefano INQUIRER STAFF WRITER

In a rate criminal case accusing a top corporate executive of lying to boost his company s stock the former chairman of the company that owns Howard Johnson's, Ramada, Century 21, and Avis was indicted yesterday on federal fraud and conspiracy charges.

Prosecutors accuse Walter Forbes now a Connecticut venture capitalist of inflating reported profits at Cendant Corp. and its predecessor CUC International Inc. by more than $250 million in the mid-1990s in order to meet Wall Street analysts expectations.

When quarterly-earnings failed to reach their target Forbes and other executives "simply adjusted them upward to whatever amount was needed " according to yesterdays indictment by the US Attorneys Office in Newark NJ

The indictment alleges that Forbes fraud began in the 19805 accelerated after 1995 and ended in 1998 when he left the company under pressure from the board of directors in exchange for $35 million plus stock options.

"Some call this kind of manipulation earnings management investors who watched helplessly as their share values plunged call it fraud " said Robert J. Cleary US Attorney for Newark who brought the case based on an FBI investigation and information from three former Cendant employees who pleaded guilty to lesser charges last year.

Through an aide, Forbes, now owner of the FG II venture capital firm in Greenwich Conn. declined comment. His Washington lawyer Brendan V. Sullivan Jr. later released a statement saying that Forbes maintained he was "totally innocent of the charges " and planned to fight them in court.

If convicted Forbes could be sentenced to up to 10 years in prison a $500 000 fine and millions of dollars in damages.

Investors in New York-based Cendant, including major mutual funds and pension plans lost more than $20 billion in 1998 when the company's share value collapsed as it disclosed that it had overstated profits.

Although Cendant - whose mortgage division is based in Mount Laurel - is now profitable, its stock has not recovered. Cendant Closed yesterday at $13.08, 70 Percent below its 1998 peak.

Cendant has already agreed to pay investors $3.1 billion in cash and stock as compensation for misleading them. The company's accountant Ernst & Young LLP has agreed to pay an additional $335 million for failing to detect the fraud. Cendant said yesterday that it had cooperated with the government's attempts to "hold accountable all persons responsible."

"This is definitely one of the largest Securities frauds in US financial history," said Richard A. Levan, of Levan Friedman, LLP and a former Securities and Exchange Commission official.

Criminal charges in such cases are up to the discretion of prosecutors who are often content to file civil complaints for monetary damages even when very large losses are alleged, Levan said.

Criminal securities cases are unusual because "most prosecutors are not sophisticated in the ways of a big corporation," said I Thomas Buchanan a former federal prosecutor who is now a partner in the Washington corporate law firm of Winston & Strawn.

"If you've got in-house lawyers and accountants and outside accountants," supporting a corporation s financial reports "it's going to be their view against that of some FBI agents ", and that's a tough case to win, Buchanan said . But in Cendant's case, the company's chief executive officer, Henry Silverman, and other officials openly split with Forbes and Called for his resignation.

Forbes was indicted, along with former Cendant and CUC president Kirk Shelton of Darien Conn. Shelton's lawyer, Martin Auerbach, said the charges were untrue and Shelton would fight them. Auerbach blamed the accusations on claims by former company accountants who pleaded guilty to fraud last year.

Joseph N. DiStefano can be reached at jdistefano@phillynews.com

Copyright 2006. Richard A. Levan. All rights reserved