Cendant vs. Cendant: The Blame Game

Charges and suits emerge in Cendant’s continuing “employee fraud” investigation; before you leap into digital signatures, read this; new designation teaches quality service; and more.

July 1, 2000

The gloves are off and the in-fighting is under way at Cendant Corp. The company is assessing blame and recovering damages—not to mention assisting in criminal convictions—in the wake of “accounting irregularities,” which it now labels “employee fraud,” at the former CUC International. CUC merged with HFS Inc. in 1997 to create Cendant.

In pleading guilty to what a U.S. prosecuting attorney called “sinister fraud of more than 12 years, which current Cendant management inherited from CUC,” three highly placed financial officers of CUC said their superiors encouraged them to routinely inflate profits and engage in other illegal financial maneuverings. The only CUC executives more senior to those three officers were Walter Forbes, CEO of CUC at the time of the merger,Stephen Shelton, the former chief operating officer, and his predecessor as chief financial officer, Stuart L. Bell.

Cendant says it will sue Shelton and Bell for fraud and breach of employment and fiduciary duties, seeking extensive damages. In addition, Cendant officials may file suit against Forbes if he pleads guilty to or is convicted of any crime in connection with the fraud.

Cendant’s pursuit of charges against Forbes doesn’t seem unlikely in view of statements such as that made by defendant Cosmo Corigliano, former CUC chief financial officer. He said that he worked “in a culture that had been developed over the years and was ingrained by [his] superiors.”

In an official release, Cendant stated it’ll do everything it can to cooperate with the Securities and Exchange Commission and the U.S. Attorney’s office in their continuing investigations to ensure that those remaining responsible parties, including former members of CUC’s senior management, are brought to justice.”

The three former employees who’ve pled guilty face potential jail terms of five to ten years but could receive probated sentences because of their cooperation in the continuing investigations.

Cendant chairman Henry Silverman also levied a blast at Ernst & Young, CUC’s auditing firm, saying that it (along with Forbes and Shelton) duped HFS at the time of the merger. He contended that 12 years of fraud supports Cendant’s contention that “it couldn’t have occurred without the gross negligence, if not more, of CUC’s auditors.”

Ernst & Young officials contend they were dupes as well. “We were deceived by our clients. Cendant is engaged in a campaign to deflect its own fault.”

With e-signature legislation a done deal, you need to know what cautionary measures to take before accepting digital signatures on legal documents. Bill Brice, CEO of AlphaTrust.com, a provider for business-related digital signatures and encryption, suggests that before acquiring electronic signature technology and contracting with a provider, business owners should consider:

  • What measures the company has in place to insure signature authentication and date
  • Whether there’s a consistent legal framework in place (contractual or by law) across all jurisdictions - state, federal and international.
  • Whether there is risk protection for fraud.
  • How sensitive customer data is protected and privacy insured.
  • How technically secure, legally binding digital signatures can be integrated into business operations.

Practitioners can add yet another designation to their professional quiver. Called the Quality Service Certification, the designation is granted to practitioners who complete studies on how to lower risks for potential real estate problems and increase loyalty and referrals.

The course, offered by veteran real estate executive Larry Romito, president of the Quality Service Certification Co.,also gives participants a chance to network with other QSC salespeople. Romito’s executive experience includes stints with Coldwell Banker and Prudential Real Estate.

One of the first course presentations is being offered this month by the Chicago Association of REALTORS. The designation isn’t endorsed by the NATIONAL ASSOCIATION OF REALTORS or any of its institutes, societies or councils.

Florida’s largest landowner, the St. Joe Co., will spin off a major subsidiary to concentrate on its real estate and land development business. The St. Joe Co., which is the parent of Arvida of Florida, the largest residential brokerage in the state, will convey its 54 percent equity interest in the new company, Florida East Coast Industries Inc., to St. Joe shareholders.

Florida East Coast’s core businesses are transportation, commercial and industrial real estate, and telecommunications. It also owns substantial amounts of real estate: 17,650 acres located mostly in the urban centers of Florida’s east coast and Orlando; 5.8 million square feet of income producing suburban office and industrial property; 1.2 million square feet of office and industrial facilities under development; and 15.9 million square feet of prime locations in Miami, Jacksonville, and Orlando.

Prior to being acquired by St. Joe some three years ago and operating as Arvida Realty, the brokerage arm was known as Prudential Florida Realty.

Real estate professionals often complain that lawyers can inject unnecessary confusion and delay into a real estate transaction. At least one leading jurist agrees that lawyers and judges, in general, are becoming irrelevant. At a recent Kentucky Bar Association meeting, Thomas Zlaket, chief justice of the Arizona Supreme Court, said, “They’re seen as too slow, too expensive, and lacking public trust. The world is moving faster, changing daily, and demanding quick responses, but the legal system plods along, a tradition-bound morass that is largely out of touch with the public,” Justice Zlaket contended, adding, “If we don’t make some major changes, the public will tell us where to go—and very soon.”

A study released at the conference shows that 80 percent of the public believes that cases take too long to be resolved and that courts are too expensive.

Veteran industry observer Tom Dooley is president of TWD Associates, a real estate consulting firm in Arlington Heights, Il., and editor of two monthly newsletters. Contact him at 847/398-6410; tdoo@aol.com.

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