In early 1998, Cendant, a travel and real estate company, lost $14 million in stock prices in a single day. Shares tumbled from $41 per share to almost $12. Stockholders were outraged, and the public was introduced to the biggest corporate scandal of the 1990s. This is the story of Cendant, and one of the biggest class action suits of all time.
Throughout the 90’s, CUC International (the original name of Cendant) acquired a number of smaller companies in huge corporate takeovers. These companies included Sierra On-Line, Jackson Hewitt Tax Preparation, Davidson & Associates and Avis Rent-a-Car.
This all came to a head when the company agreed to a massive merger with HFS Incorporated, a direct marketing company involved mainly in the real estate sector. As a result of this merger, however, increased internal scrutiny into the company’s accounting practices revealed some troubling news.
The newly-renamed Cendant realized that CUC had been misrepresenting their earnings and presenting their finances as $500 million more than they should have been reported at. The accounting fraud was significant as it permeated all throughout the company’s books, indicating it was widespread and systemic.
Once Cendant became aware of its own merger’s misdeeds, it began to investigate with an oversight panel. The panel found that top executives Walter Forbes and Kirk E. Shelton worked to manipulate the numbers to show profits in the mid-90’s when the company was actually posting millions of dollars in losses.
Once the fraud became public knowledge, the company’s stock standings plummeted. As a result of this, shareholders with stakes in the company lost considerable amounts of money. This resulted in a massive class action suit against Cendant, seeking reparations for the damages caused by their accounting fraud.
In 2000, a judge authorized over $3 billion in payments to shareholders by way of settlement from Cendant. Meanwhile, Forbes and Shelton were ordered to both pay $3.28 billion in restitution, and Forbes was sentenced to 12 years in prison in 2007. He was released in 2018. The incident is remembered as one of the largest corporate scandals of the 1990’s.