(February 28 – 16:35 ET) – The Securities and Exchange Commission in the United States has filed a civil enforcement action over massive accounting fraud at CUC International Inc.

The SEC filed suit in the U.S. District Court for the District of New Jersey today against Walter Forbes and Kirk Shelton, the top two former officers of CUC. The commission alleges that they directed a massive financial fraud while selling millions of dollars worth of the company’s stock.

The SEC estimates that between 1995 and 1997 alone, the firm inflated its reported pretax operating income by more than US$500 million. The commission’s complaint alleges that Forbes, CUC’s chairman and CEO, directed the fraud from its beginnings in 1985; and from at least 1991, Shelton, CUC’s president and COO, helped.

The commission seeks disgorgement of their fraudulent stock gains (with prejudgment interest), payment of civil money penalties, orders barring Forbes or Shelton from serving as an officer of a public company, and injunctions against violations of the federal securities laws.

The fraud was uncovered after CUC merged with HFS Inc. on Dec. 17, 1997, to form Cendant Corp. Cendant was famously hammered after the proverbial “accounting irregularities” were revealed by Cendant in April 1998. Upon disclosure of the fraud, the price of Cendant stock plummeted, causing a more than US$19 billion loss in market cap and billions of dollars of losses to investors.
-IE Staff