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Where's the CFO?

Former CFO Stuart Bell was not named along with other company officials for the alleged improprieties from the 1980s. That's puzzling.

1May

The Cendant Corp. accounting debacle was the biggest corporate swindle of the 1990s, where some $500 million in phony revenue was recorded at CUC International Inc. in the two years prior to its 1997 merger with HFS Inc. to form Cendant. But did this fraud go back as far as the 1980s?


Cendant certainly thinks so. Last June, the company filed a claim for "substantial monetary damages" against Stuart L. Bell, CUC's former CFO, in which it described a "massive fraudulent scheme" to inflate earnings that began by 1988.


Government attorneys also believe the fraud at CUC was ongoing, although they have not pressed charges against Bell. In a criminal indictment filed on February 28, the U.S. Attorney's Office in New Jersey charged CUC ex-CEO Walter A. Forbes and onetime president E. Kirk Shelton with a 10-year legacy of accounting improprieties. That same day, an SEC enforcement action accused the duo of similar wrongdoing.


Bell hooked up with Forbes in 1979, right out of Harvard Business School. He was named CFO in 1983, when CUC went public, and stared down the bears in 1989, when the firm switched its accounting policy from amortizing marketing costs to expensing the costs immediately.


According to an analyst who followed CUC, Bell had tired of playing second fiddle to Forbes when he resigned in January 1995. And though Bell agreed to a three-year, $1.2 million contract to serve as a special adviser to Forbes, he was not implicated in the 260-page audit report that detailed the half-billion-dollar deceit that came to light in 1998.


The U.S. Attorney's Office declined to comment on why Bell was not named along with Forbes and Shelton for the alleged improprieties from the 1980s. One possibility is that the statute of limitations on fraud is five years, and Bell resigned as a CUC officer more than six years ago. The SEC doesn't face such restrictions, but has also chosen to leave Bell alone.


Another possibility is that attorneys were unable to sort out the conflicting accounts of Cosmo Corigliano and Casper Sabatino, both of whom are unindicted co-conspirators in the case against Forbes and Shelton. Corigliano, who succeeded Bell as CFO, has said that fraud was "in-grained by our superiors" at CUC, while Sabatino, the head of external re-porting, told auditors that he did not believe "unsupported adjustments were made while Bell was CFO."


Cendant also would not comment about its case against Bell. But court papers filed by Bell describe Cendant's legal efforts against him as "an irrelevant, malicious, and untrue smear campaign."


Forbes and Shelton's trial is tentatively set for March 25, 2002.

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