Cendant Settles For $54 Million
July 24, 2002
D&O Insurance To Pay For CUC Executives' Misdeeds
Inman News Features
Cendant Corp. (NYSE: CD) today announced the settlement of shareholder derivative actions against some of its current and former officers and directors. The settlement closes another chapter in the five-year saga that resulted from the discovery of accounting irregularities at CUC International, one of the two companies?the other being HFS Incorporated?that merged in 1997 to form Cendant.
The settlement calls for payment to Cendant of $54 million, less attorneys' fees that may be awarded by the court. The full amount will be paid from the proceeds of insurance policies covering the defendants, according to a company statement. The settlement is subject to approval of the U.S. District Court in New Jersey. A hearing is scheduled for October.
The settlement pertains to shareholder actions that arose when $500 million in accounting irregularities were discovered in the aftermath of the 1997 merger of CUC and HFS. The irregularities resulted in a $100 million restatement of the company's earnings. The company at the time said the irregularities were uncovered when responsibility for the company's accounting functions was transferred from former CUC personnel to former HFS personnel.
Cendant earlier this year announced it would pay its remaining obligations under shareholder lawsuits against the company that also arose from CUC's accounting irregularities by this month and that the final payments would be made with cash on hand or by tapping existing and available credit facilities, if necessary.
That settlement, which was announced in December 1999 and approved by the U.S. District Court in Newark, N.J., in August 2000, ordered Cendant to pay $2.8 billion in cash reimbursements to shareholders who had purchased stock in Cendant or CUC International between May 31, 1995, and Aug. 28, 1998, and required the company to establish an audit committee comprised of entirely independent directors.
Cendant Chairman and CEO Henry R. Silverman said at the time that the company was "grateful to have closed an unfortunate chapter" in its history.
Cendant shareholders also brought a class-action lawsuit against CUC International's accounting firm, New York-based Ernst & Young. That lawsuit was settled for $335 million, which at that time was believed to be the largest amount ever paid by an accounting firm in a securities class-action case. The accounting firm admitted no wrongdoing in the matter and said it was "the victim of intentional, collusive fraud on the part of CUC's management."
A number of executives parted ways with Cendant in the weeks after the CUC accounting irregularities were discovered. Among them was Cosmo Corigliano, who had been EVP and CFO of CUC before the merger with HFS.
Cendant today is primarily a provider of travel and residential real estate services. The company's real estate division includes the Century 21, Coldwell Banker and ERA real estate franchise organizations and the NRT Inc. brokerage ownership arm. Cendant is headquartered in Parsippany, N.J., and has approximately 70,000 employees.
Copyright: Inman News Service