Former Cendant executive ordered to pay billions in restitution

By Susan Haigh
Associated Press Writer
August 3, 2005

HARTFORD, Conn. --Former Cendant Corp. Vice Chairman E. Kirk Shelton was sentenced Wednesday to 10 years in prison and ordered to pay full restitution for his role in an accounting scandal that cost investors and the company more than $3 billion. U.S. District Judge Alvin Thompson ordered Shelton to pay $3.27 billion to Cendant, including an initial payment of $15 million by October, and monthly payments of $2,000 per month once he is out of prison.

"I think it's what the law requires," said New Jersey's U.S. Attorney Chris Christie, whose office prosecuted the case. "It's obviously always based upon his ability to pay." The $3.27 billion figure would cover what Cendant spent to settle shareholder litigation, pay its legal fees and conduct various financial audits, prosecutors said.

Shelton, 50, of Darien, showed little emotion when the sentence was read. His wife, Amy, was comforted by friends and family. Shelton must voluntarily surrender to the Bureau of Prisons by Sept. 2. He asked to be located at a federal prison in Pennsylvania. A Yale graduate, the father of two was convicted Jan. 4 of 12 counts of conspiracy, mail fraud, wire fraud, securities fraud and making false statements to the U.S. Securities and Exchange Commission.

Prosecutors said Shelton inflated revenue by $500 million at Cendant's predecessor, CUC International, to drive up the stock price. The fraud was reported in 1998, causing Cendant's market value to drop by $14 billion in one day. The allegations of fraud at Cendant were among the first in corporate accounting scandals in recent years that sparked outrage from investors. At the time, the $3 billion fraud was the largest case of accounting fraud in the country, prosecutors said.

The U.S. Securities and Exchange Commission urged the judge to send a message to the business community when sentencing Shelton. In a letter to Thompson, the SEC said the Cendant fraud adversely affected the public's perception of the nation's securities markets, which could hurt the ability of companies to raise capital.

Prosecutors had also argued for a harsh sentence, saying Shelton showed no remorse for his actions...

Labels: Cendant