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Overnight Guests at Governor’s Mansion Added $2.2 Million to Bush Campaign
Forbes, Walter

Walter A. Forbes is a former chairman of Cendant Corp., a New York-based global provider of real estate, travel and direct-marketing-related consumer and business services. Forbes resigned as chairman under immense pressure in 1998 during an accounting scandal. Authorities are trying to determine the level of involvement by top executives in Cendant's accounting irregularities. Forbes has repaid nearly $2.3 million in travel- and entertainment-related expenses.

U.S. Accuses Top Cendant Executives of Fraud

The New York Times
By Floyd Norris
March 1, 2001

Walter A. Forbes, who built a small company into the huge Cendant Corporation, was an active participant in a fraud that resulted in the company's reporting more than $500 million in phony profits, the government charged yesterday.

Mr. Forbes, the former chairman of Cendant, and E. Kirk Shelton, the former vice chairman, were indicted on fraud charges by a federal grand jury in Newark yesterday. At the same time, the Securities and Exchange Commission filed a civil fraud case against the two men.

The charges, which both denied, contend that the fraud went on for more than a decade, with company officials systematically altering financial statements to increase profits to impress investors. The charges against the two men appear to be largely based on the testimony of three other officials of the company who pleaded guilty to similar charges last year.

"Some call this kind of manipulation `earnings management,' " said Robert J. Cleary, the United States attorney in Newark. "Investors who watched helplessly as their share values plunged call it fraud."

Mr. Forbes and Mr. Shelton built CUC International, which began as a membership organization offering consumer products and travel services, into a large company that took over numerous other companies, culminating in a 1997 merger with HFS Inc. to form Cendant. The merged company controlled brands like Avis rental cars, Days Inn motels, Century 21 real estate and the Jackson Hewitt tax-preparation service.

"Soon after the Cendant merger," the S.E.C. said in its complaint, which was also filed in Newark, "Forbes and Shelton explicitly congratulated each other on being masterful `financial engineers' " who had assured their continued success "by duping HFS into a merger with CUC." The S.E.C. did not say where it had obtained that information.

At the time of the merger, Mr. Forbes was chairman and chief executive of CUC and Mr. Shelton was president and chief operating officer.

Mr. Forbes issued a statement yesterday through his lawyer, Brendan V. Sullivan, saying, "I am totally innocent of the charges brought against me and will fight them in court." Mr. Shelton's lawyers issued a statement denying the accusations and saying, "When all the evidence emerges, Mr. Shelton's innocence will be clear."

The indictment of the two top executives reflects an increasing willingness of prosecutors to bring criminal charges in cases where they conclude that investors were defrauded by a deliberate falsification of books. Garth H. Drabinsky, the former chief executive of Livent, a theater production company, was indicted in 1999, and Albert J. Bergonzi and Jay P. Gilbertson, former co-presidents of HBO & Company, a medical software concern, were indicted in September. Mr. Drabinsky is fighting extradition from Canada, and the case of the two HBO & Company executives has not come to trial.

Richard Walker, the director of enforcement for the S.E.C., said: "The results of our cases show that financial fraud is not confined to very small and obscure companies, but is increasingly prevalent in large companies traded on major stock markets as well. Last year, we brought more enforcement actions involving financial fraud and reporting abuses than ever before, and our inventory of such cases remains large." He said 19 chief executives faced S.E.C. civil cases in 2000.

The S.E.C. is now known to be investigating accusations of fraud or improper financial reporting at such major companies as Waste Management, Lucent Technologies and Xerox.

The securities agency said the accounting fraud at Cendant was the largest ever prosecuted, and it put investor losses at $19 billion.

Mr. Forbes, 58, of New Canaan, Conn., became chief executive of Comp-U-Card International, as CUC was then known, in 1976. He cultivated a reputation as a visionary who foresaw the possibility of consumers shopping by computer decades before wide use of the Internet made that possible. Mr. Shelton, 46, of Darien, Conn., joined the company in 1981 and became president in 1991.

But even as the company grew rapidly, the government contends that it was fraud, not operating results, that produced much of the profit.

Cosmo Corigliano, formerly CUC's chief financial officer; Anne Pember, formerly CUC's controller; and Casper Sabatino, a CUC accountant, pleaded guilty to fraud charges last June but have not been sentenced. They admitted to participating in the filing of fraudulent financial statements for many years and said that senior officials had directed the fraud. Mr. Corigliano said fraud had been going on at CUC since he joined it in 1983, the year the company went public.

According to the indictment, CUC executives maintained what they called a "cheat sheet" that "listed amounts the conspirators could add to CUC's reported earnings for the year by means of various fraudulent entries." Each quarter, the government charged, they would use the sheet to adjust quarterly earnings to meet Wall Street expectations, and then each year they would make additional adjustments to make the fraud less clear to auditors.

The Cendant matter has already become one of the most expensive in history. The company has settled shareholder suits for $2.8 billion, and the former auditors for CUC, Ernst & Young, have agreed to pay $335 million. Cendant's current management is pursuing civil litigation against the auditors, contending that they knew of the fraud and covered it up, accusations the auditors deny. Ernst & Young has retained David Boies as its lawyer in the civil case.

With charges now filed against the entire top management of CUC from before the merger, a question now is whether Ernst & Young will face government charges. Neither the S.E.C. nor the United States attorney's office would comment on that. A spokesman for Ernst & Young said it was cooperating with the investigation.

The charges covered by the indictment said the "cheat sheet" was maintained by Mr. Corigliano and did not cite other documents linking Mr. Forbes and Mr. Shelton to fraud. The S.E.C. charges said Mr. Shelton regularly reviewed and authorized fraudulent changes to the books, while Mr. Forbes did so less frequently and sometimes acted through Mr. Shelton.

There has been speculation that prosecutors might offer Mr. Shelton a deal to testify against Mr. Forbes, but Mr. Shelton's lawyers, Stephen E. Kaufman and Martin J. Auerbach, showed no indication yesterday that they were interested in such a deal. They said Mr. Shelton "worked with an unflinching commitment to honesty and the truth during his 17 years" at the company and "did not participate in the fraud that occurred."

The indictments against Mr. Forbes and Mr. Shelton of one count of conspiracy and one count of wire fraud carry maximum penalties of 10 years in prison and fines of $500,000.

The potential civil liability is great. Both men made large amounts of money selling CUC stock when share prices were high, and the S.E.C. asked that they be ordered to "provide a complete accounting of and to disgorge the unjust enrichment realized," plus interest. The commission said that Mr. Forbes sold 1.2 million shares, and Mr. Shelton nearly 600,000 shares, from January 1995 through April 1998, when the fraud was exposed.

The government contends that the fraud began by 1985, however, with Mr. Forbes involved from the beginning, and that Mr. Shelton joined it no later than 1991. So sales of stock before 1995 could also be included in assessing the men's profits.

The large potential liability appears to be what is holding up a settlement by Mr. Corigliano and Ms. Pember of charges filed by the S.E.C. against them. Both sold substantial quantities of stock during the period in which they have admitted helping to prepare false financial reports.

CUC gained a big Wall Street following in the years when it seemed to be growing rapidly. The company went public in 1983 at $1.21 a share, adjusted for subsequent splits. After the merger with HFS that created Cendant, the stock price rose to a high of $41.69 on April 6, 1998, shortly before the fraud was discovered. Mr. Forbes, Mr. Shelton and seven others resigned on July 28 that year.

Shares of Cendant fell 5 cents yesterday, to $13.08, twice the low of $6.50 it reached in the fall of 1998 but less than a third of the peak price.

The company, whose chief executive now is Henry R. Silverman, the former head of HFS, issued a statement saying it "supported any effort seeking to hold accountable all persons responsible."

Jeb Bush

Ideon Corporation

Jeb Bush - Board of Directors - Bush sat on Ideon's audit committee, the watchdog of financial and management integrity.

Cendant Employees Awake to Discover A 15% Average Loss On Their 401k Stake

Cendant - Jackson Hewitt Inc. And Arthur Andersen To Develop New Tax Software System
"Arthur Andersenwill help us enhance our current core tax engine and upgrade our ProFiler system to be faster and much more efficient," said Jackson Hewitt Inc. President and COO, Dan Tarantin. "The new system will provide numerous benefits to our franchisees, including the option of preparing returns in either a forms-based method or via our traditional decision-tree interview."

"Given their extensive tax industry expertise, we’re excited to have Arthur Andersen’s assistance in the upgrading of our technology," said Tarantin. "Due to our tremendous growth over the last few years our customer base has doubled, and the newly enhanced ProFiler system will help to support our growing franchise base."
[end of partial transcript]

Jeb Bush joined board of company mired in trouble

"Kahn in early 1995 even wrote the former president: "First let me tell you how happy we are to have your son, Jeb, on our board of directors. . . . He is a great asset to the team."

Then there was the paycheck. Ideon paid directors a whopping $50,000 a year, plus $2,000 per meeting and $500 per telephone conference. That was the largest sum paid to directors of any major public company in Jacksonville, and possibly in all of Florida.

What's not to like? Everything, it turns out. Ideon already was in trouble when Bush joined the board in January 1995.

By 1996, Kahn was out. Ideon was then sold to CUC International. Ideon's directors faced lawsuits claiming stock manipulation. Now, more than two years later, Cendant -- the successor company to CUC -- is struggling to recover after discovering years of accounting fraud attributed, in part, to CUC's purchase of Ideon.

Politically, the Ideon aftermath worries the Bush campaign. In fact, Bush assembled a 15-page Ideon statement and visited major Florida newspapers to defend his role.

Kahn at first had grandiose plans for a quirky array of new services -- selling credit card perks for golfers, a "Family Protection Network" membership club to help find missing children and a line of Vatican-approved art objects. The services were never fully tested. They flopped and Ideon began gushing red ink.

Some of Kahn's ideas were a stretch. He wanted the pope's blessing to introduce a Catholic credit card. He also wasted a lot of company funds. Kahn once bought $10,000 place mats for the company jet. He hired consultants like convicted Wall Street felon Martin Siegel.

Bush said he was angry when he heard about Siegel. "I couldn't believe it," he said.

Despite a second-quarter 1995 loss of $46.7-million, Bush said Ideon's board initially accepted Kahn's free-spending ways. The directors counted on revenue growth. They did demand Siegel be fired. Bush said he pushed to dismiss Kahn and sell the company.

But lawsuits against Ideon directors, as well as the company's own regulatory filings, paint a different picture. As directors, Bush and his Republican fund-raiser friend Thomas Petway sat on Ideon's audit committee, the watchdog of financial and management integrity. Many of Bush's fellow outside directors -- who were supposed to represent shareholder interests -- had cut cozy business deals with Ideon. In some cases, they got six-figure consulting fees on top of their directors pay.

..By August 1996, Ideon was sold for $375-million to CUC. The sale included indemnification for directors against lawsuits. Good news, considering the lawsuits charge Ideon and its directors with stock manipulation. The cases were settled early this year for $15-million. Bush and the other directors paid nothing.

Kahn denied that board members were in the dark about company spending. "I was not alone," he told Business Week magazine last year. "The board knew about everything. . . . They set me up for being the fall guy, not that I'm without sin. I was hung out to dry."
[end of partial transcript]
A Pathological Probe of A Pool of Pervasive Perversion - By Abraham J. Briloff, Ph.D., CPA - Emanuel Saxe Distinugished Professor Emeritus - Baruch College, New York.
"On August 28, 1998, Arthur Andersen & Co. (“AA”) rendered its “Report to the Audit Committee of the Board of Directors of Cendant Corporation” reporting on its forensic audit of CUC International, Inc., in the wake of disclosures in mid-April that accounting irregularities had been discovered at CUC (which merged in December 1997, with HFS to form Cendant)."

Plan Calls For Jail Time For Execs
When the government decides to prosecute a case, it can take years for it to come to trial. For example, four years ago, Cendant Corporation was shocked to discover that it had acquired a company, CUC International, that had inflated itself by $400 million. Since then, three lower-level workers have pleaded guilty to wire fraud but the president, Kirk Shelton, and the chairman, Walter Forbes, have yet to go to trial.

THE BUSH FAMILY, WE DO CRIME BETTER

Who Bought Bush’s Stock?

New York Press
By Christopher Caldwell
Hill of Beans
Volume 15, Issue 29
July 15, 2002
SOURCE

"How can Mr. Bush crack the whip on Big Business," asks The New York Times’ Maureen Dowd, "when he’s a wholly owned subsidiary of it?" Before we journalists batter our way into the crack den that is American business corruption, can we come to an agreement that we won’t deploy cliches? When people say "wholly owned subsidiary," what on earth do they mean? If one entity is "wholly owned" by another, isn’t it by definition subsidiary to it?

But not even bad prose can obscure that the corporate scandals are hatching a catastrophe for Republicans. They will probably destroy this administration. Let’s dispose of the red herrings first. The President’s sale of $850,000 in Harken Energy stock, just days before it tanked in 1990, is not going to get him in trouble for insider trading. Yes, his sale came just eight days before Harken announced a weak quarter–but for an insider-trading rap to be proved, it must be shown that President Bush had "material information." He is not criminally culpable for having known, as a board member, that his company was spiraling down the toilet. And, yes, the stock’s value fell from $4 a share when he sold it to a dollar and change just weeks later. But it also later rose to $8. Harken see-sawed enough that it will never be certain whether Bush bailed out or "sold into good news," as his spokeswoman Karen Hughes has always insisted.

What kills the President is that every time Harken comes up, Democrats get to retell the story of how he made his money. And this, basically, is the story of the spectacular unfairness with which moneymaking opportunities are lavished on the politically connected. It is the story of a man who has been rewarded for repeated failures by having money shot at him through a fire hose. It is the story of a man who talks with a straight face about having "earned" a fortune of tens of millions of dollars, without having ever done an honest day’s work in his life.

Let’s retell that story as briefly as we can. Bush started an oil company called Arbusto in the late 1970s. He was driving it into the ground when, in 1982, he was rescued by Philip Uzielli, a Princeton crony of his dad’s troubleshooter James Baker. Uzielli invested a million dollars in Arbusto, which was then worth less than $500,000. In return, he got 10 percent interest in the company. No, that’s not a misprint. Mismatches between equity and ownership–always in Dubya’s favor–are a hallmark of our President’s financial rise.

Even after Uzielli’s turbocharging, Arbusto was going under. Before it did, it "merged" with a company called Spectrum 7, which took on Bush as head executive. As that company, too, nose-dived, Harken Energy proved unaccountably eager to "merge" with it. It offered a half-million dollars in stock and $120,000 a year to get the Vice President’s son on the board. It also "loaned" Bush hundreds of thousands of dollars below prime rate.

Weeks after his father was elected president, Bush got involved in the purchase of the Texas Rangers. He would eventually sell his Harken shares to cover the loan that allowed him to help buy the team. He put up under 2 percent of the purchase price ($606,000 out of $46 million), but the deal called for him to be given almost 12 percent of the stock, once the other partners cleared their initial investments. Generous of them! In 1998 Bush sold his stake in the team–pumped up by a $135-million publicly-financed-but-privately-owned stadium, bestowed as a gift from the taxpayers of Arlington, TX–for $15 million.

For decades now, the "small government" Republican Party has been slamming the corrupt conduct of, say, trial lawyers who just suck money out of the economy and put it in their pockets in the name of the ideal of "representing the little guy." When they talk this way, I’m all ears. But, Jesus, this is what they have to offer in its place?

It is no use to say this is an old story and that people don’t care about this stuff. In the flush times leading up until the 2000 elections, it’s true, voters were indifferent. But as soon as people start seeing their pension funds decimated by collapsing stock values, they simply cannot get enough of it. Don’t take my word for it. CBS polled voters last week and found 42 percent paying "a lot" of attention, and 37 percent paying "some." That’s a total of 79 percent, a huge number–higher than the 70 percent who paid attention to the Clinton sex revelations in the very first days the news broke in January 1998.

What’s more, Americans believe the corruption is not a matter of a few bad apples but a society-wide state of affairs. While it’s certainly true that Martha Stewart has been scapegoated by bourgeois-hating radicals and feminist hags, who see in her punctiliousness and house-pride an assault on their lifestyle, the message Americans take from her insider-trading troubles is that if you scratch a rich person–any rich person–you’ll find some kind of game-rigging and corporate corruption. To CBS’ question, "Do you think U.S. executives are honest?" the answer was No, by 67 percent to 27.

Where institutional dishonesty is suspected, a particular kind of political outrage results–the kind that is resistant to sweet talk. Last week, President Bush tried to tell us that corporate corruption might have had the silver lining of making us a more ethical people. "I believe people have taken a step back," he said, "and asked, ‘What’s important in life? You know, the bottom line and this corporate America stuff, is that important? Or is serving your neighbor, loving your neighbor like you’d like to be loved yourself?’" No decent human being could disagree. But no half-intelligent human being could fail to note that such things are a lot easier to say when you’ve already banked your own 30 or 50 mil.

There is no end to the political hay Democrats can make with corporate corruption. Ron Brownstein of the Los Angeles Times suggests this as a campaign line: "Do you want to turn over your Social Security to the same people who gave us WorldCom and Enron?" Howard Wolfson, the former Hillary campaign flack who’s now the head of the Democratic Congressional Campaign Committee, is tutoring his candidates on ways to link the finance scandals to everything–schools, prescription drugs, Social Security, you name it.

There is nothing protecting the President from electoral vulnerability except the fact that we’re at war. And this is where Bush’s sale of Harken stock takes an interesting twist. The important issue might not be when he sold it but who bought it. This is information that Senate Democrats are seeking desperately; Bush refuses to reveal it, and it is not even clear if the Securities and Exchange Commission knows the buyer’s identity from its insider trading investigation. If they know, they haven’t released it.

But let’s speculate. An editorial on Harken in last week’s Wall Street Journal noted "interesting Saudi connections on the finance side." One of Bush’s early investors in Arbusto was James Bath, agent of Salem bin Laden (Osama’s half-brother) in the United States. (This is not proof, as certain left-wing publications have implied, that Bath’s money was the bin Ladens’ to begin with.) In the months after Bush came onto the Harken board, according to a 1999 Journal report, a Saudi financier named Abdullah Taha Bakhsh bought a 17 percent stake in the company. Bakhsh’s American representative Talat Othman was given a seat on the board and met with then-President Bush at the White House. And the "good news" into which now-President Bush claimed to be selling his Harken shares was an oil-exploration deal with the government of Bahrain–a total (but lucrative) flop that was arranged despite Harken’s never having done any foreign oil exploration before. In fact, the ex-president’s ne’er-do-well son appears to have been used by the Harken board as "Arab bait," much as Democrats sold the promise of photographs with Clinton family nobodies for cash from Asian businessmen. ("Rook! That’s me with Lodger Crinton!")

To be fair (if only for a moment), back in the early 1990s, Saudi Arabia was known as our unsavory but solid longtime ally against communism, not as the gang of rich fascists who spawned Al Qaeda and are now obstructing our war against it. But until the identity of the Harken purchaser is revealed, probing the issue will be a no-lose situation for the Democrats. They can ask whether George Bush’s fortune has its roots in Arab oil money. They can ask whether the corrupt Bank of Credit and Commerce International was involved. They can ask why it was that the entire bin Laden clan was allowed to be flown out of the country in the immediate aftermath of the Sept. 11 attacks. They won’t accuse Bush of intentionally bungling the war on terror to please the Saudis. But they may note that it was tragic that, at a time when thousands of Americans were murdered by extremists whose only ultimate means of support was oil, we had an oil man in the White House.

Despite Promise, Bush Sold Harken Stock
"But a securities expert said the document calls into question his lawyers' account to the SEC.

"Bush's signing of the April 2, 1990, lockup agreement undercuts his lawyers' explanation for the early sale of his Harken stock," said Houston lawyer Thomas R. Ajamie, an expert in securities law whose firm is advising companies that did business with the failed energy giant Enron. "If his accountant told him that he needed to sell stock to pay a debt obligation for his interest in the Texas Rangers, it does not make sense that he would subsequently sign an agreement promising not to sell his shares of Harken stock for six months."