UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY
UNlTED STATES OF AMERICA : Grim. No. Ol-
v. : Hon.
WALTER A. FORBES, and
E. KIRK SHELTON : Title 18, United States Code, Sections 371, 1343, and 2
INDICTMENT
The grand jury for and in the District of New Jersey, sitting at Newark, charges:
COUNT 1
(Conspiracy to Commit Mail Fraud and
Wire Fraud and to Make False Statements in
Reports Required to Be Filed with the SEC)
1. At all relevant times prior to December 17, 1997:
a. CUC International, Inc. ("CUC") was a publicly held company with its corporate headquarters
b. CUC's principal business was selling memberships in its proprietary buying clubs, which
travelers, restaurantgoers, and automobile purchasers, among others. The company marketed these
through its Comp-U-Card Division ("Comp-U-Card"), its largest business unit, which maintained
Connecticut.
c. CUC was also engaged in a variety of other businesses, including the marketing of discount
policies, and other financial products and services, through wholly-owned subsidiaries. Those
United States and, after in or about 1995, in Europe.
2. CUC (then kuown as Comp-U-Card International, Inc.) conducted an initial public offering of
subsequently traded on the over-the-counter market. On or about August 23, 1989, CUC stock was
Stock Exchange.
3. From at least as early as the mid-1980's, CUC pursued a strategy of fueling its growth with
mid-1980's to in or about 1997, CUC purchased more than 25 other companies, which it then either
consolidated with its existing businesses. In most of these cases, CUC paid at least a substantial
stock.
4. In 1996, CUC made the three largest acquisitions in its history, as follows. In July 1996, it
Davidson & Associates, Inc. ("Davidson") and Sierra On-Line, Inc. ("Sierra"), for a total of
August 1996, it acquired Ideon Group, Inc. ("Ideon"), a provider of credit card enhancement
CUC paid for all three purchases exclusively by issuing stock.
The Formation of Cendant
5. Prior to December 17, 1997, HFS, Inc. ("HFS") was a publicly-held company with its corporate
Jersey whose principal business was the franchising of brand-name hotels, rental car agencies,
6. In or about May 1997, CUC and HFS agreed to merge into a single company. The merger became
which time the merged company adopted the name Cendant Corporation ("Cendant"). Cendant established
Parsippany, New Jersey.
7. After the Cendant merger, the former CUC businesses continued to be grouped together for
separate entity within Cendant known as Cendant Membership Services, Inc. ("CMS"). CMS maintained
including its own separate accounting unit, in the former CUC offices in Stamford, Connecticut.
8. Prior to the Cendant merger, CUC's fiscal year ended on January 31. After the merger, CMS
SNIPPETS:
The grand jury for and in the District of New Jersey, sitting at Newark, charges:
CUC International, Inc. was a publicly held company with its corporate headquarters in
CUC's principal business was selling memberships in its proprietary buying clubs, which
The company marketed these membership programs primarily through its Comp-U-Card Division,
Those subsidiaries were located around the United States and, after in or about 1995, in
From in or about the mid-1980's to in or about 1997, CUC purchased more than 25 other
CUC paid at least a substantial part of the purchase price with CUC stock.
The merger became effective on December 17,1997, at which time the merged company adopted the
CMS maintained its own corporate headquarters, including its own separate accounting unit, in
From at least as early as in or about 1980 to in or about December 1997, the defendant WALTER
From in or about 1981 to in or about 1991, the defendant E. KIRK SHELTON was employed in
From on or about December 17,1997 to in or about April 1998, he held the title of Executive
At all relevant times prior to the Cendaut merger on December 17,1997, Casper Sabatino, who
did knowingly and willfully combine, conspire, confederate, and agree with Cosmo Corigliano,
d interstate wire communications for the purpose of executing that scheme and artifice, in
respect to material facts, in violation of Title 15, United States Code, Section 78ff.
In or about 1997, it was a further principal object of the conspiracy to use the artificially
The defendants WALTER A. FORBES and E. KIRK SHELTON participated in the conspiracy as
Among other things, as set forth in Paragraphs 22 through 40 below, the conspirators
By knowingly violating GAAP by failing to set aside sufficient revenues for Comp-U-Card's
ion, res ectively; and caused the earnings Ceudant reported for its fiscal year ending December 31,
The conspirators purported to have designed these policies
The Use of Merger Reserves to Inflate Oueratinp;
When CUC acquired another company during the above period, the conspirators usually caused
At or about the same time, however, in order to permit CUC to withstand its annual audit, the
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