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Published: Thursday, 2/9/2006

Mistrial declared in second Cendant fraud case


HARTFORD, Conn. A federal judge declared a mistrial today in the accounting-fraud trial of former Cendant Corp. Chairman Walter Forbes.

Forbes, whose first trial last year also ended in a mistrial because jurors could not reach a verdict, was accused of participating in a scheme that cost the company and investors more than $3 billion.

The jury had been deliberating in Hartford for 27 days.

A clerk for U.S. District Judge Alvin W. Thompson said jurors sent a note to the judge this morning, saying they believed they were deadlocked. Thompson, who had encouraged the jury to work through a previous deadlock, discussed the note with the jurors and then discharged them.

Forbes first trial ended in a mistrial last year when jurors also failed to reach a verdict. Federal prosecutors must decide whether to ask for a third trial. They said today they were reviewing their options.

In the most recent trial, prosecutors reduced the number of charges from 16 to four conspiracy to commit securities fraud, securities fraud and two counts of false reporting to the U.S. Securities and Exchange Commission.

Forbes argued that he did not know about the fraud.

Jurors last year convicted Forbes co-defendant, Cendant Vice Chairman E. Kirk Shelton, of conspiracy, mail fraud, wire fraud, securities fraud and making false statements to the SEC.

Shelton was sentenced to 10 years in prison and ordered to pay $3.27 billion in restitution to Cendant, including a balloon payment of $15 million and monthly installments of $2,000 after he is released from prison.

Prosecutors accused Shelton of inflating 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.

CUC, which ran a membership-marketing operation, merged with HFS Inc., a travel and real-estate services company, to form Cendant. Its brands include Ramada, Howard Johnson, Avis, Coldwell Banker and Century 21.

The Cendant allegations were among the first in a series of 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.

Forbes was chief executive officer of CUC and Shelton was president before CUC merged with HFS Inc. to form New York-based Cendant in December 1997.

Read more in later editions of The Blade and toledoblade.com.

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