Cendant Official Must Pay Back $3.27 Billion
Thursday, August 4, 2005
HARTFORD, Conn., Aug. 3 -- 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 more than $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 Christopher J. Christie, whose office prosecuted the case. "It's obviously always based upon his ability to pay."
The $3.27 billion would cover what Cendant spent to settle shareholder litigation, pay its legal fees and conduct audits, prosecutors said.
Shelton, 50, of Darien, Conn., 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.
Shelton, a Yale graduate and father of two, was convicted Jan. 4 on 12 counts of conspiracy, mail fraud, wire fraud, securities fraud and making false statements to the Securities and Exchange Commission.
Prosecutors said Shelton inflated revenue by $500 million at Cendant's predecessor, CUC International Inc., 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, a New York-based hotel franchisor and travel company that also owns the car rental companies Avis Group Holdings Inc. and Budget Rent A Car System Inc., were among the first of corporate accounting scandals to spark outrage from investors in recent years. At the time, the $3 billion fraud was the largest case of accounting fraud in the country, prosecutors said.
The SEC 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 companies' ability to raise capital.
Prosecutors had argued for a harsh sentence, saying Shelton showed no remorse for his actions.
Shelton's lawyer, Thomas Puccio, said his client would appeal the sentence. More than 100 people sent letters of support to the judge, urging him to issue a lenient sentence. Many cited good deeds Shelton has done over the years, from helping family and friends financially to volunteering his time at the YMCA in Stamford, Conn. While Thompson said he recognized Shelton has led an admirable life, he could not ignore the magnitude of the crime.
"I commend you for all your fine qualities, even as I impose a significant term of incarceration," he said.