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The disastrous merger that spawned the Securities and Exchange Commission’s continuing crackdown on financial reporting fraud is itself now the subject of criminal and civil charges. Seven former officials at franchising giant Cendant Corp. were charged by the SEC and the U.S. Attorney for the District of New Jersey with participating in a “massive financial fraud” that caused investors, by some counts, to lose as much as $20 billion. New York-based Cendant was formed by the $14 billion merger in 1997 of Stamford, Conn.-based CUC International Inc. and Parsippany, N.J.-based HFS Inc. CUC marketed goods and services via memberships, while HFS was a franchiser of leading hotel and real estate brands. Shortly after the deal closed, reports surfaced that CUC’s books were riddled with unsupported adjustments to quarterly and annual financial results. Regulators eventually tracked the fraud all the way back to the 1980s. “Today’s actions make crystal clear that the SEC and the U.S. Attorney have zero tolerance for fraudulent financial reporting,” said Richard Walker, director of the SEC’s enforcement division. The SEC said three former Cendant officials pleaded guilty, including chief financial officer Cosmo Corigliano, who admitted to wire fraud and related charges. The three will be sentenced in September. The SEC also said it settled charges with three low-level officials, who agreed to pay $25,000 each in civil fines. Cendant agreed in December to pay shareholders $2.83 billion to settle fraud charges. Accounting giant Ernst & Young also agreed to pay $335 million to resolve a suit. �2000 TDD, LLC. All rights reserved.

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