Cendant Corporation, a conglomerate involved in various industries including travel, real estate, and marketing services, faced a major scandal in 1998 when it was revealed that the company had overstated its earnings by nearly $500 million. This revelation led to a significant drop in the company's stock price, causing substantial financial losses for shareholders. The scandal was one of the largest accounting frauds of its time and resulted in a series of legal actions against the company and its executives.

Discovery of Fraud and Legal Proceedings

The fraudulent activities at Cendant came to light in April 1998 when the company announced that it had discovered accounting irregularities that had inflated its earnings over several years. The company's stock price plummeted, and Cendant was forced to restate its financial results, revealing the extent of the fraud. This led to an investigation by the Securities and Exchange Commission (SEC) and subsequent federal probes.

Numerous lawsuits were filed against Cendant and its executives, including former CEO Walter Forbes and CFO Kirk Shelton, who were accused of securities fraud, insider trading, and conspiracy. The scandal not only brought down Cendant but also led to significant changes in corporate governance and accounting practices.

Class Action Settlement

• Total Settlement Amount: $3.1 billion

• Attorney Fees: $688 million plus interest

• Eligible Shareholders: Individuals and entities who purchased Cendant stock between October 13, 1997, and April 15, 1998

• Average Payout: $6.79 per share for common stock, $168.50 per share for preferred stock

The settlement process was complex and involved numerous defendants, including several large financial institutions that were accused of aiding and abetting Cendant's fraudulent activities. Notable defendants included Citigroup, JPMorgan Chase, and Canadian Imperial Bank of Commerce (CIBC).

Legal Proceedings

• Lead Counsel: Bernstein Litowitz Berger & Grossmann LLP, led by Max W. Berger

• Judge: Hon. William H. Walls of the U.S. District Court for the District of New Jersey

• Final Approval Date: August 15, 2000

Distribution Plan

The distribution plan for the settlement proceeds was carefully designed to ensure fair and equitable compensation to all eligible shareholders. Approximately 1.5 million individuals and entities were slated to receive payments, including pension funds, institutional investors, and individual shareholders. The plan faced some opposition, particularly from shareholders who purchased stock outside the eligibility period, but the court ultimately approved it.

The settlement funds were distributed based on the number of shares held and the timing of purchases. A significant portion of the settlement was allocated to cover attorney fees and administrative costs, with the remaining funds distributed to shareholders on a pro-rata basis. The average payout was $6.79 per share for common stock and $168.50 per share for preferred stock, although individual payments varied based on the specifics of each claim.

Additional Settlement in 2000

In August 2000, an additional settlement of $3.1 billion was reached with Cendant, bringing the total settlement amount to $6.2 billion. This settlement was one of the largest ever in U.S. securities litigation, highlighting the importance of corporate governance, transparency, and accountability in the financial markets.

Significance

The $6.2 billion settlement stands as one of the largest ever in U.S. securities litigation, surpassing the previous record held by WorldCom's $6.1 billion settlement. It serves as a stark reminder of the importance of corporate governance, transparency, and accountability in the financial markets.