Ex-Cendant Exec Gets 10 Years in Prison and Must Pay $3 Billion

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Ex-Cendant Corp. Vice Chairman E. Kirk Shelton was sentenced 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 $3.27 billion to Cendant.

Thompson told Shelton he needed to send a message to others who might try to inflate earnings. "The impact on the integrity of our capital markets, while perhaps difficult to quantify, cannot be denied," Thompson said. "There seems to be a need to deter others from committing a similar offense."

The order requires Shelton to pay $15 million by October, and monthly payments once Shelton is out of prison for 35 months, with the balance due the following month. Shelton, a Yale graduate, was convicted on 12 counts of conspiracy, mail fraud, wire fraud, securities fraud, and making false statements to the Securities and Exchange Commission. Shelton once was worth $30 million, according to trail testimony.

Shelton's case was atypical because he did not directly benefit from the accounting fraud. He, like Cendant stockholders, lost millions of dollars.

The $3.27 billion would cover what Cendant spent to settle shareholder litigation, pay its legal fees, and conduct various financial audits, prosecutors said. Thompson said his restitution order does not prevent Cendant from pursuing civil litigation against Shelton.

Prosecutors said Shelton inflated revenue by $500 million at Cendant's predecessor, CUC International of Stamford, to drive the stock price higher. The fraud was reported in 1998, causing Cendant's market value to drop by $14 billion in a day.

The allegations of fraud at Cendant were among the first in corporate accounting scandals in recent years. At the time, the $3 billion fraud was the largest case of accounting fraud in the country.

"I've never heard of a bigger order of restitution," former New Jersey federal prosecutor John Fahy said. "The reality is, I suspect, that he cannot write a check for $3.3 billion. The government will do everything it can to get paid."

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