Oct. 31 (Bloomberg) -- Walter Forbes, the former chairman of Cendant Corp., was convicted at a third criminal trial for his role in an accounting fraud that caused the company's market value to drop $14 billion in one day in 1998.

Jurors in Bridgeport, Connecticut, convicted Forbes, 63, of conspiracy and two counts of false reporting. He was acquitted of securities fraud. Forbes was accused of overstating income by $252 million at CUC International Inc., the company that merged with HFS Inc. in 1997 to create Cendant.

``Americans don't buy the lame excuse that a person being paid millions knew nothing about what he was getting paid for,'' said Lynn Turner, former chief accountant at the U.S. Securities and Exchange Commission. ``I'm really glad the jury understood the case and reached the verdict they did.''

The fraud was the largest of the 1990s, and Cendant paid $3.2 billion to settle investor lawsuits, a record at the time. The scandal foreshadowed the accounting frauds that destroyed Enron Corp. and WorldCom Inc. in the following decade.

Federal prosecutors spent eight years pursuing Forbes, opting for a third trial after two earlier juries deadlocked. Jurors at the third trial, which began Oct. 10, rendered their verdicts on the third day of deliberations.

U.S. District Judge Alan Nevas set sentencing for Jan. 17. The counts of false reporting to the SEC carry a maximum prison term of 10 years each; conspiracy carries a five-year sentence.

Appeal

``There will be an appeal,'' said Brendan Sullivan, Forbes's lawyer. Forbes didn't speak to reporters after the verdict.

Nevas raised Forbes's bail to $1.2 million from $1 million, to be secured by $500,000 in cash or property in Connecticut. Forbes must surrender his passport and can't leave the state without court permission, Nevas said.

The case, brought by federal prosecutors in New Jersey, was moved in 2002 to Connecticut at the request of the defense. The first trial ended in a hung jury after 33 days of deliberations in Hartford, Connecticut. The second Hartford trial ended in a mistrial after 27 days of deliberations. The case was then transferred to Nevas, who imposed a faster pace on the lawyers.

``We just were not going to give up until justice was done here,'' said U.S. Attorney Christopher Christie of New Jersey. ``I think there's a lot of people from the old Cendant, shareholders and employees, who are innocent victims of this, who have a big smile on their face today.''

Jury foreman David Cunningham, a business analyst from Wilton, Connecticut, said only that the guilty verdicts were based on the evidence. On the securities fraud count, he said: ``We didn't feel that the government made its case.''

Shelton

Jurors at Forbes's first trial convicted his top aide, former CUC President E. Kirk Shelton, who was sentenced to 10 years in prison and ordered to pay $3.275 billion in restitution. Shelton's bid to overturn the conviction was heard today by a federal appeals court in New York.

Cendant's shares never recovered after plunging 46 percent on April 15, 1998, when the company disclosed accounting irregularities at CUC. Prosecutors said Forbes, who was chief executive officer at CUC, made $100 million while inflating income to satisfy Wall Street analysts.

Cendant, a travel and real-estate services company with franchises including the Avis car-rental and Days Inn hotel chains, split into four public companies this year.

Forbes testified that he was not involved in daily operations. He said he relied on auditors at Ernst & Young LLP and that CUC's former chief financial officer Cosmo Corigliano falsely implicated him.

`Cheat Sheets'

Corigliano, one of three CUC executives who pleaded guilty, was the only prosecution witness who said Forbes knew directly of the fraud. Corigliano said he and Forbes regularly discussed ``cheat sheets'' outlining the fraud.

Sullivan said the case hinged entirely on Corigliano, assailing him as a ``serial liar'' and ``con man'' who implicated Forbes to reduce his possible prison term. In his summation, Sullivan ridiculed government agreements that let Corigliano keep $5 million in assets.

``Without Cosmo Corigliano, it is like the heart ripped out of a human being,'' Sullivan said. ``You don't have life.''

Prosecutors said Forbes used Corigliano to aid the fraud.

``You don't find swans in a cesspool,'' Assistant U.S. Attorney Michael Martinez said in his summation. ``The defendant chose Mr. Corigliano to be a member of his conspiracy precisely because Mr. Corigliano was willing to lie at his direction.''

Prosecutors focused much of their case on proving Forbes tried to conceal the fraud from Henry Silverman, who was CEO at HFS, and Michael Monaco, its former finance chief. Under terms of the merger, Silverman would run Cendant for two years and Monaco would be the finance chief. After two years, Forbes would return.

`Insane'

Sullivan argued that it would be ``insane'' for Forbes to hand over a company riddled with fraud to Silverman and Monaco.

Prosecutors said Forbes sought to hide the fraud by building a ``cushion'' in the merger reserve. They said Forbes tried to convince Silverman to hire CUC's auditors, Ernst & Young, at Cendant. They said Forbes feared that hiring Deloitte & Touche LLP, as Silverman did, would expose the fraud.

They also said Forbes pressed Silverman to protect the job of CUC controller Anne Pember, who later pleaded guilty. Forbes arranged for Pember to get a new employment contract and severance agreement worth more than $600,000.

Silverman told jurors that Forbes said removing Pember would be ``like a knife to the heart.'' Silverman said Forbes told him that Pember was ``kind of the glue that keeps the company together,'' and that he wouldn't go through with the merger if she could no longer consolidate CUC's books.

`Poisonous Bias'

Sullivan attacked Silverman for his ``poisonous bias,'' saying he was ``obsessed and driven by his anger'' at losing hundreds of millions of dollars when the stock dropped in April 1998. He mocked Silverman for testifying that Forbes said removing Pember would scuttle the merger.

``That insults the intelligence of a 4-year-old,'' he said.

Silverman, now CEO at Realogy Corp., a real-estate company, didn't testify at the first two trials.

Jurors also heard testimony about Forbes's actions after the fraud was revealed. He transferred to his wife his stake in three properties valued at about $25 million that they jointly owned in Connecticut, Colorado and Florida.

One of Forbes's lawyers, Greg Danilow, said he told Forbes at the time that prosecutors could view the transfers as an admission of guilt and civil litigants could see them as a fraudulent conveyance. Forbes denied Danilow's version of events.

``I look forward to testifying at the sentencing hearing on behalf of the thousands of aggrieved victims of this clown among clowns,'' said Jim Cramer, the TV financial commentator who once ran the hedge fund Cramer Berkowitz & Co., and who testified at Shelton's sentencing hearing in 2005. Cramer, the host of ``Mad Money'' on CNBC, said he lost more than $17 million in seven minutes, ``and most of it was personal.''

Ernst & Young paid $335 million to Cendant investors to resolve lawsuits. Cendant and Ernst & Young are engaged in litigation over who bears responsibility for the fraud.

The case is U.S. v. Forbes, 02CR264, U.S. District Court, District of Connecticut (Bridgeport).

To contact the reporters on this story: David Voreacos in Newark, New Jersey, at dvoreacos@bloomberg.net; Jane Mills in Bridgeport, Connecticutt .

Last Updated: October 31, 2006 17:48 EST