Litigation Release No.  21548 / June 3, 2010

Accounting and Auditing Enforcement Release No.  3138 / June 3, 2010

Securities and Exchange Commission v. Walter A. Forbes and E. Kirk Shelton, 01 civ 987 (JAP) (D.N.J. filed Feb. 28, 2001)


The Securities and Exchange Commission (the Commission) announced that on June 2, 2010, a settled final judgment was entered by the U.S. District Court for the District of New Jersey against E. Kirk Shelton, the former Vice Chairman of Cendant Corporation (Cendant), in the Commission’s action against Shelton arising out of his conduct in the Cendant financial fraud, Securities and Exchange Commission v. Walter A. Forbes and E. Kirk Shelton, 01 civ 987 (JAP) (D.N.J. filed Feb. 28, 2001).  The Commission’s complaint in that action alleged that Shelton helped orchestrate an earnings management scheme at CUC International Inc. (CUC), a corporate predecessor of Cendant, and, subsequently, at Cendant itself.  The complaint further alleged that over a twelve-year period Shelton directed a scheme that improperly inflated the companies’ quarterly and annual financial results, and that for the period 1995 to 1997, CUC’s operating income was improperly inflated by an aggregate amount exceeding $500 million.  When the fraud was disclosed in 1998, Cendant’s common stock dropped dramatically, resulting in defrauded investors losing billions of dollars.

The final judgment against Shelton, to which he consented without admitting or denying the Commission’s allegations, enjoins him from violating Section 17(a) of the Securities Act of 1933, Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 (Exchange Act), and Exchange Act Rules 10b‑5, 13b2‑1, and 13b2‑2, and from aiding and abetting violations of Sections 13(a), 13(b)(2)(A), 13(b)(2)(B), and 14(a) of the Exchange Act and Exchange Act Rules 12b‑20, 13a‑1, 13a‑13, and 14a‑9.  The final judgment also bars Shelton, pursuant to Section 21(d)(2) of the Exchange Act, from serving as an officer or director of a public company.

Shelton was convicted in a related federal criminal prosecution of conspiracy, securities fraud, mail fraud, wire fraud, and making false filings with the Commission.  In 2005, Shelton was sentenced to 120 months in prison and ordered to pay criminal restitution of $3.275 billion.

For further information about the Commission’s action in Securities and Exchange Commission v. Walter A. Forbes and E. Kirk Shelton, see Litigation Release No. 16910 (Feb. 28, 2001); Litigation Release No. 21356 (Dec. 30, 2009).


Last modified: 6/03/2010