CUC International
Encyclopedia
CUC International Inc. is a membership-based consumer services conglomerate with travel, shopping, auto, dining, home improvement and financial services offered to more than 60 million customers worldwide based out of Stamford, Connecticut and founded by Kirk Shelton and Walter Forbes
. In 1998, it became involved in a Securities and Exchange Commission investigation into what, at the time, was the biggest accounting scandal
in corporate history.
after its purchase of The Source. It later offered its Shoppers Advantage service on America Online, Prodigy
, GEnie
and Delphi
as well. It was perhaps the first company conducting electronic commerce
, although its web based service first went online in 1995.
Founded in 1973 by Walter Forbes, CUC's main line of operations was its mail-order clubs such as Shopper’s Advantage, AutoVantage, Traveler’s Advantage, and its Comp-U-Card program, and had been trying to find a way to streamline its clubs and sell retail through a kind of interactive televisions. In an age before the internet and sites such as Amazon.com, this idea was innovative.
CUC went through various company presidents and lost a lot of money during the ‘70’s and by 1979 was losing more than $2 million a year. By 1983, Forbes and his company had found investors such as Reader’s Digest and Eckerd Drugs but had lost nearly $14 million. After licensing their “interactive shopping” idea in Europe, the Morgan Stanley
group took CUC public in the United States in 1983 and raised $20 million.
Throughout the ‘80’s and early 90’s, CUC continued to grow and acquire other companies. They made strategic deals with other entertainment, communication, retail and investment companies such as America Online and AT&T. and grew to have over 30 million customers via their mail order clubs.
Seeking to expand its operations into the field of interactive entertainment, CUC, in February 1996, approached software companies Sierra On-Line Inc.
and Davidson & Associates Inc.
They bought Sierra for $1.5 billion and Davidson for $1.6 billion, both in stock. These acquisitions allowed CUC, as a larger outlet, to streamline its distribution network. In addition, product placements and advertisements in these software companies’ products allowed CUC to find new customers in demographics it had not reached before.
In December 1997, CUC merged with HFS Incorporated. A competition was held internally at CUC, primarily among their senior marketing staff, to come up with a new corporate name. The winning submission named the company Cendant
.
After the merger, Cendant retained its core business as a direct marketer and thereafter also specialized in Hotel Franchises, Car Rentals, Travel agencies, and its consumer software operations, Cendant Software. The merger of these two companies, which between them owned "a virtual monopoly in the worldwide market for full-service timeshare exchange services," according to the Federal Trade Commission
, caused the FTC to require "the parties to divest one of their timeshare exchange companies to re-establish a viable competitor in the market"
Cendant Software, composed of Sierra, Davidson & Associates (including Blizzard Entertainment
), Knowledge Adventure
and Gryphon Software
, was sold in 1998 to French publisher Havas
, which then merged with Vivendi
, which then merged with Activision
.
After the accounting scandal, the original "Comp-U-Card" division was bought out by some remaining executives and reorganized into a company called Trilegiant
. It was later renamed Affinion after it was purchased by private equity group Apollo.
On October 23, 2005, Cendant Corporation announced its decision to split into four separate companies: Realogy
, Travelport
, Wyndham Worldwide
and Avis Budget Group
."
The Securities and Exchange Commission brought civil charges against CUC president Kirk Shelton, and CEO and Chairman Walter Forbes
, for the "long-running financial fraud", which, it alleged, started in 1985. The SEC stated that CUC inflated its books in order to inflate its stock price, which allowed it to use its stock to buy other companies; and in turn these mergers and acquisitions
were executed in order to generate financial reserves and purchase reserves that were intended to be "big enough to bury the fraud".
Shelton was convicted in January 2005 of 12 counts of fraud and related charges, and sentenced to 10 years in prison. Shelton and Forbes were tried together; although Shelton was convicted of all 12 charges brought, the jury was unable to reach a verdict for Forbes on any charge. A hung jury
deadlocked Forbes' second trial also, and a third trial was set for September 2006. Retried and convicted, he was sentenced to 12 years on January 17, 2007. Longtime CFO Stuart Bell was tried as well but a conviction was not obtained. Former CUC Chief Financial Officer
Cosmo Corigliano, former Comptroller
Anne Pember, and former accountant
Casper Sabatino all plead guilty in June 2000 to several fraud and related charges.
In addition to their prison terms, both Shelton and Forbes were each ordered to pay Cendant US$3.275 billion in restitution. Cendant is unlikely to ever receive the full amount, as according to the payment schedule of US$2,000 per month ordered by the judge, it would take over 134,000 years to pay.
Investigators found that over US$500 million in nonexistent company income had been reported during 1996 and 1997. Membership sales revenue had been overreported, and membership cancellations information held back, allowing for the company's earnings to be manipulated at will. With too much debt and too little real income, however, the real resources of the company were dwindling, despite the considerable flotation of the stock numbers. As the imaginary books and the real company finances diverged more and more, the requirements of appearances became greater. Even the cooked books were insufficient to cover all of the company's losses, at which time they turned to mergers with, and acquisition of, new companies. Purchased companies' assets could be similarly inflated, and the increase either boost operating income, or write off losses. The misreporting of assets by CUC from 1983 to 1997 is similar to that performed during the Enron scandal
and other recent frauds.
Walter Forbes
Walter Forbes is an American business manager and Federal prisoner.He was prosecuted by the U.S. Attorney's Office for the District of New Jersey and convicted of one count of conspiracy to commit securities fraud, and two counts of making false statements, for inflating reported incomes for the...
. In 1998, it became involved in a Securities and Exchange Commission investigation into what, at the time, was the biggest accounting scandal
Accounting scandals
Accounting scandals, or corporate accounting scandals, are political and business scandals which arise with the disclosure of misdeeds by trusted executives of large public corporations...
in corporate history.
History
Their main product, a shopping service, originally a membership telephone-based drop-ship service called Comp-U-Card begun in 1973, was made available online to users of The Source in the mid-1980s., and later CompuServeCompuServe
CompuServe was the first major commercial online service in the United States. It dominated the field during the 1980s and remained a major player through the mid-1990s, when it was sidelined by the rise of services such as AOL with monthly subscriptions rather than hourly rates...
after its purchase of The Source. It later offered its Shoppers Advantage service on America Online, Prodigy
Prodigy (ISP)
Prodigy Communications Corporation was an online service that offered its subscribers access to a broad range of networked services, including news, weather, shopping, bulletin boards, games, polls, expert columns, banking, stocks, travel, and a variety of other features.Initially subscribers...
, GEnie
GEnie
GEnie was an online service created by a General Electric business - GEIS that ran from 1985 through the end of 1999. In 1994, GEnie claimed around 350,000 users. Peak simultaneous usage was around 10,000 users...
and Delphi
Delphi online service
Delphi was an early U.S. online service provider that started as a nationwide dialup service in 1983.- History :The company that became Delphi was founded by Wes Kussmaul as Kussmaul Encyclopedia in 1981, featured ASCII-based encyclopedia, E-mail, and a primitive chat...
as well. It was perhaps the first company conducting electronic commerce
Electronic commerce
Electronic commerce, commonly known as e-commerce, eCommerce or e-comm, refers to the buying and selling of products or services over electronic systems such as the Internet and other computer networks. However, the term may refer to more than just buying and selling products online...
, although its web based service first went online in 1995.
Founded in 1973 by Walter Forbes, CUC's main line of operations was its mail-order clubs such as Shopper’s Advantage, AutoVantage, Traveler’s Advantage, and its Comp-U-Card program, and had been trying to find a way to streamline its clubs and sell retail through a kind of interactive televisions. In an age before the internet and sites such as Amazon.com, this idea was innovative.
CUC went through various company presidents and lost a lot of money during the ‘70’s and by 1979 was losing more than $2 million a year. By 1983, Forbes and his company had found investors such as Reader’s Digest and Eckerd Drugs but had lost nearly $14 million. After licensing their “interactive shopping” idea in Europe, the Morgan Stanley
Morgan Stanley
Morgan Stanley is a global financial services firm headquartered in New York City serving a diversified group of corporations, governments, financial institutions, and individuals. Morgan Stanley also operates in 36 countries around the world, with over 600 offices and a workforce of over 60,000....
group took CUC public in the United States in 1983 and raised $20 million.
Throughout the ‘80’s and early 90’s, CUC continued to grow and acquire other companies. They made strategic deals with other entertainment, communication, retail and investment companies such as America Online and AT&T. and grew to have over 30 million customers via their mail order clubs.
Seeking to expand its operations into the field of interactive entertainment, CUC, in February 1996, approached software companies Sierra On-Line Inc.
Sierra Entertainment
Sierra Entertainment Inc. was an American video-game developer and publisher founded in 1979 as On-Line Systems by Ken and Roberta Williams...
and Davidson & Associates Inc.
Davidson & Associates
Davidson & Associates was an educational software company headquartered in Torrance, California. It was best known for the Blaster series, including Math Blaster and Reading Blaster...
They bought Sierra for $1.5 billion and Davidson for $1.6 billion, both in stock. These acquisitions allowed CUC, as a larger outlet, to streamline its distribution network. In addition, product placements and advertisements in these software companies’ products allowed CUC to find new customers in demographics it had not reached before.
In December 1997, CUC merged with HFS Incorporated. A competition was held internally at CUC, primarily among their senior marketing staff, to come up with a new corporate name. The winning submission named the company Cendant
Cendant
Cendant Corporation was a New York-based provider of business and consumer services, primarily within the real estate and travel industries. In 2005 and 2006, Cendant broke up and spun off or sold its constituent businesses...
.
After the merger, Cendant retained its core business as a direct marketer and thereafter also specialized in Hotel Franchises, Car Rentals, Travel agencies, and its consumer software operations, Cendant Software. The merger of these two companies, which between them owned "a virtual monopoly in the worldwide market for full-service timeshare exchange services," according to the Federal Trade Commission
Federal Trade Commission
The Federal Trade Commission is an independent agency of the United States government, established in 1914 by the Federal Trade Commission Act...
, caused the FTC to require "the parties to divest one of their timeshare exchange companies to re-establish a viable competitor in the market"
Cendant Software, composed of Sierra, Davidson & Associates (including Blizzard Entertainment
Blizzard Entertainment
Blizzard Entertainment, Inc. is an American video game developer and publisher founded on February 8, 1991 under the name Silicon & Synapse by three graduates of UCLA, Michael Morhaime, Allen Adham and Frank Pearce and currently owned by French company Activision Blizzard...
), Knowledge Adventure
Knowledge Adventure
Knowledge Adventure, Inc. is a maker of educational software including the Adiboo and JumpStart series of grade-based and subject-based titles, such as My First Encyclopedia. It was established in the late 1980s in Los Angeles, then later merged with another large education software firm, Davidson...
and Gryphon Software
Gryphon Software Morph
-Morph:Gryphon Software's Morph was the first commercially available morphing software program for personal computers. Gryphon Software was founded in 1991 by Duane Maxwell, Bridget K...
, was sold in 1998 to French publisher Havas
Havas
Havas is the second largest advertising group in France and is a "Global advertising and communications services group" and the sixth-largest global advertising and communications group worldwide, operating on the communications consulting market through three main operational divisions:*Euro RSCG...
, which then merged with Vivendi
Vivendi
Vivendi SA is a French international media conglomerate with activities in music, television and film, publishing, telecommunications, the Internet, and video games. It is headquartered in Paris.- History :...
, which then merged with Activision
Activision
Activision is an American publisher, majority owned by French conglomerate Vivendi SA. Its current CEO is Robert Kotick. It was founded on October 1, 1979 and was the world's first independent developer and distributor of video games for gaming consoles...
.
After the accounting scandal, the original "Comp-U-Card" division was bought out by some remaining executives and reorganized into a company called Trilegiant
Trilegiant
Affinion Group is an affinity marketing company in Stamford, Connecticut, and is currently composed of subsidiaries known as Trilegiant Corporation , Progeny Marketing Innovations, Affinion International, Affinion Loyalty Group, Affinion Security Center. The company conducted business before 2005...
. It was later renamed Affinion after it was purchased by private equity group Apollo.
On October 23, 2005, Cendant Corporation announced its decision to split into four separate companies: Realogy
Realogy
Realogy is a privately owned company that provides real estate and relocation services. It owns and franchises several of the industry's leading real estate brands and brokerages...
, Travelport
Travelport
Travelport is a broad-based business services company and a leading provider of critical transaction processing solutions to companies operating in the global travel industry...
, Wyndham Worldwide
Wyndham Worldwide
Wyndham Worldwide is the holding company for Wyndham Hotels & Resorts, Group RCI and other lodging brands. It was spun off from Cendant Corporation in July 2006....
and Avis Budget Group
Avis Budget Group
Avis Budget Group, Inc. operates Avis Rent A Car System, LLC , Budget Rent A Car System, Inc. and Budget Truck Rental, LLC...
."
Accounting scandal
On April 16, 1998, less than one year after the new brand was introduced, Cendant disclosed that for about a decade prior to the merger, CUC had fraudulently overstated its income by over US$500 million. This caused Cendant stock to plummet from $39 to $20 in a single day, eventually reaching $9, and costing shareholders about US$14 billion. Cendant/CUC was eventually required to pay more than US$2.85 billion in class action settlements to shareholders.The Securities and Exchange Commission brought civil charges against CUC president Kirk Shelton, and CEO and Chairman Walter Forbes
Walter Forbes
Walter Forbes is an American business manager and Federal prisoner.He was prosecuted by the U.S. Attorney's Office for the District of New Jersey and convicted of one count of conspiracy to commit securities fraud, and two counts of making false statements, for inflating reported incomes for the...
, for the "long-running financial fraud", which, it alleged, started in 1985. The SEC stated that CUC inflated its books in order to inflate its stock price, which allowed it to use its stock to buy other companies; and in turn these mergers and acquisitions
Mergers and acquisitions
Mergers and acquisitions refers to the aspect of corporate strategy, corporate finance and management dealing with the buying, selling, dividing and combining of different companies and similar entities that can help an enterprise grow rapidly in its sector or location of origin, or a new field or...
were executed in order to generate financial reserves and purchase reserves that were intended to be "big enough to bury the fraud".
Shelton was convicted in January 2005 of 12 counts of fraud and related charges, and sentenced to 10 years in prison. Shelton and Forbes were tried together; although Shelton was convicted of all 12 charges brought, the jury was unable to reach a verdict for Forbes on any charge. A hung jury
Hung jury
A hung jury or deadlocked jury is a jury that cannot, by the required voting threshold, agree upon a verdict after an extended period of deliberation and is unable to change its votes due to severe differences of opinion.- England and Wales :...
deadlocked Forbes' second trial also, and a third trial was set for September 2006. Retried and convicted, he was sentenced to 12 years on January 17, 2007. Longtime CFO Stuart Bell was tried as well but a conviction was not obtained. Former CUC Chief Financial Officer
Chief financial officer
The chief financial officer or Chief financial and operating officer is a corporate officer primarily responsible for managing the financial risks of the corporation. This officer is also responsible for financial planning and record-keeping, as well as financial reporting to higher management...
Cosmo Corigliano, former Comptroller
Comptroller
A comptroller is a management level position responsible for supervising the quality of accounting and financial reporting of an organization.In British government, the Comptroller General or Comptroller and Auditor General is in most countries the external auditor of the budget execution of the...
Anne Pember, and former accountant
Accountant
An accountant is a practitioner of accountancy or accounting , which is the measurement, disclosure or provision of assurance about financial information that helps managers, investors, tax authorities and others make decisions about allocating resources.The Big Four auditors are the largest...
Casper Sabatino all plead guilty in June 2000 to several fraud and related charges.
In addition to their prison terms, both Shelton and Forbes were each ordered to pay Cendant US$3.275 billion in restitution. Cendant is unlikely to ever receive the full amount, as according to the payment schedule of US$2,000 per month ordered by the judge, it would take over 134,000 years to pay.
Investigators found that over US$500 million in nonexistent company income had been reported during 1996 and 1997. Membership sales revenue had been overreported, and membership cancellations information held back, allowing for the company's earnings to be manipulated at will. With too much debt and too little real income, however, the real resources of the company were dwindling, despite the considerable flotation of the stock numbers. As the imaginary books and the real company finances diverged more and more, the requirements of appearances became greater. Even the cooked books were insufficient to cover all of the company's losses, at which time they turned to mergers with, and acquisition of, new companies. Purchased companies' assets could be similarly inflated, and the increase either boost operating income, or write off losses. The misreporting of assets by CUC from 1983 to 1997 is similar to that performed during the Enron scandal
Enron scandal
The Enron scandal, revealed in October 2001, eventually led to the bankruptcy of the Enron Corporation, an American energy company based in Houston, Texas, and the dissolution of Arthur Andersen, which was one of the five largest audit and accountancy partnerships in the world...
and other recent frauds.
See also
- CendantCendantCendant Corporation was a New York-based provider of business and consumer services, primarily within the real estate and travel industries. In 2005 and 2006, Cendant broke up and spun off or sold its constituent businesses...
- Affinion Group, formerly TrilegiantTrilegiantAffinion Group is an affinity marketing company in Stamford, Connecticut, and is currently composed of subsidiaries known as Trilegiant Corporation , Progeny Marketing Innovations, Affinion International, Affinion Loyalty Group, Affinion Security Center. The company conducted business before 2005...
- Enron scandalEnron scandalThe Enron scandal, revealed in October 2001, eventually led to the bankruptcy of the Enron Corporation, an American energy company based in Houston, Texas, and the dissolution of Arthur Andersen, which was one of the five largest audit and accountancy partnerships in the world...
- Worldcom scandal