Cendant Corp., the diversified franchising and direct marketing giant, yesterday said it plans to file a lawsuit against two former chief financial officers alleging breach of their employment contracts and breach of their fiduciary responsibilities.
The move came after three lower-ranking financial executives pleaded guilty to accounting fraud charges in a New Jersey court Wednesday and implicated their superiors.
The executives involved in the alleged fraud scheme were employed by CUC International, the direct marketing firm that merged with hotel franchising concern HFS Inc. in 1997 to form Cendant, New York.
In the suit against Stuart L. Bell and his successor, E. Kirk Shelton, Cendant claims that they were either aware of or participated in a scheme in which CUC diverted funds from the company's reserves to inflate its profits artificially. The discovery of the accounting irregularities cut Cendant's market value in half in 1998. The stock has not recovered.
Cendant settled one class-action shareholder lawsuit related to the scandal for $340 million, and another, seeking $2.85 billion, is awaiting court approval. Cendant claimed Bell and Shelton might be liable for part of those settlements.