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Catherine Burke Becky Davis Gayer McFarland Shannon L. Oslick Christopher Sedtal

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Catherine Burke Becky Davis Gayer McFarland Shannon L. Oslick Christopher Sedtal

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    1. Catherine Burke Becky Davis Gayer McFarland Shannon L. Oslick Christopher Sedtal

    2. What do they do? 5 Business Segments Real Estate Services

    3. Brief History December 1997 CUC International Inc. + HFS Inc = Evidence that fake earnings were reported from the late-1980’s to 1997 valued at millions of dollarsEvidence that fake earnings were reported from the late-1980’s to 1997 valued at millions of dollars

    4. What did they do wrong? CUC inflated revenues in the first 3 quarters of 1995, 1996 and 1997 10Q- Adjusted Revenues Up and Expenses Down Year End: Reversed transaction and created needed earning by pulling from cookie jar reserves Evidence of attempt to continue fraud to inflate earnings in 199810Q- Adjusted Revenues Up and Expenses Down Year End: Reversed transaction and created needed earning by pulling from cookie jar reserves Evidence of attempt to continue fraud to inflate earnings in 1998

    5. How did their hand get caught in the cookie jar? Merger Agreement Cendant CEO Silverman questions Former lower level accounting managers come clean Cendant orders independent review Merger Agreement – “Financial reporting operations were to stay separate for a while.” Cendant CEO Silverman (former HFS CEO) questioned the quality of CUC’s information Upon questioning former lower level accounting managers, Cendant found questionable accounting practices Cendant then had Arthur Andersen perform an independent review. Merger Agreement – “Financial reporting operations were to stay separate for a while.” Cendant CEO Silverman (former HFS CEO) questioned the quality of CUC’s information Upon questioning former lower level accounting managers, Cendant found questionable accounting practices Cendant then had Arthur Andersen perform an independent review.

    6. How were the Financial Statements affected?

    7. 47% drop in stock price w/in one day – largest one-day drop in US History Total of $14.2 billion dollars47% drop in stock price w/in one day – largest one-day drop in US History Total of $14.2 billion dollars

    8. Penalties Assessed Civil Penalties Cendant Corp. - $3.5 billion total settlement E & Y paid these same plaintiffs $335 M Settlement was the largest ever in a shareholder class action - $ to pay shareholders b/c of share plummet Lead plantiffs – New York State Common Retirement Fund, NYC;s pension funds, and the California Public Employees’ Retirement System All for Mail and Wire Fraud chargesSettlement was the largest ever in a shareholder class action - $ to pay shareholders b/c of share plummet Lead plantiffs – New York State Common Retirement Fund, NYC;s pension funds, and the California Public Employees’ Retirement System All for Mail and Wire Fraud charges

    9. The Future for Improved corporate governance Annual election of Board of Directors Cannot reprice stock options without SH vote Incentive-based compensation for CEO Deloitte replaces Ernst & Young as auditor Stock price currently trading around $21.20

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