Jan. 17 (Bloomberg) -- Former Cendant Corp. Chairman Walter Forbes was sentenced to 12 years and seven months in prison and ordered to pay $3.28 billion in restitution for leading the largest accounting fraud of the 1990s.

U.S. District Judge Alan Nevas sentenced Forbes, 64, for inflating income by $252 million at CUC International Inc. CUC merged with HFS Inc. in 1997 to create Cendant, a travel and real estate company. Forbes, CUC's chief executive officer, was convicted Oct. 31 of conspiracy and false reporting about company finances. His conviction came after two mistrials.

``Your case is the case of a person who has accomplished a great deal in his lifetime and was successful in business but now stands here convicted of a felony, a serious felony,'' Nevas told Forbes at a hearing today in Bridgeport, Connecticut.

Cendant and its auditors, Ernst & Young, paid $3.34 billion to settle investor lawsuits and will divide any restitution. Forbes, who testified he was worth $200 million in 1997, claimed he couldn't afford a fine because he has a negative net worth. Nevas waived a fine.

Forbes didn't speak during the hearing and showed no reaction to the sentence. He later hugged his wife, Caren. He declined to comment as he left the courtroom. Nevas said he will decide later whether Forbes can stay free on $1.2 million bail as he appeals. His attorney, Brendan Sullivan, declined to comment.

Foreshadowed Enron

The scandal foreshadowed frauds at Enron Corp. and WorldCom Inc. Former WorldCom CEO Bernard Ebbers is serving 25 years in prison, and former Enron CEO Jeffrey Skilling is serving 24 years. Jurors convicted Forbes of conspiracy and two counts of false reporting to the U.S. Securities and Exchange Commission.

``We're very pleased with the sentence,'' U.S. Attorney Christopher Christie said in an interview. ``The public has waited many years for Walter Forbes to be brought to justice, and today that's exactly what happened. We feel that we've done our job.''

Christie is the top federal prosecutor in New Jersey, where Cendant once was based. His office spent more than eight years pursuing Forbes, keeping the case when it was transferred to Connecticut in 2002.

Assistant U.S. Attorney Michael Martinez urged Nevas to impose a term within the range of 12 1/2 to 15 1/2 years under advisory guidelines. Martinez said Forbes was being sentenced under 1997 guidelines, in effect at the time of the crimes. Current standards would recommend a 25-year term, he said.

Shelton Conviction

Former CUC President E. Kirk Shelton was convicted at the first trial, sentenced to 10 years and ordered to pay Cendant $3.28 billion. Sullivan asked for 10 years for Forbes, saying he and Shelton faced ``virtually identical circumstances.''

Forbes testified at trial that he was a visionary who was ignorant of company finances and operations, a defense that jurors said later they rejected. Two jurors attended the sentencing today, including Geoff Russell.

``He deserved more time than Shelton,'' Russell said.

Sullivan asked Nevas for leniency based on Forbes's age and charitable contributions of $2.5 million over 17 years. He argued that his client has ``a long history of good conduct, a long history of being helpful in the community.''

Nevas echoed the argument of prosecutors, saying Forbes had a net worth of $200 million in 1997 and an income of $85 million from 1995 to 1999.

``It seems to me that with that net worth and that income, $2.5 million in charitable giving is very modest,'' Nevas said.

Asset Transfer

After the fraud was revealed, Forbes transferred to his wife his stake in three properties valued at about $25 million that they jointly owned in Connecticut, Colorado and Florida. Forbes is a partner in a venture capital company and has developed golf courses, he testified.

The market value of Cendant fell $14 billion on April 15, 1998, when it disclosed accounting irregularities at CUC. Cendant, with franchises including the Avis car-rental and Days Inn hotel chains, never recovered and split into four companies last year including New York-based Avis Budget Group Inc.

The other companies, based in Parsippany, New Jersey, are Realogy Corp., the biggest U.S. residential real estate brokerage; Wyndham Worldwide Corp., the fourth-largest U.S. hotel operator; and Travelport Inc., operator of the online travel agency Orbitz.

Prosecutors said Forbes made $100 million while inflating income to satisfy Wall Street analysts. Forbes testified he relied on auditors at Ernst & Young and that CUC's former chief financial officer, Cosmo Corigliano, falsely implicated him.

Trial Testimony

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

In his closing arguments, Sullivan said the case hinged on Corigliano, assailing him as a ``serial liar'' and ``con man'' who implicated Forbes to reduce his prison term.

Prosecutors focused much of their case on proving Forbes tried to conceal the fraud from Henry Silverman, then 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.

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

The government 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, now the Realogy CEO, told jurors Forbes said removing Pember would be ``like a knife to the heart.'' Forbes told him 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, Silverman said.

The case is U.S. v. Forbes, 02-cr-264, U.S. District Court, District of Connecticut (Bridgeport).

To contact the reporters on this story: David Voreacos in Bridgeport, Connecticut, at dvoreacos@bloomberg.net; Jane Mills in Bridgeportt .

Last Updated: January 17, 2007 16:50 EST