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Strategies & Market Trends : The Residential Real Estate Crash Index
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To: Lizzie Tudor who wrote (91059)10/2/2007 1:04:01 AM
From: Elroy JetsonRead Replies (1) of 306849
 
The fraud at CUC International was a combination of:

fraud (recording revenue and associated profit on sales that never existed. This part reminded me of the Equity Funding fraud, discovered in 1973, where each quarter 100 employees of this insurance company sold life insurance to imaginary people, sold the in insurance to re-insurers, then profited by killing off these imaginary people by creating fake death certificates ad collecting from the re-insurers;

and

cookie jar accounting, where revenue from future sales wee recognized today, and the good assets of acquisitions were written off, so they could produce remarkable earnings on a greatly reduced basis.

Henry Silverman continued the accounting only shenanigans with Cendant. In pat years I've written about the scheme where acquired real estate brokerage firms were owned by the Apollo Group (the former owners of these firms) and Cendant. Cendant would report the steadily increasing royalties from Apollo as its share of the brokerage earnings, regardless of the profitability or loss of these firms. Yet on a cash basis, Apollo Group had the right to demand "loans" from Cendant when Apollo's earnings fell short of the royalty obligations.

In essence Cendant was making loans to an off-balance sheet entity - then recognizing these loans from itself as earned income.

Silverman knew of the CUC fraud committed by Forbes before the merger. Rather than call the merger off, he helped cover it up.

The whole group were thieves.
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