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Cendant sues accountant
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January 25, 1999: 6:27 p.m. ET
Company claims Ernst & Young was negligent in CUC financial irregularities
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NEW YORK (CNNfn) - Travel and real-estate giant Cendant Corp. Monday filed a federal lawsuit against accounting firm Ernst & Young LLP for damages arising from previously disclosed accounting irregularities.
Parsippany, N.J.-based Cendant (CD) said it is seeking damages incurred from the accounting irregularities and class-action lawsuits filed against the company because CUC's financial statements for 1995, 1996 and 1997 were audited and certified by Ernst & Young.
Cendant's complaint, filed in U.S. District Court in Newark, N.J., alleges that Ernst & Young "did not detect these false statements in any of the three years because, in part, it did not perform the audits in accordance with professional standards required and discharged its duties with gross negligence."
Last April, the company disclosed accounting troubles at CUC International, which merged with HFS Inc. in December 1997 to form Cendant. In September, Cendant restated its results downward for the three years to make up for the irregularities.
The accounting discrepancies included $500 million in fictitious revenue over those three years.
Cendant also claims the accounting firm knew 1997 that "heavy reliance would be placed on all its financial reports of CUC because of the merger discussions CUC was having with HFS that resulted in the formation of Cendant."
Ernst & Young said in a statement it would vigorously defend itself against the charges and would bring claims against Cendant for the fraud it perpetrated against Ernst & Young.
The firm also said it was outraged at the claims and said Cendant's own report in the past detailed "the extraordinary efforts of its officers and employees to hide their deceptions from Ernst & Young."
Cendant shares finished up 1-5/8 at 20-5/8 in Monday trade.
-- from staff and wire reports
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Cendant
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