NEW YORK (CNNfn) - Ernst & Young agreed to pay $335 million to settle a shareholders class action lawsuit against Cendant Corp., the New York-based accounting firm said Friday.|
Larry Parnell, a company spokesman, said Ernst & Young, the fourth-largest of the Big Five accounting firms, agreed to settle the shareholders suit, while pursuing its own action against Cendant, alleging the travel and hospitality franchiser provided fraudulent information to the auditors.
The settlement of the class action suit allegedly stems from financial statement irregularities at CUC International -- which merged with HFS Inc. in 1997 to form Cendant -- and Cendant’s CMS division, Calpers said.
From 1995-97, the accounting firm served as the outside auditor for CUC International and did the same for the CMS division of Cendant in 1997.
The California Public Employees’ Retirement (Calpers) and the New York City pension funds had alleged that Ernst & Young knowingly or recklessly misrepresented that its audits of CUC International were conducted according to proper auditing standards.
"The shareholders did not perpetrate the fraud,” Parnell said. "(Cendant officials) were supposed to provide information to the auditors that was true and accurate to the best of their knowledge. It’s a two-way street.”
Cendant officials were not immediately available for comment.
In June 1998, Calpers and the New York pension funds filed a motion to be co-lead plaintiffs in a series of shareholder lawsuits against Cendant.
The lawsuits filed in U.S. District Courts in New Jersey, Connecticut and Pennsylvania, alleged that Cendant issued false and misleading financial statements about the company's income and earnings.
The lead plaintiffs filed suit after Cendant's share price dropped by $35 to $19 on April 16, 1998, following the company's announcement of problems at CUC that led to operating income being inflated by millions of dollars.
They also alleged that certain former officers and directors of the firm sold or filed intentions to sell more than 4 million shares of Cendant common stock before the announcement.
At the time of filing suit in 1998, the pension funds estimated that they had lost some $89 million as a result of Cendant's alleged misstatements, Calpers said.
Calpers, which oversees assets of more than $165 billion, said the settlement announced on Wednesday resolves all shareholder claims against all defendants in the case. Cendant’s holdings include Days Inn, Howard Johnson, Ramada, Avis and Century 21.
On Thursday, Cendant rose after AT&T subsidiary Liberty Media Corp. said it would pump $400 million into the international franchiser to develop Internet strategies in the travel, mortgage, real estate and membership businesses.
Shares of Cendant (CD) rose 1-5/8 Friday to 24-5/8.
---from staff and wire reports.