The trial of Walter Forbes, former head of Cendant Corp., ended in a mistrial for the second time yesterday.  The trial involved charges of conspiracy and securities fraud against the head of a major corporation, pursuant to which the CFO pled guilty and then testified against his former boss.  The charges related to inaccurate financial disclosures that cost shareholders $19 billion and at the time it was discovered, was the largest accounting fraud in American history.  What does the mistrial of such a case mean for the Enron trial? 

Maybe the fact that Cendant is not a name recognized by the American public will be enough to distinguish it from Enron. Yet Jack Coffee called it an “ominous signal” for the Enron case, revealing the difficulties of trying cases involving complex accounting issues.  The mistrial also appears to be a signal regarding jurors’ willingness to accept the “ignorance” defense.  Certainly, during Congressional hearings involving Enron the public seemed dissatisfied with the explanation from top executives that they did not know about significant accounting violations within their company.  The Cendant mistrial suggests that the public’s view on this issue has changed.  Forbes’ defense was that he was a visionary who left the details to others.  Thus, Forbes paid little attention to his company’s financial disclosures, or the specifics of deals he oversaw.  A mistrial based on these facts suggests a renewed tolerance for the “I didn’t know” defense.  And thus a positive development for Lay who has expressed a similar lack of knowledge.  It further suggests that the government’s strategy of getting financial experts to plead guilty and testify against their superiors may prove ineffective, perhaps because the obvious guilt of such experts lends credence to their superior’s claim of ignorance.

Enron | Bookmark

TrackBack URL for this entry:
https://www.typepad.com/services/trackback/6a00d8345157d569e200d8355cfe2a69e2

Links to weblogs that reference The Cendant Effect: