The SEC is referring more accounting-fraud cases to federal prosecutors. Wrongdoers
could face stiff prison sentences--without parole.
, CFO Magazine
September 01, 2000
Cosmo Corigliano will likely wake up behind bars this month as a result of his role in
inflating the earnings of CUC International Inc.--misstatements that came to light after
CUC merged with HFS Inc. in 1997 to form Cendant Corp. The 40-year-old former CFO
pleaded guilty to two counts of fraud in June. Corigliano, who appears to be cooperating
with the government in its pursuit of his former boss, Walter Forbes, faces as much as a
10-year sentence without parole. And two of Corigliano's former colleagues, Anne
Pember, CUC's controller, and Casper Sabatino, the CUC accountant in charge of
external reporting, each pleaded guilty to one count of fraud and face 5-year sentences.
All three will find out their fate this month.
What's striking about the CUC fraud is not just that a former CFO will probably wind up
behind bars, but that it was the Securities and Exchange Commission that called in
criminal prosecutors--as the agency did in January 1999 in another case, involving
Canadian theatrical producer Livent Inc. Livent's former CFO, Maria Messina, is
awaiting sentencing after pleading guilty to one count of filing fraudulent financial
statements. According to the U.S. Attorney's Office, she could receive five years in
The SEC, it seems, is fed up with screaming headlines and crashing market caps caused
by earnings management that crosses over what chairman Arthur Levitt calls "the gray
area between legitimacy and outright fraud." In a speech last December to the American
Institute of Certified Public Accountants, Richard Walker, director of the SEC's Division
of Enforcement, warned, "We are moving toward turning the 'numbers game' into a game
of Monopoly--that is, you cook the books and you will go directly to jail without passing
That, say officials, means the SEC is referring more of its cases to the U.S. Attorney's
Office for criminal prosecution. "The amount of criminal referrals is up in general and
certainly up with regards to financial fraud and Internet fraud," says David M. Levine,
senior adviser to the director of enforcement at the SEC. "These are our two top priorities
now." Indeed, last May the SEC created a financial fraud task force, composed of 10
attorneys and three accountants.
Citing pressure to make numbers and keep analysts and shareholders happy is no defense
against individual criminal prosecution, warns Levine. "We are not a fan of the 'good
soldier' defense," he says. "Behind every fraud we believe there are one or more persons
calling the shots, and we try to ascribe individual liability." As proof, he notes that in 94
financial fraud cases brought last year by the SEC, only 3 did not name individuals.