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Cendant Seeks to Query SEC Chief Accountant

Preview / WEEK OF JULY 8-14

July 08, 2002|Bloomberg News

Cendant Corp. wants to question Securities and Exchange Commission Chief Accountant Robert Herdman to get information that supports the company's lawsuit against his former employer, Ernst & Young.

Cendant, the largest hotel franchiser, and former auditor Ernst sued each other over improper accounting that Cendant disclosed in April 1998, prompting a one-day, $14-billion drop in the stock.

Cendant later restated $500 million in revenue and paid $3.2 billion to settle shareholder suits.

Herdman, who as a vice chairman reviewed accounting decisions and auditors' financial ties with clients before joining the SEC in October, is awaiting a court-appointed official's ruling on whether he must answer Cendant's questions.

Herdman has knowledge of a 1998 internal probe by Ernst of Cendant's accounting and now faces a conflict of interest because the SEC is investigating, experts say. Ernst has argued in court papers that Herdman's duties at the SEC should preclude him from answering Cendant's questions about his 28 years at the accounting firm.

Robert Tarleton, a special master overseeing the case, held a telephone conference last week with lawyers and is expected to rule soon. He declined to comment, as did Herdman, Ernst & Young and Cendant spokesman Elliot Bloom.

SEC spokeswoman Christi Harlan said Herdman "was aware of the internal investigation" by Ernst. The Wall Street Journal last month reported Herdman participated in the Ernst probe.

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