in re: cendant corporation litigation 98-cv-1664-first...

y Case 2:98-cv-01664-WHW-RJH Document 421 Filed 12/15/1999 of 28

UNITED STATES DISTRICT COURT ^lFOR THE DISTRICT OF NEW JERSEY

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In re CENDANT CORPORATION Master File No- 98 -1664 (WHW)LITIGATION

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This document relates to Reliant Trading,et al. v. Cendant Corporation et al,,Case No. 99-C-0381 (E.D. Wisc.)

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FIRST AMENDED COMPLAINT

Michael H. SchaalmanPaul D. BauerQuarles & Brady LLP411 E. Wisconsin Ave.Milwaukee, WI 53202(414) 277-5000

Attorneys for PlaintiffsReliant Trading andShepherd Trading Limited

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Case 2:98-cv-01664-WHW-RJH Document 421 Filed 12/15/1999 of 28

The plaintiffs, Reliant Trading and Shepherd Trading Limited, by their attorneys, Quarles

Brady LLP, ]or their First Amended Complaint against the defendants allege as follows:

NATURE OF THE ACTION

1. This is an action for securities fraud. Based upon misstatements or omissions of

nnaterial facts by the defendants in public press releases and Securities and Exchange

Conunission filings, in April 1998 the plaintiffs converted certain 4 314% Convertible Senior

Notes originally issued by defendant HIa S Incorporated ("HFS") (the 11 4 3/4% Notes"), into

shares of common stock in defendant Cendant Corporation ("Cendant"), the successor-in-interest

to HF5_ Plaintiffs seek rescission of and damages resulting from this conversion.

JURISDJCTION AND VENUE

2. This Court has jurisdiction over the subject matter of this action under Section 22

of the Securities Act, 15 U.S.C. 77v, Section 27 of the Securities Exchange, 15 U.S.C. §78aa and

28 U.S.C. §1331. The claims alleged herein arise under Sections 10(b) and 20 of the Exchange

Act, 15 U.S.C. §78j and 78t; and Rule I IOb-5 promulgated thereunder, 17 C.F.R. §240. lOb-5.3.

3. Venue is proper in the Eastern District of Wisconsin because many of the acts

ci;raplained of, including the dissemination of false and misleading public statements and Sh("

filings, occurred here. In addition, in connection with the acts, conduct and other wrongs

complained of herein, defendants, directly and indirectly, used the means and instrumentalities of

interstate commerce and the United States mails, and the facilities of the national securities

inarkets.

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4, Plaintiff Reliant 'Trading is a general partnership formed under the laws of the

state of Wisconsin., with its principal place of business in Mequon, Wisconsin. Its primary

business is investing in securities and other financial instruments.

5. Plaintiff Shepherd Trading Limited is a corporation incorporated under the laws

of the British Virgin Islands. The primary business of Shepherd is investing in securities and

ether financial instruments. The plaintiffs will be referred to collectively herein as "the Reliant

Plaintiffs."

6. Defendant Cendant is a corporation organized and existing under the laws of

Delaware, with its principal executive offices at 9 West 57" Street, New York, New York, 100

19. Cendant's stock is actively traded in the United States on the NYSE, an open and highly

efficient market, under the Symbol "CD." Cendant was formed on December 17, 1997 by the

merger of CUC Tnternalional, Tne. ("CUC"), and HFS, inc. ("HFS"). CUC, prior to its merger

with HFS and its change of name to Cendant, was a publicly traded Delaware corporation

engaged in a wide variety of businesses, including, among other things, offering consumer

software and discount programs on a wide variety of consumer products and services. HFS, prior

to its merger with CUC and its change of name to Cendant, was a publicly traded Delaware

corporation engaged in the bL1S1ness of hotels and real estate brokerage as well as the rental car

business. Under the terms of the merger between CUC; and HFS, I IFS shareholders received

2.4031 shares of Cendant (CUC) common stock for each share of HI S S stock. Similarly,14FS

noteholders became noteholders of Cendant.

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T Defendants IIeiuy R. Silverman, Michael P. Monaco, James F. Buckman, Scott E.

Forbes, and Stephen P_ Holmes ("the HFS Defendants") were officers and/or directors of IIFS

and, later, Cendant, during the time period relevant to this action.

8, Defendants Walter A. Forbes, Christopher K. McLeod, and E. Dirk Shelton, ("the

CUC Defendants") were officers and/or directors of CUC and, later, Cendant, during the time

period relevant to this action.

9. By reason of'their positions of control as senior executives and directors of

Cendant, and by virtue of their culpable participation in the fraudulent activities described herein,

the following named "Control Person Defendants" were able to and did, directly or indirectly,

control the contents, timing and issuance of statements and press releases to the public and to the

investment community during the time period relevant to this action: Henry R. Silverman,

Michael P. Monaco, Scott E. Forbes, Stephen P. Holmes, James E. Buckman, Walter A. Forbes,

Christopher K. McLeod, and E. Kirk Shelton. The Control Person Defendants had access to

and/or had actual knowledge of material facts about the Company and had a duty to disseminate

only truthful and accurate information to the public and to the investment community, and to

promptly correct materially false and misleading statements disseminated by Cendant so that the

price of its stock would be based oar accurate and complete information. Accordingly, these

Control Person Defendants are controlling persons within the meaning of Section 20 of the

Exchange Act.

NO SAFE HARBOR

10. The statutory safe harbor provided for forward-looking statements under certain

circumstances does not apply to any ofthe allegedly false statements plead in this complaint.

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The statements alleged to be false and misleading herein all related to existing facts and

conditions, in addition, to the extent certain of the statements alleged to be false may bo

characterized as forward-looking, they were not identified as "forward-looking statements" when

made, there was no statement made with respect to any of those representations forming the basis

of this complaint that actual results "could differ materially from those projected," and there were

no meaningful cautionary statements identifying important factors that could cause actual results

to differ materially from those in the purportedly forward-looking statements. Alternatively, to

the extent that the statutory safe harbor does apply to any forward-looking statements pleaded

herein, defendants are liable for those false forward-looking statements because at the time each

of those forward-looking statements was made, the particular speaker had actual knowledge that

the particular forward-looking statement was false, and/or the forward-looking statement was

authorized and/or approved by an executive officer of Cendant who knew that those statements

were false when made.

FACTUAL ALLEGATIONS

The 4 3/4% J4FS Notes

H.. The Reliant Plaintiffs were holders of certain 4 3/4% Convertible Senior NvtCS

due 2003 issued by HFS pursuant to an Indenture dated February 28, 1996, Supplemental

Indenture No. 1 dated February 28, 1996 and Supplemental Indenture No. 2, dated December 17,

1997 (collectively, the "Indenture").

12. On or about December 17,1997, HFS merged into C.UC. C1UC, the surviving

corporation, renamed itself C:`endant Corporation. The terms of the Indenture survived the

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merger, with the holders of the 4 3/4% dotes having the right to convert into Cendant common

stock.

The False and Misleading Statements

13. In connection with the CUC and HFS merger, officers and directors of HFS,

including its chairman and CEO, defendant Henry Silverman, and its chief financial officer,

Michael Monaco, stated publicly on numerous occasions that they had performed due diligence

with regard to CUC. These statements, including statements by Monaco to the effect that HFS

customarily sampled a target company's journal entries to determine the significance of

adjustments made to the targets books and records, made to and published in the magazine CFO

in September 1997, were ii-►tentionally false and misleading, as the subsequent report of

Cendant's Audit Committee revealed that HFS was denied access to the usual level of accounting

detail with which it conducted its due diligence with regard to corporate purchases/mergers prior

to the CUC merger. These statements were also reckless insofar as they ignored red flags with

regard to the checkered history of CUC's accounting practices, including the fact that CUC had

been forced to restate its earnings downward in 1989; had been compelled by the SEC to amend

its 1991 financial statements six times; had been criticized in1994 by the Center for )Financial

Research and Analysis for overstating its earnings, and, at the time of the merger, had only a.

"BBB" debt rating. These statements were also reckless insofar as they omitted the fact the

CUC had refined to share nonpublic data with HFS prior to the merger and IiFS instead was

forced to rely solely upon public information audited by Frnst & Young, C:UC"s auditor.

14. In further connection with the CUC. and HFS merger, a Form S-4 registration

statement containing a prospectus and proxy statement (the "Proxy Materials") was disseminated

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by, among others, HFS and CUC, on or about August 28, 1997. The Proxy Materials

incorporated by reference, inter alia, previously filed Form I OQ quarterly reports filed by CUC:

for the year 1997 (the "CUC IOQs"). These CUC: l OQs were false and misleading because they

did not accurately report CUC's earnings nor disclose that the reported financial results did not

comply with generally accepted accounting principles ("GAAP"), and instead falsely reported

that all necessary adjustments to earnings had been made. This Form S-4 also reiterated HFS'

assurances that it had performed adequate due diligence with regard to the CUC merger.

I5_ On February 4, 1998 Cendant, for the year ended December 31, 1997, issued a

public statement and press release reporting fully diluted earnings per share of $ 1,00, a 49

percent increase over the $.67 earnings per share reported for 1996, excluding one-time charges

related to the merger in 1997. Revenues were reported to have increased 36 percent to $53

billion as compared to $3.9 billion for the year ended December 31, 1996. Again, these reports

of Cendant's earnings were false and misleading because they did not accurately report CUC's

earnings nor disclose that the reported financial results for CUC did not comply with generally

accepted accounting principles ("GAAP"). In fact, CUC's accountauits, Ernst &Young, had

informed Cendant's audit committee on l^cbruary 3,1998, the day before the press release, that

CUC's income for January 1997 alone had been overstated by $23 million. This correction was

not included in the figures announced on February 4; to the contrary, defendant Walter Forbes

further stated at this time that he and defendant Henry Silverman, the former chairman and CEO

of HFS, had through their companies merger "created one of the most dynamic growth

companies in the world."

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16. The financial information contained in the February 4 press release was repealed

in Cendant's Form 10-. for the year ended December 31, 1997, ("the 1997 10-"), which was

filed on March 31, 1998, Again, the financial results reported in the 1997 10-K were false and

misleading because the document did not accurately report Cendant's earrings, and defendants

failed to disclose that CUC's reported financial results did not comply with generally accepted

accounting principles ("GAAP"). Nevertheless, all of the IIFS Defendants and CiJC Defendants,

now officers and/or directors of Cendant, signed the March 31, 1998 1 O-K report.

17. Confirmation that the statements and financial results described above were false

and misleading came on April 15, 1998, when Cendant publicly announced that its annual

income and earnings per share had been overstated due to "accounting irregularities engaged in

by CIJC prior to the merger" and that it expected to restate annual and gUarterly net income and

earnings per share for 1997 and might restate certain other previous periods related to the former

CUC businesses. Moreover, defendants admitted that 1998 financial results would also be

adversely impacted by accounting irregularities that had characterized CITC's and Cendant's

financial reporting practices.

18. At the tin-ke of the February 4, 1998 press release and the March 31, 1998 filing of

the 1997 10-K, the defendants knew, or recklessly disregarded, the fact that Cendant's financial

statements were materially false and nmisleading and were presented in a manner that violated the

principles of fair financial reporting and GAAP.

19. On September 29, 1995 the Company filed an amended 10-K for the year ended

1397 (the "Amended 10-")_ The Amended 10-K disclosed that the 1997 net revenues of $5.314

billion had been reduced by $1.074 billion, including a reduction of $432 million to account for

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the errors, irregularities and accounting changes. Previously reported net income of $55.4

million had been reduced by $272 million., resulting in a $217 million loss for the yearl997. In

totai, for the three year period 1995 through 1997, CUC's earnings had been overstated by

approximately $500 million.

The Reliant Plaintiffs Exercise Their Conversion )flightsRased on The False And Misleading Statements

20_ Pursuant to the teens of the Indenture, the 4 3/4% Notes were convertible at the

option of the holder at any time prior to maturity at a price of 103.393% of the principal amount

of the Note, which was equivalent to a conversion price of approximately $27.76 per share of

Cendant common stock.

21. The 4 3/4% Notes were redeemable at the conversion price at the option of the

Company at any time after March 3, 1998 provided that the closing price of the Company's

common stock exceeded $38.86 per share for twenty days within a period of thirty consecutive

trading days prior to the notice of redemption.

22. Notwithstanding that the price of the common stack of Cendant had closed above

$38.86 for the required period only because such price had been artificially inflated as the result

of the false and misleading statements or omissions ofmaterial fact described above, on April 3,

1998, the Company announced its intention to redeem the 4 3/4% Notes together with interest

accrued to the redemption date at a price of 103.393% of the principal amount of the Note. After

this announcement holders had the choice of redeeming the 4 314% Notes or converting the

4 3/4% Notes into, shares of common stock of Cendant at a conversion price of approximately

$27.76 per share.

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23. On or about April 6, 1998, Plaintiff Reliant Trading converted $9,441,000

principal face value of the 4 314% Notes into 340,140 shares of Cendant common stock at a price

of approximately $27.76 per sliare. The same day, Plaintiff Shepherd Trading Limited converted

$9,440,000 principal face value ofthe 4 3/4% Notes into 340,104 shares of Cendant common

stock at the same price per share.

24. At the time of the conversions by the Reliant Plaintiffs the market price of the

Cendant stock was approximately $40 per share. Thus, the market value of the more than

680,000 Cendant shares the Reliant Plaintiffs had obtained through the conversion of their notes

was more than $27 million prior to the disclosure of the CUC accounting fraud.

25. Plaintiffs converted the 4 314% Notes, thereby in effect purchasing the underlying

shares, in reliance on the false and misleading material statements contained in the Proxy

Materials, the February 4, 1998 press release and the 1997 10-K, filed March 31, 1998, as well as

other public statements during the relevant time period prior to the conversion by HFS, CUC and

Cendant officers and directors referring to the falsified CUC earnings figures, all of said

statements being immediately digested by the open and efficient market for Cendant securities

and reflected in the price of Cendant shares. whiQh was fhemby. artificially inflated.

26. Subsequent to the April 15, 1998 announcement of the CUC accounting fraud, the

market price of Cendant's common stock declined by more than $20 per share.

27. On or about May 1, 1998, the Reliant Plaintiffs attempted to rescind the

conversion of the 4 314% Notes and demanded return of the 4 314% Notes or their cash value.

Cendant refused_

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28, On May 4, 1998, Cendant redeerned the unconverted 4 314% Notes retained by

other HFS noteholders at a price of 103,393% of their principal value plus accrued interest.

The HFS Defendants and CUC DefendantsWere Aware of the False and Misleading StatementsRegarding CUC's Earnings at the Time ofThe Reliant Plaintiffs' Conversion

29, Defendant Henry R.. Silverman was aware of the false and misleading statements

regarding CUC's earnings prior to Cendant's April 3, 1998 notice of redemption of the I-IFS

notes, and had a motive to conceal the fraud, based on the following:

a. As chairman and chief executive officer of I1FS prior to its merger with

CUC, Silverman was in a position to learn and did learn material adverse information regarding

CUC, including the red flags detailed above in paragraph 13. Silverman ignored these red flags

in part because he had received a special compensation package in 1997, including substantial

stock options, which were directly tied to the merger coming to fruition.

b. As chief executive officer of Cendant after the merger, Silverman was in a

position to know and did know that CUC's prior year's earnings reports were fraudulent by no

later than February 3, 1998, when Emst & Young reported that CUC's January 1997 income had

been substantially overstated. In addition, in January 1998 Cendaint, Silverman replaced Ernst

Young with HFS' accountant, Deloitte &, Touche, and demanded detailed monthly financial

reports from former CUC operations, strongly suggesting that at that time he already had

suspicions with regard to CUC's earnings reports.

C. On Febmary 5 and b, 1998, only days after learning that CUC's January

1997 earnings had been overstated, Silverman sold 1.7 million shares of Cendant stock for

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$61.42 million, the tuning of these sales strongly suggesting that Silverman knew at that time of

serious problems with CUC's accounting practices.

d. iii early March 1998, Silverman demanded that Anne Pember, the former

CUC controller, be removed from responsibility for preparing the Cendant 1997 10-K, due to be

filed on March 31, 1998_

e. In early March 1998, Silverman, along with the other HFS Defendants

who were members of the Cendant management, lnet several times to discuss the accounting

irregularities discovered at the former CUC, including but not limited to CUC's use of merger

reserves to inflate its operating income for 1997.

f Tn late March 1998, Silverman demanded that E. Kirk Shelton, the former

President. of CUC and then current vice chairman of Cendant, and Cosmo Congliano, the former

chief financial officer of CUC, be fired. Shelton, Corigiiano and Pember all tendered their

resignations in early April 1998,

30, Defendant Michael P. Monaco was aware of the false and misleading statements

regarding OX's earnings prior to Cendant's April 3, 1998 notice of redemption of the 14FS

motes, and had a motive to conceal the fraud, based on the following:

a. As chief financial officer of HFS prior to its merger with CUC, Monaco

was in a position to learn and did learn material adverse information regarding CUC, including

the red flags detailed above in paragraph 13. Monaco ignored these red llap in part because he

had received a special compensation }package in 1997, including substantial stock options, which

were directly tied to the merger coming to fruition.

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b. As chief financial officer and vice chairman of Cendant abler the merger,

Monaco was in a positions to know and did know that CUC's prior year's earnings reports were

fraudulent by no later. than February 3, 1998, when Ernst & Young reported that CUC's January

1997 income had been substantially overstated.

c_ In early March 1998, Monaco, along with the other HFS Defendants who

were members of'the Cendant management, met several tunes to discuss the accounting

irregularities discovered at the former CUC, including but not Limited to CUC's use of merger

reserves to inflate its operating income in 1997.

31. Defendant James E. Buckman was aware of the false and misleading statements

regarding CUC's earnings prior to Cendant's April 3, 1998 notice of redemption of the HFS


a. As general counsel of HFS prior to its merger with CUC, Buckman was in

a position to learn and did learn material adverse information regarding CUC, including the red

flags detailed above in paragraph 13. Buckman ignored these red flags in park because he had

received a special compensation package in 1997, including substantial stock options, which

were directly tied to the merger coming to i`ruitior.

b. As senior executive vice president and general counsel of Cendant after

the merger, Buckman was in'a position to know and did know that CUC's prior year's earnings

reports were fraudulent by no later than February 3, 1995, when Ernst & Young reported that

CUC's .January 1997 incense had been substantially overstated.

C. On February 6, 1498, ,vhile in possession .il'this material adverse

information regarding CIT's fi-audulent earnings reports, Buckman sold 300,000 shares of

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Cendant stock for $10.8 million, the timing of this sale strongly suggesting that Buckman knew

at that time of serious problems with CUC's accounting practices_

d. In early March 1998, Buckman, along with the other IIFS Defendants who

were members of the Cendant management, met several times to discuss the accounting

irregularities discovered at the former C:UC, including but not limited to CUC's use of merger


32. Defendant Scott E. Forbes was aware of the false and misleading statements

regarding CUC's earnings prior to Cendant's April 3, 1998 notice of'redemption of the 11FS


a. As senior vice president for finance of I-IFS prior to its merger with CUC,

Scott Forbes was in a position to learn and did learn material adverse information regarding

CUC, including the red flags detailed above W paragraph 13.

b. As chief accounting officer of Cendant after the merger, Scott Forbes was

in a position to know and did know that CUC's prior year's earnings reports were fraudulent by

no later than February 3, 1998, when Ernst & Young reported that CUC's January 1997 income

had been substantially overstated.

C. In early March 1998, along with the other HFS Defendants who were

members of the Cendant management, Scott Forbes met several times to discuss the accounting



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33, Defendant Stephen P. Holmes was aware of'the false and misleading statements


notes, and had a motive to conceal the fraud, based on the following,

a. As a senior executive and director of HFS prior to its merger- with CUC,

Holmes was in a position to learn and did learn material adverse information regarding CUC,

including the red flags detailed above in paragraph 13. Holmes ignored these red flags in part

because he had received a special compensation package in 1997, including substantial stock

options, which were directly tied to the merger coming to fruition.

b. As a senior executive and director of C:endant after the merger, Holmes

was in a position to Know and did know that CUC's prior year's earnings reports were fraudulent

by no later (ban February 3, 1998, when Ernst & Young, reported that CUC's January 1997

income had been substantially overstated.

C. In early March 1998, Holmes, along with the other ITS Defendants who

were members of the Cendant management, met several times to discuss the accounting



34. Defendant Walter A. Forbes was aware of the false and misleading statements



a. As chairman and chief executive officer of CUC prior to its merger with

HFS, Walter Forbes waOn a position to know and did know that the earnings reported for CUC

during the periods of 1995 through 1997 were fraudulently inflated. In fact, Walter Forbes


regularly received CUO annual budgets, reporting, packages and projection schedules, some of

the very documents used to effectuate the fraud, but took no steps to correct the improper

accounting practices, Walter Forbes had a motive to conceal this fraud because he had received a

special compensation package, including substantial stock options, which was contingent upon

the merger coming to fruition.

b. On December 28, 1997, while in possession of material adverse

information regarding CUC's accounting irregularities and only 10 days after the merger with

HFS, Walter Forbes sold more than 75,000 shares of Cendant stock for $2.36 million, the timing

of this sale strongly suggesting that he knew at that time that CUC's accounting fraud would be

revealed.

C, In early March 1998, while in possession of material. adverse information

regarding CUC's accounting irregularities, and immediately after CUC's accounting

irregularities, including its use of merger reserves to inflate operating income, had been

discovered by the former HFS officers who were currently at the helm of Cenddnt, Walter Forbes

sold another 300,000 shares of Cendant stock for over 11 million. The timing of this sale

strongly suggests that Forbes knew at thii tii„o that Ct_C ; fraudulent accounting practices were

going to be shortly revealed-

d- Zn July 1998, Forbes, along with the entire slate of former CUC directors

then members of Cendant's board, resigned.

35. Defendant Christopher K. McLeod was aware of the false and misleading

statements regarding CUC's earnings prior to Cendanl's April 3, 1998 notice of redemption of the

14FS notes, and had a motive to conceal the fraud, based on the following:

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a. As an Executive Vice President and director of CUC, and as President of

the Comp-U-Card division where many of the accounting irregularities . occurred, McLeod was in

a position to know and did know that CUC's earnings reports were fraudulently inflated prior to

the merger with HFS. In fact, McLeod regularly received CUC's annual budgets, reporting

packages and projection schedules, some of the very documents used to effectuate the fraud, but

took no steps to correct the improper accounting practices. McLeod had a motive to conceal this

fraud because he had received a special compensation package, including stock options, which

was contingent upon the merger coming to fruition.

h. On December 18, 1997, while in possession of the material adverse

information regarding CUC's accounting practices, and only a day after its merger with HFS,

McLeod sold more than 62,000 shares of Cendant for nearly 2 million, the timing of this sale

strongly suggesting that McLeod knew at that time that C[JC's accounting fraud would be

revealed.

36. Defendant L. Kirk Shelton was aware of the false and misleading statements


notes, and had a mo.i : ,e to conceal the fraud, based on the following:

a. As President and chief operating officer of CUC, Shelton was in a position

to know and did know that CUC's eamings reports were fraudulently inflated prior to the merger

with HFS. In fact, Shelton regularly met with Anne Pember, CUC's controller, and Cosmo

Corigliano, CUC's chief financial officer, to discuss and effectuate the accounting practices that

constituted the fraud_ Shelton had a motive to conecai this fraud because he had received a

QAMKR\447 1 -17-


special compensation package, including stock options, which was contingent upon the merger

coming to fruition; as well as to avoid criminal prosecution.

b, Jn early April 1998, Shelton tendered his resignation upon demand by

Henry Silverman, Cendant's CEO. Ju .August 1998, the C:endant board of directors retroactively

determined that Shelton had been terminated for cause.

COUNTFOR VIOLATIONS OF SECTIONS 10(b)

OF THE EXCHANGE ACT AND RULE 10b-5 (Against Cendant, the HFS Defendants, and the CUC defendants)

37. Plaintiffs incorporate paragraphs 1 through 36 as if fully set forth herein.

38. As detailed above in paragraphs 29 through 36, the defendants had actual

knowledge of the misrepresentations and omissions of material facts 'set forth herein, or acted

with reckless disregard for the truth in that they failed to ascertain and to disclose such facts,

even though such facts were available to them. Such material misrepresentations and/or

omissions were made knowingly or recklessly and for the purpose and effect of concealing

CUC's and Cendant's true financial condition from the investing public and supporting the

anti icially inflated price of their respective stocks. As demonstrated by the defendants'

overstatements and misstatements of CUC's operations and earnings, the defendants, if they

did not have actual knowledge of the misrepresentations and omissions alleged, were reckless in

failing to obtain such knowledge by deliberately refraining from taking those steps necessary to

discover whether those statements were false and misleading.

39. ' ; a direct and proximate result of defendants' wrongful conduct, the Reliant

Plaintiffs suffered substantial damages in an amount to be determined at trial when they


converted the 4 3/4% Notes into Cendant Common Stock, which 4 3/4% Notes were thereby in

effect purchased at a time when the underlying stock was trading at an artificially inflated price.

40. Had the Reliant Plaintiffs known of the material adverse informatiorl not disclosed

by defendants, or been aware of the tnzth behind defendants' material misstatements, they woald

not have exercised their right to convert the 4 314% Notes into Cendant Common Stock.

41. This action is brought within three years after the securities at issue were

purchased and within one year after the discovery of the untrue statements and omissions or after

such discovery should have been made by the exercise of reasonable diligence.

42. By virtue of the foregoing, defendants have violated Section 10(b) of the

Exchange Act and Rule I Ob-5 promulgated thereunder and are liable to the Reliant Plaintiffs.

C OUNT 11 VIOLATION OF SECTION 20 OF THE EXCHANGE ACT

(Against the Control Person Defendants)


44. The Control Person Defendants named above in paragraph 9 are or were control

persons of HF , CUC and/or Cendant, and were culpable participants in the fraud alleged herein

based upon the factual allegations detailed above in 1'a+_-agraphs '9 uLirough 36. The control

persons are therefore liable to the Reliant Plaintiffs for the Section I0(b) and Rule l Ob-5

violations alleged herein.

COUNT IIIBREAC14 OF CONTRACT

(Against Cendant)


46. Under the terms of the Indenture, the 4 314% Notes could only be called

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1 y. d

by the Company if the price of the Cendant shares exceeded $38.86 per share for a specified

period prior to the Notice of Redemption_

47. The Notice of Redemption, because it was issued at a time when Cendant's stock

traded at an artificially inflated levels as a result of the defendants' dissemination of false and

misleading material information, breached the tenors of the Indenture.

48. As a result of the foregoing, defendant Cendant is liable to the Reliant Plaintiffs

for breach of contract.

WHEREFORE, the Reliant Plaintiffs demand judgment as follows:

1. For rescission of the conversion of the 4 3/4% Notes into Cendant Stock, return of

the 4 3/4% Notes and all accrued interest thereon;

2. For damages in an amount to be determined at trial;

3. For its costs, including its reasonable attorney's fees; and

4_ For such other and further relief as the Court deems just and equitable.

Dated at Milwaukee, Wisconsin this 14th day of December,1999.

Respectfully submitted,

By.Michael H. SchaalmanPaul D, BauerQUARLES & BRADY LLP411 East Wisconsin AvenueMilwaukee, Wisconsin 53201Tel. No.: (414) 277-5000

Attorneys for 1laintiffsReliant Trading andShepherd Trading Limited

4dMF:\1475578.1 -20-


Direct Inquiries To: Michael H. Schaalman(414) 277-5325

kiMiCY:\AA7^^78. -21- .


UNITED STATES DISTRICT COURTFOR THE DISTRICT OF NEW JERSEY

x

In re CENDA.N`1' CORPORATION Master File No. 98-1664 (WHW)LITIGATION

x

This document relates to Reliant Trading,et al. v. C:endant Corporation et al.,Casc No. 99-C-0381 (E.D. Wisc)

x

CERTIFICATE OF SERVICE

Michael H. Schaal.TnanPaul D. BauerQuarles & Brady UY411 F,_ Wisconsin Ave.Milwaukee, WI 53202(414) 277-5000

Attorneys for PiaintiffsReliant "Trading andShepherd Trading Limited

QTiMK 84416121.1

Case 2:98-cv-01664- WHW-RJH Document 421 Filed 12/15/1999 of 28

I, Paul D. Bauer, hereby certify that I have caused true and correct copies of the following

documents to be served on all counsel of record identified on the attached Service List of

Counsel, this 14th day of December, 1999, via first class U.S. mail:

(1) Reliant Trading and Shepherd Trading Limited's First Amended Complaint; and

(2) Certificate of Service.

Paul D. Bauer

QBMkF.%4n76 3 21,1 -2-


SERVICE .LIST

(YE-COUNSEL December 14, 1999


Steven S. Radin, Esquire Greg A. Danilow, EsquireSills Cummis Zuckerman Radin Weil Gotshal & Manges LLPTischman Epstein & Gross 767 Fifth Avenue

One Riverfront Plaza New York, NY 10153Newark, NJ 07102-5400

Richard J. Schaeffer, Esquire Donald A. Robinson, EsquireDornbush Mensch Mandelstam Robinson Lapidus & Livelli& Schaeffer, LLP Two Penn Plaza Past, Suite 1100

747 Third Avenue, 11 t1 Floor Newark, NJ 07105-2237New York, NY 10017

Gary P. Naftalis, Esquire Samuel Kadet, EsquireAlan R. Friedman, Esquirre Skadden, Arps, Slate, MeagherFramer Levin Naftalis & Frankel & Flom LLP919 Third Avenue 919 Third AvenueNew York, NY 10022 New York, NY 10022

Herbert J. Stern, Esquire Lauren Rosenblum, EsquireStephen M. Greenberg, Esquire Jacob S, Pultman, EsquireStern & Greenberg Simpson Thacher & Bartlett75 Livingston Avenue 425 Lexington AvenueRoseland, NJ 07068 New York, NY 10017

Dennis J. Block, Esquire Dennis P. Orr, EsquireCadawalader, Wickersham & Taft Mayer, Brown & Platt100 Maiden Lane 1675 BroadwayNew York, NY 10038 New York, NY 10019-5820

Douglas S. Eakeley, Esquire Caryn L. Jacobs, EsquireLowenstein Sandler PC Mayer, Brown & Platt65 Livingston Avenue 190 South LaSalle StreetRoseland, NJ 07068-1701 Chicago, 1L 60603-3441

Robert G. Cohen, Esquire George S_ Yanl.witt, Esquire

William P. Hammer, Jr., Esquire James M_ Altman, Esquire

Ernst & Young LLP Robinson, Silverman, Pearce,

787 Seventh Avenue Aronsohn & Berman, LLP

New York, NY 10019 1290 Avenue of the Americas

New York, NY 10104


.r

William F. Maderer, Esquire Helen Gredd, EsquireSaiber Schlesinger Satz Daniel E. Reynolds, Esquire& Goldstein, LLC Lankler Siffert & Wohl LLP

One Gateway Center, 13" FL 500 Fifth AvenueNewark, NJ 07102-5311 New York, NY 10110

Thomas G. Griggs, Esquire Ronald L. Berenstain, EsquireEdwards & Caldwell Gretchen, Baumgardner, Esquire1600 Route 208 North Perkins Coie LLPHawthorne, NJ 07507 1201 Third Avenue, 40" Floor

Seattle, WA 98101

Daniel J. Beller, Esquire Anne M. Patterson, )3 squire

Paul, Weiss, Rifkind, Riker, Danzig, Scherer, HylandWharton & Garrison & Peretti LLP

1255 Avenue- of the Americas One Speedwell Avenue

New York, NY 10019 P.O. Box 1981Morristown, NJ 07962-1981

Max W. Berger, Esquire Charles H. LandesmanBernstein Litowitz Merger 360 Kearny Avenue

& Grossmann LLP Kearny, NJ 07032-26021285 Avenue of the AmerieasNew York, NY 10019

I. Walton Bader, Esquire James N. Benedict, Esq.Bader and Bader Rogers & Wells65 Court Street 200 Park AvenueWhite Plains, NY 10601 New York, NY 10166-0153

Robert J. Fettweis, Esquire Edward J. Dauber, Esq.Roth & Fettweis Greenberg Dauber Epstein & Tucker744 Broad Street One Gateway Center, Suite 600Newark, NJ 07012 Newark, NJ 07102-5311

Eric Tunis, Esq. James A. Plaisted, Esq.20 Northfield Avenue Walder Sondak & Brogan PAWest Orange, NJ 07052 5 Becker Farm Road

Roseland, NJ 07068


Henry D. Gradsteiii, Esq, Michael J. Pucillo, Esq.Joel M. Kozberg, Esq. Burt & Pucillo, IaI,PEileen M. Cohn, Esq, 515 North Flagler DriveGradstein, Luskin & Vain Dalsem, P.C. Suite 170112100 Wilshire Blvd., Suite 350

West Palm Beach, FL 33401Los Angeles, CA 90025-7103

Jan3es C. Gulotta, Jr., Esq. Margaret R. Haering, Esq.Stone, Pigrnan, 'Walther, Wittrnann Hurwitz & Sagarin, LLC& Mutchinson 147 North Broad Street

546 Carondelet Street Milford, CT 06460New Orleans, LA 70130

Gerald W. Palmer, Esq. George 'Vuoso, Esq.Jones, Day, Reavis & Pogue Gordon, Altlman, Butkowsky, Weitzen555 West Firth Street 114 West 47 1h Street

Suite 4600 20" Floor

Los Angeles, CA 90013 New York, NY 10036

RT-uce F, C;erstien, Esq. David M. Taus, Esq.Barry S_ Taus, Esq. Francis I Devito, P.A.Brett Cebulash, Esq. 661 Main StreetCarwin, Sronzaft, Gerstein & Fisher1501 Broadway, Suite 1416 Hackensack, NJ 07601New York, NY 10036

Elwood S. Simon, Esq. Charles W. Stotter, Esq.John P. Zuccarini, Esq. Budd, Larner, Gross, et alElwood S. Simon & Associates, P.C. 150 John F. Kennedy Parkway, CN 1000355 S. Woodward Avenue, Suite 250 Shorthills, NJ 07078-099Eii-nnnglfam, MI 43009

D_ Greg Durbin, Esq. James Moyle, Esq.McCormick Barstow Sheppard Wayte Rogers & Wells& Carruth LLP 200 Park Avenue

5 River Park Place East New York, NY 10166-0153P.O. Box 28912Fresno, CA 93720-1501

Leonard Barrac, Esq. Robert A. Hoffman, Esq.Barrack, Rodos & Baciae Barrack, Rodos & Racine3300 Two Commerce Square 14 Kings Highway West, 3" d Fl.2001 Market Street Haddonfield, NJ 08033Philadelphia, PA 19103


Seth R. Lesser, Esq. Bruce E. Gerstein, Esq.Bernstein Litowitz Berger Brett Cebulash, Esq.

& Grossman Garwin Bronzaft Gerstein

2050 Center Avenue, Suite 200 & Fisher, LLP

Foil Lee, New Jersey 07024 1501 Broadway, Suite 1416New York, NY 10036

David M. Taus, Esq. Joel M. LeiferFrancis J. Devito, P.A. 100 Park Avenue661 Main Street New York, NY 10017Hackensack, New Jersey 07601

Arthur N. Abbey, Esq. Allyn Z. Lite, Esq.Jill S. Abrams, Esq. Joseph 1. DePalma, Esq.Abbey Hardy & Squitieri, LLP Lite DePalma Greenberg & Rivas, LLC212 East 391h Street Two Gateway Center, 12" FloorNew York, NY 10016 Newark, NJ 07102-5003

Andrew Barroway, Esq. Jonathan J. Lerner, Esq,Schiffrin & Barroway, LLP Jerome S. Hirsch, Esq.Three Bala Plaza East - Suite 400 Skadden Arps Slate Meagher & Flom LLPBala Cybwyd, PA 19004 919 Third Avenue

New York, NY 10022

Lisa Cohen, Esq. Jonathan D. Thier, Esq,Schindler Cohen & Hochman, LLP Cahill Gordon & ReindelOne Liberty Plaza - 35' Floor 80 Dine StreetNew York, NY 10006-14-4 New York, ` NY ` I boo - i 7.02

Andrew R. Jacobs Esq. Laurence Greenwald, Esq.Michael E. Coslet, Esq. Stroock, Stroock & Lavan, LLPFitzaimmons Ringle & Jacobs, P.C. 180 Maiden Lane50 Park Place, 4" Floor New York, NY 10038Newark, NJ 07102

:lames G. Kreis5man, Esq.Simpson Thaeher & Bartlett3373 Hillview Avenue, Ste. 250Palto Alto, CA 94304

in re: cendant corporation litigation 98-cv-1664-first...

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