In Newark, N.J., last week, three former financial executives at the franchising giant Cendant Corp., which also owns the Jackson Hewitt chain of tax shops, pleaded guilty to inflating revenues in a scam that cost investors $19 billion, involved more than $500 million in phony profits in just the last three years of the scam, and led to a $335 million settlement by Ernst & Young and record-breaking $2.38-billion settlement by Cendant with shareholders.

The three executives held top posts at CUC International of Stamford, Conn., which merged with HFS Inc. of Parsippany, N.J., to create New York-based Cendant in December 1997. In court last week, they said they were just doing their jobs. "It was a culture that had been developed over a period of years. It was ingrained in us by our superiors," said CUC's former chief financial officer Cosmo Corigliano, who joined the company in 1983 when he was 23 years old from the company's auditing firm, then Ernst & Whinney. "The activities had started about then," Corigliano said. "It was my job and everybody was encouraging me."

"Don't we call that 'cooking the books?'" U.S. District Judge William H. Walls asked Casper Sabatino, a CUC accountant. "Yes, sir," Sabatino replied. "Honestly, your honor, I thought I was doing my job."

Also pleading guilty was Anne Pember, CUC's former controller. They each face five years in jail.

With the guilty pleas, Cendant is amending its malpractice suit against Ernst & Young, alleging that the accounting firm's involvement must have gone deeper and lasted longer than at first suspected. Cendant said the fraud "could not have occurred without the gross negligence, if not more, of CUC's auditors."

A post-mortem by Arthur Andersen after the scandal broke described one meeting, for instance, in which Ernst auditors failed to get an explanation or documentation for $25 million in profits. The auditors decided it was immaterial, and moved on. Also, Ernst let CUC officials know which subsidiaries would be audited, so they could hide the most obvious frauds beforehand.

Ernst, of course, says the firm was played for a mark as much as the investors were. Maybe.

But one thing is certain: It took a lot of accountants, both inside the company and out, to run the fraud and clear the financials. Any one of them could have been a hero just by doing his or her real job.

Write Rick Telberg at information@smartpros.com

Read more of Rick Telberg's Insider columns