CalPERS and Cendant Shareholders Victorious Again; Former Cendant Auditor Ernst & Young To Pay $335 Million to Shareholders.

SACRAMENTO, Calif.--(BUSINESS WIRE)--Dec. 17, 1999--

The California Public Employees' Retirement System (CalPERS) today announced that Ernst & Young, L.L.P., has agreed to pay CalPERS and other shareholders $335 million to settle the securities class action lawsuit on behalf of Cendant Corporation shareholders.

The settlement -- one of the largest securities class action recoveries from an accounting firm raises the amount paid to Cendant shareholders to more than $3 billion. It was presented in New Jersey Federal District Court today.

"This settlement is significant not just for its size," said Charles P. Valdes, Chairman of CalPERS Investment Committee. "It sends a strong message that corporate responsibility goes beyond the corporation and extends to accounting firms upon whom pension funds and other investors rely in making investment decisions."

Ernst & Young served as the outside auditor for CUC, International Inc. from 1995-97 and for the CMS division of Cendant in 1997. The settlement stems from financial statement irregularities at CUC International and the CMS division of Cendant.

As outside auditor of CUC International, Ernst & Young provided "clean" audit and review letters in connection with three annual reports, seven quarterly reports and as many as twenty registration statements. Each of these documents have subsequently been found to include or incorporate grossly overstated financial statements. For example, in public statements issued from April to August 1998, Cendant admitted that its predecessor CUC's operating income was overstated by approximately $500 million -- more than one-third of its total reported operating income -- from 1995 to 1997. Cendant has also admitted that CUC International's quarterly operating income was inflated by $31 million in 1995, by $87 million in 1996 and by $176 million in 1997.

In the case that led to today's settlement agreement, CalPERS, and the New York State Common Retirement Fund and the New York City pension funds, alleged that Ernst & Young knowingly or recklessly misrepresented that its audits of CUC International were conducted according to proper auditing standards. It is alleged that Ernst & Young failed to review quarterly reporting packages of major CUC operating subsidiaries; failed to require sufficient back-up documentation for the substantial merger reserves taken and drawn by CUC in its financial statements and failed to review CUC's general ledgers and journal entry adjustments, through which a major portion of the fraud occurred.

The settlement successfully resolves all claims of shareholders against all defendants in the case. In addition to the December 7, 1999 agreement where Cendant will pay $2.83 billion in cash to settle all claims brought against the company and certain of its former and present officers, directors and affiliates, the company also agreed to pay shareholders half of any monies that it or its present officers and directors may recover from Ernst & Young.

In June 1998, CalPERS, together with the New York pension funds, filed a motion to be co-lead plaintiffs in a series of shareholder lawsuits against Cendant Corporation. The lawsuits, filed in the U.S. District Courts of New Jersey, Connecticut and Pennsylvania, alleged that Cendant issued false and misleading financial statements to the investing public about the company's income and earnings. The lawsuits further alleged that certain former officers and directors of the company sold or filed intentions to sell over 4 million shares of Cendant common stock preceding the announcement.

At the time of the filing, the pension funds estimated that they had lost approximately $89 million as a result of Cendant's alleged misstatements.

CalPERS and the New York funds also pursued claims in the action against Ernst & Young.

CalPERS is the nation's largest public pension fund with assets totaling more than $165 billion. The System provides retirement and health benefits to more than 1 million state and local public employees and their families. For further information about CalPERS, please visit the System's Web site at www.calpers.ca.gov.