Cramer on the Pain of Cendant

Spotting fraud. Let's just say I have thought about this concept a great deal since the Cendant massacre. I don't think it can be flushed out if the people involved are sophisticated actors who are given to lying. And I do take it as a given that people are not lying to me or defrauding me when I buy their stock.

But only cash doesn't lie.

Frankly, my problems with Cendant were always with CUC International (referred to as CU, because of its symbol at the time). Last year, my local elementary school was part of a test CU ran to see if elementary schools could raise PTO money through sales of CD-ROMs. My wife helped run the project. We sold a ton of Sierra Davidson CD-ROMs. Beats selling gift wrap or candy, believe me. (We know now that at least some of the sales from this company were real -- my daughter booked 'em!!!)

Soon after, I happened to pay a visit to CU headquarters. I met Walter Forbes, who struck me as an uptight guy who, nevertheless, was doing a good job. Had those white shirts with the monograms -- not my type, but I'm no Beau Brummel. I met the CFO, who is now at the heart of the sales chicanery issue. I told them about the pilot project and how my wife sold a lot of Sierra Davidson product. I asked if I could speak to someone while I was there, because I knew that we could have valuable input into the potential national rollout of this idea.

I did this not to have my ego stroked. "Oh, gee Jim, that's just great." I did this not to make a suck-up impression. Anybody who has seen me on CNBC or read my columns regularly knows my disdain for suck-ups and sucking up.

I did it because if this were Cisco, Chambers would be all ears. If this were Home Depot, Arthur Blank would want to know. If this were Hewlett-Packard, Platt would want facts and figures. Same with Dell, Sun Micro or a half-dozen other world-class companies that care about detail.

But these CU guys? They couldn't give a rat's behind. Forbes passed me to Cosmo Corigliano, who looked at me like I was an idiot. He downplayed the program itself. He made me feel like a moron. I was embarrassed that I brought it up. Red-faced in front of my fellow potential investors. I remember pretending to run to my cell phone like I had to make a call, but I couldn't even get a dial tone on the darn thing.

But did I reach the judgment that maybe this guy was a shyster? Nah. I mistook the impression he may have wanted to create to mean that maybe Cosmo was simply a tough businessman. Andy Grove wouldn't have given me the time of day, either, although both Barrett and Moore probably would have been solicitous.

But that judgment only reinforced my desire to get into Cendant, the company created when HFS merged with CU. Hmmm, I thought, can you imagine the only Web site that's making money, merged with all of those lists and telemarketers and products? Cendant will get a cut of every transaction anybody makes. And when Cosmo announced his resignation, I figured Silverman found out what I knew, that this guy was not a customer's guy like Henry, taking this company to the Promised Land. I bought aggressively when I heard that Cosmo was out, after the conference call where management assured us that this was a normal transition.

Wrong.

Cosmo and his colleague wouldn't give up the books. That's why they had to leave.

Now I am long Cendant still. You didn't get much of a chance to get out between that conference call and the fiasco. I believe that there will be more shoes to fall, but that the risk has been largely priced in, except for the dilution from this deal from hell that Cendant is now involved in.

I still believe in Silverman; however, I do wonder how he got fooled. But then my investors are wondering about how I got fooled. Am I a sharp guy or just some loudmouth pop-off? And Herb Greenberg is second-guessing that the scam could have been detected. Which makes me feel like even more of a chump.

The sting is still there. But the judgment, rendered by me, on the phone to Jeff Berkowitz from my vacation in Antigua, still stands. "Man, that's some powerful bad luck," I said. "That's the hurricane every insurer dreads. But it's the risk you take any time you put your faith in someone else."

Nuff said. I'm staying long, but I'm hurting.

Or, as my more dissembling colleagues in the money-management business would say, "Looks like I'm a little early on the Cendant move, but it's a terrific buying opportunity. Exactly what I was looking for."