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Bush joined board of company mired in trouble

By ALECIA SWASY and ROBERT TRIGAUX

© St. Petersburg Times, published September 20, 1998


Getting a director's post at Ideon Corp. seemed a no-lose opportunity to Jeb Bush.


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Bush joined board of company mired in trouble

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Ideon chief executive Paul Kahn was a Bush fan -- Kahn held a $24,000 fund-raiser at his Ponte Vedra oceanfront home, "Casa de Amigos," for Bush's 1994 campaign for governor. As former chief of Jacksonville's successful AT&T Universal Card Services, Kahn had won the prestigious Malcolm Baldrige award. Former President George Bush bestowed the prize for corporate excellence on Kahn in 1992.

Kahn in early 1995 even wrote the former president: "First let me tell you how happy we are to have your son, Jeb, on our board of directors. . . . He is a great asset to the team."

Then there was the paycheck. Ideon paid directors a whopping $50,000 a year, plus $2,000 per meeting and $500 per telephone conference. That was the largest sum paid to directors of any major public company in Jacksonville, and possibly in all of Florida.

What's not to like? Everything, it turns out. Ideon already was in trouble when Bush joined the board in January 1995.

By 1996, Kahn was out. Ideon was then sold to CUC International. Ideon's directors faced lawsuits claiming stock manipulation. Now, more than two years later, Cendant -- the successor company to CUC -- is struggling to recover after discovering years of accounting fraud attributed, in part, to CUC's purchase of Ideon.

Politically, the Ideon aftermath worries the Bush campaign. In fact, Bush assembled a 15-page Ideon statement and visited major Florida newspapers to defend his role.

Kahn at first had grandiose plans for a quirky array of new services -- selling credit card perks for golfers, a "Family Protection Network" membership club to help find missing children and a line of Vatican-approved art objects. The services were never fully tested. They flopped and Ideon began gushing red ink.

Some of Kahn's ideas were a stretch. He wanted the pope's blessing to introduce a Catholic credit card. He also wasted a lot of company funds. Kahn once bought $10,000 place mats for the company jet. He hired consultants like convicted Wall Street felon Martin Siegel.

Bush said he was angry when he heard about Siegel. "I couldn't believe it," he said.

Despite a second-quarter 1995 loss of $46.7-million, Bush said Ideon's board initially accepted Kahn's free-spending ways. The directors counted on revenue growth. They did demand Siegel be fired. Bush said he pushed to dismiss Kahn and sell the company.

But lawsuits against Ideon directors, as well as the company's own regulatory filings, paint a different picture. As directors, Bush and his Republican fund-raiser friend Thomas Petway sat on Ideon's audit committee, the watchdog of financial and management integrity. Many of Bush's fellow outside directors -- who were supposed to represent shareholder interests -- had cut cozy business deals with Ideon. In some cases, they got six-figure consulting fees on top of their directors pay.

Bush joined Ideon because he trusted Petway, whom he describes as "one of my better friends." Petway declined to comment.

Politically, Bush said, it would have been wise to quit the board. Instead, he felt obligated to stay and push for cutbacks, including reductions in directors' fees. Directors endorsed firing 75 employees in September 1995, but kept their $50,000 compensation. The directors did eventually vote to cut their fees in half.

On Feb. 6, 1996, Kahn was ousted with a $2.5-million severance package. In April 1996, Bush and the other directors voted to sell Ideon. Bush then resigned.

By August 1996, Ideon was sold for $375-million to CUC. The sale included indemnification for directors against lawsuits. Good news, considering the lawsuits charge Ideon and its directors with stock manipulation. The cases were settled early this year for $15-million. Bush and the other directors paid nothing.

Kahn denied that board members were in the dark about company spending. "I was not alone," he told Business Week magazine last year. "The board knew about everything. . . . They set me up for being the fall guy, not that I'm without sin. I was hung out to dry."

Ideon is gone. But its legacy is not. After buying Ideon, CUC merged in 1997 with HFS to form Cendant. Mired in a massive accounting fraud, Cendant says CUC cooked its books for years to inflate its income. The Securities and Exchange Commission is investigating.

As for Ideon shareholders, Bush said they had a chance to recoup their losses, just like he did. His Ideon shares were converted to CUC stock, which he sold at a modest profit in 1997.

"Had people done what I did -- and I bought (Ideon) stock at the high -- had people sold at a reasonable time after the transaction, they would have come out," he said. "They would have gotten their shareholder value back."

 

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