Grand Jury Implicates Former Rite Aid Execs

Discussion
Jun 24, 2002
George Anderson

The Wall Street Journal reports that a federal grand jury in Pennsylvania and the Securities and Exchange Commission charged three former Rite Aid Corp. executives with masterminding an illegal accounting scheme that triggered the largest corporate earnings restatement in U.S. history. The former leadership of the drugstore chain has acknowledged overstating its late 1990s net income by $1.6 billion.

Martin Grass, Rite Aid’s chief executive and chairman until October 1999, faces 36 charges ranging from accounting fraud and fabricating board minutes to lying to the SEC and tampering with a witness. The government says Mr. Grass inflated Rite Aid’s earnings in order to reap bonuses and other rewards tied to financial performance. The 47-year-old company founder’s son could face years in prison and millions of dollars in fines.

Thomas A. Marino, the Pennsylvania federal prosecutor in charge of the two-year-old criminal investigation, and the SEC, levied numerous accounting-fraud charges against Franklin Brown, 74, Rite Aid’s chief counsel until February 2000, and Franklyn Bergonzi, 57, Rite Aid’s chief financial officer until October 1999.

Lawyers for the three former executives plan to fight the charges.

Moderator Comment: What does the indictment of Martin
Grass and other former executives mean to Rite Aid?

Rite Aid can finally get running its business and not
have to dedicate needed resources to dealing with the SEC. On Friday, Rite Aid
filed a cease and desist order with the SEC ending the agency’s investigation
of former company executives related to accounting practices and financial reporting.
Under the settlement, Rite Aid neither admits nor denies the charges and that
it won’t have to pay any fines. The company’s stock price rose on Friday presumably
because the market was optimistic that Rite Aid could focus solely on the business
at hand. [George Anderson – Moderator]

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