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Four Rite Aid Corp. executives indicted in plan to inflate prof
HARRISBURG, Pa. -- Three former Rite Aid Corp. executives were indicted Friday for allegedly falsifying the books in a scheme that inflated the drugstore chain's profits by $1.6 billion and forced the biggest restatement of corporate earnings in U.S. history.
The federal indictment also accused a current executive at the nation's third-largest drugstore chain of lying to a grand jury.
Rite Aid, with 3,600 stores in 30 states and Washington, D.C., joins the list of big corporations to get into trouble recently because of their accounting practices.
"The charges announced today reveal a disturbing picture of dishonesty and misconduct at the highest level of a major corporation," said Wayne M. Carlin, Northeast regional director of the Securities and Exchange Commission. "Rite Aid's former senior management employed an extensive bag of tricks to manipulate the company's reported earnings and defraud its investors."
Martin L. Grass, 47, former chairman and chief executive; Franklin Brown, 74, former chief counsel and vice chairman; and Franklyn Bergonzi, 57, former chief financial officer, were charged with offenses including conspiracy to defraud and making false statements to the SEC.
Grass and Brown were also accused of tampering with witnesses and obstructing investigations.
Eric Sorkin, 53, executive vice president for pharmacy services, was charged with conspiracy to obstruct justice and making false statements.
A Rite Aid spokeswoman said Sorkin was immediately suspended Friday. The others left the company in 1999 and 2000.
In a statement, Grass said, "I did not knowingly engage in any illegal acts, and I intend vigorously to defend the charges."
Lawyers representing Brown said he denied wrongdoing and the indictment "grossly distorts events."
Calls to Bergonzi were not immediately returned. Sorkin hung up when reached at home.
The four are scheduled to appear July 16 in federal court in Harrisburg.
Timothy J. Noonan, Rite Aid's former president and chief operations officer, cooperated with investigators and will plead guilty to withholding information about the fraud from the company's internal investigators, authorities said. Noonan's cooperation was an important part of the investigation, government officials said.
Stock tumbled in 1999
Rite Aid, founded by Grass' father more than 40 years ago, has been trying to recover since the disclosure of accounting irregularities sent its stock tumbling from more than $50 at the beginning of 1999. It closed at $2.58 on Thursday.
The new management switched auditing firms in 2000 from KPMG to Deloitte & Touche, and Rite Aid's earnings were revised downward by $1.6 billion from 1997 to 1999 -- the biggest restatement ever by a public company.