Dose Of Indictments For Rite Aid Execs

A federal grand jury issued a 37-count indictment Friday against four former and present Rite Aid executives in what authorities described as a far-reaching securities and accounting fraud that prompted the largest restatement of corporate earnings in American history.

Two former executives at the nation's third-largest drugstore chain face the most serious charges, including conspiracy to defraud, making false statements to the Securities and Exchange Commission, tampering with witnesses and obstructing various investigations.

Those two executives were Martin L. Grass, 47, of Virginia Beach, Va., the former chairman and chief executive officer, and Franklin Brown, 74, of Harrisburg, the former chief counsel and vice chairman.

According to the SEC, Rite Aid inflated its pre-tax income by as much as 5,533 percent in the second quarter of 1999. Its total pre-tax income for fiscal year 1999 was reported as nearly $200 million, when the company actually lost $14.7 million.

The Commission also said Rite Aid cheated its vendors, "systematically" inflating the deductions it took from its payments for damaged and outdated products.

"For vendors who did not require the unusable products to be returned to them, Rite Aid applied an arbitrary multiplier to the proper deduction amount, which resulted in overcharging its vendors by amounts that ranged from 35 percent to 50 percent," the SEC said.

"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 SEC. "Rite Aid's former senior management employed an extensive bag of tricks to manipulate the company's reported earnings and defraud its investors."

Rite Aid has been trying to recover since the revelation of accounting irregularities sent its stock tumbling from more than $50 at the beginning of 1999. It closed at $2.58 Thursday.

The company's new management switched auditing firms in 2000 and revised earnings statements downward by more than $1 billion for fiscal 1998 and 1999.

In November 2000, Rite Aid agreed to pay $45 million in cash plus about $150 million in stock to its shareholders to settle a class-action suit accusing the drugstore chain of releasing misleading information that artificially inflated share value. A federal judge approved the deal last year.

Also charged were Franklyn Bergonzi, 57, of Hummelstown, a former executive vice president and chief financial officer, and Eric S. Sorkin, 53, of Mechanicsburg, executive vice president for pharmacy services.

Bergonzi is charged with conspiracy to defraud and making false statements to the SEC. Sorkin is charged with conspiracy to obstruct justice and making false statements to a grand jury.

Also Friday, Rite Aid announced that the SEC investigation into its financial reporting and accounting practices had ended without any fines being levied against the company.

The company said it cooperated fully with the investigation and that it has admitted to no wrongdoing.

"We are pleased to resolve the matters with the SEC," Bob Miller, the company's chairman and chief executive, said in a statement.

Since the restatement, the company has been hit with a number of official investigations and shareholder lawsuits.

Rite Aid said the revisions to its financial statements had addressed the SEC's concerns.