Rite Aid Exec Cooked The Books

The former chief executive of Rite Aid Corp. admitted falsifying the books at the drugstore chain, becoming the first major CEO to plead guilty in an accounting-fraud case since the Enron scandal led to public outrage over white-collar crime.

Martin L. Grass, whose father founded Rite Aid, pleaded Tuesday guilty to conspiracy to defraud Rite Aid and its stockholders and conspiracy to obstruct justice.

Under the plea bargain, prosecutors will ask for an eight-year prison sentence and penalties totaling more than $3.5 million.

No sentencing date was set, and the deal is subject to approval by a federal judge.

Grass, 49, promised to cooperate with the government and testify against other defendants.

The Rite Aid probe began before the spate of business scandals involving such giants as Enron and WorldCom.

Prosecuted said the meteoric increase in Rite Aid's stock price under Grass' management in the late 1990s was accomplished through a huge accounting fraud and false filings with the Securities and Exchange Commission.

In the wake of the scandal, Rite Aid was forced to restate its earnings by $1.6 billion in July 2000.

Defense attorney William H. Jeffress Jr. said Grass never sold his shares as the stock price soared. "Nobody's ever accused Martin of lining his pockets at the expense of Rite Aid," Jeffress said.

Grass had no comment as he made his way into and out of the courthouse.

The plea makes Grass the second of the four high-ranking Rite Aid executives indicted last June to strike a deal with federal prosecutors. Two weeks ago, former chief financial officer Franklyn M. Bergonzi pleaded guilty to conspiracy and agreed to cooperate with prosecutors.

Grass' plea means Rite Aid's former vice chairman and chief counsel, Franklin C. Brown, will stand trial alone Monday.

Eric S. Sorkin, vice president for pharmacy purchasing, is expected be tried separately.

Rite Aid's stock, which peaked at more than $50 in 1999, was up 3 cents to $4.48 in late trading Tuesday on the New York Stock Exchange.

By Mark Scolforo