Washington (June 24, 2002) -- The Securities and Exchange Commission filed accounting fraud charges against former senior executives of Rite Aid Corp., alleging that the drug store overstated its income by massive amounts in every quarter from May 1997 to May 1999.
The complaint, filed in federal court in Harrisburg, Penn., charges former chief executive Martin Grass, former chief financial officer Frank Bergonzi and former vice chairman Franklin Brown with conducting a wide-ranging accounting fraud scheme that ultimately forced the company to restate its pre-tax income by $2.3 billion and net income by $1.6 billion, the largest restatement ever recorded, the SEC said Friday.
The complaint also charged that Grass caused Rite Aid to fail to disclose several related-party transactions and that Grass fabricated Finance Committee minutes for a meeting that never occurred in connection with a corporate loan transaction. In addition to civil penalties against Grass, Bergonzi and Brown, the Commission wants the trio to return their annual bonuses and to bar them from serving as an officer or director of a public company.
"Rite Aid's former senior management employed an extensive bag of tricks to manipulate the company's reported earnings and defraud its investors," said Wayne M. Carlin, Regional Director of the Commission's Northeast Regional Office. "The Commission's enforcement action, and the related criminal prosecutions demonstrate that there will be no refuge for corporate executives who commit this kind of wrongdoing."
The three men could face five to 10 years in jail, per charge, according to published reports.
Meanwhile, the Commission said it settled administrative cease-and-desist proceedings against Rite Aid and against Timothy Noonan, the company's former Chief Operating Officer. Under the agreements, neither the company nor Noonan admitted or denied guilt.
-- Electronic Accountant Newswire staff
