NEW YORK — A plea change by Rite Aid’s former chief financial officer has resulted in a delay in the start of the trial against former chief executive Martin Grass until June 23.
This story first appeared in the June 9, 2003 issue of WWD. Subscribe Today.
As reported, Grass, in a 37-count indictment handed down last June, was charged along with other former Rite Aid executives with masterminding an accounting fraud that overstated earnings by $1.6 billion.
The start of the trial in the government’s case against former vice chairman and general counsel Franklin Brown, arising from the same indictment, has also been delayed until June 23, according to his attorney, Reid Weingarten of Steptoe & Johnson in Washington, D.C. Both defendants pled not guilty last year. They were originally scheduled to appear in a Harrisburg, Pa., court for the start of the trial today.
Former cfo Frank Bergonzi, also indicted last June, changed his plea to guilty on Thursday, five days before jury selection was to start. He pled guilty to one conspiracy charge and agreed to cooperate with federal prosecutors in their ongoing investigation. Bergonzi faces up to five years in prison and a possible fine of up to $250,000. A sentencing date has yet to be scheduled. The former cfo reportedly has told prosecutors what evidence he could provide against Grass and Brown and is likely to get less prison time if he testifies against them.
Defense lawyers for Grass and Brown sought a delay of the trial in light of Bergonzi’s plea deal. William Jeffress Jr. of Baker Botts in Washington, who represents Grass, could not be reached for comment.
Rite Aid has been the subject of a Securities and Exchange Commission probe since December 1999. In July 2000, the Camp Hill, Pa.-based firm was forced to issue a $1.6 billion restatement of earnings, then the largest such revision in history. With its $9 billion earnings overstatement, WorldCom Inc. has since claimed that distinction as its own.
As reported, Grass, without admitting wrongdoing, in April agreed to pay $1.45 million to settle a civil shareholder lawsuit regarding financial information provided by the company over a 30-month period. Rite Aid, also a defendant, agreed to pay $200 million to settle the class-action lawsuit.
Earlier this month, a federal district court judge in Philadelphia approved a $125 million settlement by accounting firm KPMG, whose audits failed to catch Rite Aid’s financial misstatements. KPMG was neither charged with nor admitted to any wrongdoing.
Combined with the KPMG contribution to the Rite Aid and Grass settlements, investors of Rite Aid shares from May 2, 1997, through Nov. 10, 1999, could share in a $326 million pool to partially cover their losses.