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Rite Aid's Former CEO Expected to Plead Guilty

Martin Grass is charged with inflating earnings to boost the drugstore chain's shares.

June 17, 2003|From Bloomberg News

Rite Aid Corp.'s former chief executive, Martin Grass, is expected to plead guilty today in federal court in Harrisburg, Pa., where he was scheduled to stand trial on accounting fraud charges, court records indicate.

Grass, 49, would be the first CEO to plead guilty in a major accounting fraud case since the collapse of Enron Corp. in 2001. Camp Hill, Pa.-based Rite Aid's former chief financial officer, Frank Bergonzi, and ex-President Timothy Noonan admitted their roles in the scheme to inflate earnings at the drugstore chain. Both are cooperating with federal prosecutors.

Grass, whose father founded Rite Aid in 1962, will change his earlier not-guilty plea, according to a filing by U.S. District Judge Sylvia Rambo. First Assistant U.S. Atty. Martin Carlson declined to say what charges Grass will admit in court or whether he is cooperating with prosecutors.

The expected plea is "a function of prosecutors ratcheting up the pressure," said Robert Mintz, a former federal prosecutor. "It's also a reflection of corporate defendants recognizing that the atmosphere for trying these cases is extremely hostile at this point."

Grass' attorneys, William H. Jeffress Jr. and Mary Spearing, did not return calls for comment.

Grass, Bergonzi and former chief counsel Franklin Brown were indicted last year on charges of conspiring to inflate earnings that helped boost Rite Aid's shares by 306% and resulted in a "massive accounting fraud," prosecutors said. Rite Aid subsequently restated $1.6 billion in net income.

Rite Aid, under new management since late 1999, hasn't fully recovered from its profit restatement -- the largest by a U.S. company until it was surpassed by that of WorldCom Inc.

On June 5, Bergonzi, 57, admitted the main conspiracy charge in a 37-count indictment returned in June 2002. Noonan, 61, admitted July 10 that he concealed the fraud from Rite Aid's investigators. Brown, 75, is scheduled to go to trial Monday, Carlson said. Brown's attorney, Reid Weingarten, didn't return a call seeking comment.

Rite Aid shares rose 41 cents to $4.43 on the New York Stock Exchange.

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