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Former CEO Grass to Admit Guilt in Rite Aid Fraud

Jun 17, 2003 | USA TODAY

In one of the largest corporate scandals before Enron, WorldCom and Tyco, former Rite Aid CEO Martin Grass is expected to plead guilty today to crimes related to the vast financial fraud at the nation's No. 3 drugstore retailer, a prosecutor said Monday.

Assistant U.S. Attorney Mark Carlson said Grass is expected to plead guilty this morning before U.S. District Judge Sylvia Rambo in Harrisburg, Pa. He would be one of the highest-ranking executives to enter a guilty plea in a high-profile corporate crime case.

Grass, 49, son of Rite Aid founder Alex Grass, was set to go to trial June 23 with other former Rite Aid executives. He had earlier pleaded not guilty to more than 30 counts of fraud, conspiracy and other charges.

Carlson would not say what charges Grass will admit to as part of his plea deal with the Justice Department Grass' lawyer, William Jeffress of law firm Baker Botts, could not be reached Monday for comment.

An indictment last summer accused Grass and other former Rite Aid executives of running an accounting scheme over several years to boost Rite Aid's financial statements and stock price.

The indictment alleged that Rite Aid's finances were ''a ruse and a mirage,'' and that Grass and former chief counsel Franklin Brown conspired to hide the fraud.

The questionable bookkeeping forced Rite Aid to restate in fiscal 2000 about $1.6 billion in profits one of the largest accounting restatements ever.

Last week, former chief financial officer Franklyn Bergonzi pleaded guilty to one count of conspiracy and agreed to cooperate with the government's investigation. Bergonzi admitted he had wrongly booked $76 million in rebates from drug manufacturers.

Prosecutors also are getting help from former Rite Aid president Timothy Noonan. Three years ago, he helped prosecutors gather evidence by wearing a body wire and secretly taping several conversations with former Rite Aid colleagues. He pleaded guilty last year to a count of withholding information from the company.

With the former executives helping prosecutors, the remaining defendants may face more pressure to strike plea deals with the Justice Department.

Rite Aid executive Eric Sorkin, who is being prosecuted separately on lesser charges, still plans to go to trial, says his attorney, John Carroll of law firm Clifford Chance.

Carroll would not comment on whether Sorkin is in plea talks with prosecutors. Rite Aid suspended Sorkin without pay.

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