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Former Rite Aid Executive Pleads Guilty

Chief Financial Officer to Testify Against Others at Firm

Jun 6, 2003 | Washington Post

Former Rite Aid Corp. chief financial officer Franklyn M. Bergonzi yesterday pleaded guilty to conspiring with other top executives at the nation's third-largest drugstore chain to improperly boost earnings by more than $1 billion, a surprise move just five days before their accounting fraud trial was set to begin in Harrisburg, Pa.

Bergonzi, 57, told U.S. District Judge Sylvia H. Rambo that he deeply regretted his actions. He could be fined up to $250,000 and sentenced to as many as five years in prison. But he is expected to receive less prison time in exchange for cooperating with prosecutors and testifying against Martin L. Grass, Rite Aid's former chief executive, and Franklin C. Brown, its former chief legal counsel, according to lawyers involved in the case.

"I should have served as a gatekeeper on aggressive accounting," Bergonzi told the judge. "Instead, as fiscal year 1999 approached, I was aggressive and pressured others to be aggressive in finding earnings and omitting expenses in what was ultimately a failed effort to meet the earnings expectations of Wall Street."

Defense lawyers said they would ask the judge to postpone the trial, which was scheduled to begin Monday. All three men were indicted in July 2002 on conspiracy, wire fraud, false statements and other charges by prosecutors in the office of Thomas A. Marino, U.S. attorney for the Middle District of Pennsylvania.

The government had argued that Bergonzi, a corporate officer at Rite Aid since 1977, directed subordinates to tamper with financial statements by manipulating payments from suppliers and mishandling expenses for closing old drugstores, among other things. Rite Aid restated its earnings by a then-record $1.6 billion in 2000.

Ira H. Raphaelson, the lead defense lawyer for Bergonzi, said his client was relieved to be putting the matter behind him. Bergonzi has already given prosecutors a detailed briefing about the evidence he can provide, according to his 14-page plea agreement.

William H. Jeffress Jr., a lawyer for Grass, could not be reached for comment late yesterday. Reid H. Weingarten, a lawyer for Brown, said the plea "is not troubling for us because Mr. Brown did not have one thing to do with the accounting at Rite Aid."

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