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Rite Aid Exec To Plead

First CEO to admit cooking the books

Jun 17, 2003 | New York Daily News

Rite Aid scion Martin Grass is set to become today the first CEO to admit to criminal fraud since the wave of high-profile accounting scandals began rocking the markets more than two years ago.

Grass, son of Rite Aid founder Alex Grass, was indicted on 35 charges he helped mastermind a whopping $1.6 billion profit overstatement concocted to pump up shares in what was then the nation's No. 3 drugstore chain.

In a statement yesterday, U.S. Attorney Thomas Marino said Grass is scheduled to appear in a Harrisburg, Pa., federal court today to change his "not guilty" plea.

Prosecutors declined to say whether Grass, who left Rite Aid in 1999, would swap his original plea for "guilty" or "no contest." But experts said a no contest plea would be highly unusual.

"If the U.S. Attorney's office is announcing the change, they must have an agreement where he'll plead guilty to some number of charges and have the rest dropped," said Saul Cohen, a white-collar crime expert at Proskauer Rose.

"Assuming [Grass] pleads guilty to multiple counts, I would expect his sentence will be in excess of eight years," said Frank Razzano, a former assistant U.S. attorney now at Dickstein Shapiro Morin.

"The average man on the street is very upset with what went on during this latest round of scandals," Razzano said. "And the Justice Department wants to make sure the people who engaged in the misconduct are punished."

Grass, 49, staunchly maintained his innocence from his first indictment last June until this week, rejecting as baseless his 13 counts of lying to regulators, 10 counts of mail fraud, six counts of wire fraud and other charges including witness tampering.

His trial was set to begin earlier this month, but Rite Aid's ex-finance chief Franklyn Bergonzi entered a surprise guilty plea on a single conspiracy count June 5, agreeing to cooperate with prosecutors.

The plea was a blow to Grass' defense, as well as that of co-defendant and former Rite Aid general counsel Franklin Brown, and it pushed Grass' trial date out to this coming Monday.

Bergonzi's plea deal followed a guilty plea last July from Timothy Noonan, the successor to Grass as interim CEO. Noonan was expected to testify against Grass and had helped investigators make secret tape recordings of conversations with Grass and Brown.

Rite Aid stock, which reached a high of $51.13 while the company was inflating profits, closed up 41 cents to $4.43 yesterday.

Other high profile companies tarnished by accounting scandals include bankrupt energy trader Enron, bankrupt long-distance giant WorldCom, bankrupt cable provider Adelphia, HealthSouth and industrial conglomerate Tyco.

The former CEOs at Adelphia and Tyco have each been charged criminally and pleaded not guilty.

Ex-WorldCom CEO Bernie Ebbers, former Enron CEO Jeffrey Skilling and ousted HealthSouth CEO Richard Scrushy have not been charged

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