Rite Aid Corp.’s former financial chief could face up to five years in prison after pleading guilty to conspiracy days before he was to go on trial with two other former executives for what prosecutors say was an attempt to defraud shareholders.
Franklyn Bergonzi, 57, the drugstore chain’s ex-CFO, pleaded guilty to one count after prosecutors agreed to dismiss 26 other counts if he continues to cooperate.
Prosecutors say Bergonzi and other top company executives falsified Rite Aid’s books to inflate the stock price, which eventually resulted in the company’s $1.6 billion restatement of earnings in July 2000.
Bergonzi had been scheduled to stand trial with Martin L. Grass, the son of the company founder and its former chief executive, and Franklin Brown, Rite Aid’s former chief counsel and vice chairman.
Bergonzi, who entered the guilty plea on Thursday in Harrisburg, agreed to share everything he knows about company operations. He must also testify against Grass and Brown if needed, said his attorney, William J. Fulton.
In addition to the potential jail time, Bergonzi could be fined $250,000 and forced to pay restitution as well as being placed on probation for three years, under terms of the plea bargain.
According to a statement provided by Bergonzi’s lawyers, he accepted blame for his role in Rite Aid’s accounting scandal.
“As CFO of Rite Aid, I should have served as gatekeeper on aggressive accounting. Instead, as the end of 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 expectations of Wall Street,” the statement read.
Another lawyer, Ira Raphaelson, said Bergonzi was “relieved” to have settled the charges and that painting his actions as overly aggressive was not an attempt to shift the blame.
Assistant U.S. Attorney Martin Carlson declined comment, except to say that Bergonzi’s sentencing will occur after the conclusion of the upcoming trial, which begins Monday.
The three men were named in a 37-count indictment issued in June 2002, along with a current executive, Eric S. Sorkin, who is to be tried separately. Sorkin is currently on unpaid administrative leave from Rite Aid.
When they were charged last summer, Brown and Grass both issued written statements denying any criminal wrongdoing.
Prosecutors say that most of the alleged crimes are related to the accounting irregularities that led Rite Aid, the nation’s third-largest drugstore chain, to restate its 1998 and 1999 earnings by $1.6 billion, which at the time was the largest restatement of earnings in U.S. history.
Bergonzi is the second top Rite Aid executive to plead guilty in the case. Timothy J. Noonan, who took over as interim CEO after Grass was forced out in 1999 and has since left the company, pleaded guilty in July 2002 to one felony count of withholding information from the company’s internal auditors. He is expected to testify against Grass and Brown.
Bergonzi originally was charged with conspiracy, fraud in the purchase or sale of securities, nine counts of lying to the SEC, 10 counts of mail fraud and six counts of wire fraud.
In addition to conspiracy to defraud and fraud involving the purchase or sale of securities, Grass and Brown are also accused of tampering with witnesses and obstructing various investigations. Bergonzi had not been charged with the alleged cover-up.