Ex-Rite Aid CEO agrees to eight-year prison sentence

Mark Scolforo

Tuesday, June 17, 2003 | 9:53 a.m.

HARRISBURG, Pa. -- Former Rite Aid Corp. chief executive Martin L. Grass told a judge today he has agreed to plead guilty to two counts of conspiracy in a deal that calls for an eight-year prison sentence.

Flanked by his attorneys, Grass appeared in federal court before U.S. District Judge Sylvia H. Rambo as prosecutors outlined a plea bargain that calls for him to plead guilty to one count of conspiracy to defraud Rite Aid and its shareholders and one count of conspiracy to obstruct justice. Remaining charges would be dismissed.

Grass, the son of the drug store chain's founder and its former chairman and CEO, was indicted by a federal grand jury a year ago this month along with two other former executives and one current employee of the Camp Hill-based pharmacy chain operator. He was to go on trial next week.

Grass agreed to an eight-year prison sentence, a fine of $500,200, and forfeiture of $3 million in connection with a real estate deal. He also promised to cooperate with the government and potentially testify against remaining defendants.

Rambo said she would take the deal under advisement pending a presentence investigation.

The plea makes Grass the second high-ranking Rite Aid executive to strike a deal with federal prosecutors in the past two weeks. Former company chief financial officer Franklyn M. Bergonzi pleaded guilty to one count of conspiracy on June 5 and agreed to cooperate with prosecutors.

If accepted by the judge, Grass' plea will leave Rite Aid's former vice chairman and chief counsel, Franklin C. Brown, to stand trial alone in federal court starting Monday. Brown faces the same charges as Grass faced: conspiracy, fraud in the purchase or sale of securities, conspiracy to obstruct justice, obstructing grand jury proceedings, obstructing proceedings of a government agency, witness tampering, 13 counts of lying to the SEC, 10 counts of mail fraud and six counts of wire fraud.

The fourth defendant, Eric S. Sorkin, Rite Aid's vice president for pharmacy purchasing, is expected be tried separately on charges of conspiracy to obstruct justice and lying to a grand jury.

Rite Aid's stock, which peaked at more than $50 a share in 1999, bounced up more than 10 percent Monday after news of a pending plea agreement. It was up another 21 cents at $4.64 in morning trading today on the New York Stock Exchange.

The indictments allege that the meteoric increase in Rite Aid's stock price under the Grass team's management in the late 1990s was accomplished by "massive accounting fraud, the deliberate falsification of financial statements, and intentionally false (Securities and Exchange Commission) filings."

In the wake of the scandal, Rite Aid was compelled to issue a $1.6 billion restatement of net earnings in July 2000. To turn the company around, the new management team has unloaded assets, closed hundreds of stores and restructured Rite Aid's once-crippling debt.

The court action has had no effect on the nation's third-largest drugstore chain, said Rite Aid spokeswoman Karen Rugen.

"We've been moving ahead now for the past four years," she said. "Martin Grass hasn't been here for four years."