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| 2003
News and Press Releases |
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SETTLEMENT "OR" DISMISSAL:
Costs Of Rite Aid Scandal Huge, Still Being Calculated
By: Mark Scolforo The Associated Press
Chattanooga Times Free Press (Tennessee). June 21, 2003
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EXCERPT: In a few weeks, checks totaling nearly $140 million will be mailed out to thousands of current and former shareholders of scandal-damaged Rite Aid Corp. The payout, the first installment from the settlement of a 1999 class-action lawsuit, is just one measure of the costs of the accounting mess that resulted in the company's former chairman and chief executive officer, Martin L. Grass, pleading guilty to federal conspiracy charges Tuesday. In a recent Securities and Exchange Commission filing, Rite Aid said it $120 million -- so far -- on legal-defense fees for Grass and other indicted executives, to reconcile its books and records, restate 1998 and 1999 earnings and investigate prior bookkeeping practices. In the past three years, the company also has recorded $657 million in charges to close 300 underperforming stores as part of a restructuring that reversed Grass' ambitious expansion efforts, according to the SEC report. Thousands of employees have been put out of work, and the company has devoted considerable time and effort to mending fences with disaffected vendors. "Any time a company goes into crisis, those who deal with the company are impacted in a negative way," said Charles M. Elson, director of the Center for Corporate Governance at the University of Delaware. The Rite Aid case predated by two years the collapse of Enron Corp. and a wave of subsequent scandals that shook the business world and investors' confidence nationwide. Justice Department and SEC investigations still are gaining steam in some of those cases and investor lawsuits are in relatively early stages. While each case is distinct, a look at how the Rite Aid debacle has played out, and how extensive the corporate damage has been, offers some insight into how costly the alleged misdeeds at companies like Enron Corp., WorldCom Inc. and Adelphia Communications Corp. could turn out to be. Grass' proposed plea bargain calls for eight years in prison and $3.5 million in penalties. Former Chief Financial Officer Franklyn M. Bergonzi also pleaded guilty to conspiracy and faces a maximum five-year term and $250,000 fine. Since it began about four years ago, the investigation has required as many as four full-time FBI and SEC investigators to pore through a small mountain of accounting records and other evidence, said the lead prosecutor, Assistant U.S. Attorney Kim Douglas Daniel.
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