Prison Terms Begin for 3 Ex-Rite Aid Executives | AccountingWEB

Prison Terms Begin for 3 Ex-Rite Aid Executives

Three former Rite Aid Corp. executives turned themselves in Monday to begin serving prison time for their part in an accounting scandal that involved overstating earnings by $1.6 billion in the late 1990s.

Former chief executive Martin L. Grass, 50, the son of the company’s founder who was forced out in October 1999, started serving eight years at the federal prison camp at the Eglin Air Force Base in Florida, the Associated Press reported. He pleaded guilty to conspiracy to defraud and conspiracy to obstruct justice.

David P. Novak, a former inmate at Eglin who is a consultant for people facing federal incarceration, told the Patriot-News of Harrisburg, Penn. that Eglin is part of a "bucolic setting" that is often referred to as "Club Fed."

But, Novak said, "Make no mistake, it is definitely a prison."

A spokesman for the Federal Bureau of Prisons said Eglin is a work camp where inmates are required to work 71/2 hours a day for 12 cents to 40 cents an hour. Work includes food service, sanitation jobs in the housing units and groundskeeping.

Also surrendering Monday was former chief financial officer Franklyn M. Bergonzi, 58, who will serve a 28-month sentence at the Allenwood federal prison camp in central Pennsylvania.

Philip D. Markovitz, 63, began serving a one-month term at the Cumberland County Prison in Carlisle Monday. Five more months of house arrest will follow. Markovitz, a former Rite Aid real-estate vice president, admitted to lying about when he received a fraudulently backdated severance letter from Grass.

Grass became the chairman and CEO of Rite Aid in March 1995, and he launched into quickly building the chain through purchases and construction of larger stores. The strategy was well-received and the stock price rose, but the company's underlying finances and infrastructure could not keep up with the growth.

Rite Aid announced in March 1999 that financial results for its fiscal fourth quarter would fall well below expectations. Stock prices plummeted, and Grass was eventually ousted.

As for other Rite Aid executives, Eric S. Sorkin, 55, former vice president for pharmacy purchasing, last week reported to a federal prison camp in Minersville for a five-month sentence for conspiracy to obstruct justice. He must also serve five months of house arrest.

Former Company President Timothy D. Noonan, 62, is on two years of probation after secretly recording conversations with other defendants. He pleaded guilty to concealing the crimes of others, but avoided jail time.

Awaiting sentencing is former vice chairman Franklin C. Brown, 76, convicted of 10 criminal charges in October.

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