- The Washington Times - Friday, July 12, 2002

HARRISBURG, Pa. (AP) Former Rite Aid Corp. Chairman Martin L. Grass and three other one-time Rite Aid executives pleaded not guilty to federal criminal charges stemming from suspected accounting fraud.

Flanked by lawyers in a proceeding that lasted less than 30 minutes, the four men were required to surrender their passports before being released on their own recognizance. None commented about the case as, one by one, they left the federal building after being processed and fingerprinted.

The unraveling of the bookkeeping practice in 1999 sent Rite Aid's stock plummeting after peaking at more than $50 earlier that year and forced the nation's third-largest drugstore chain in July 2000 to increase its losses by $1.6 billion the largest restatement of corporate earnings in U.S. history at the time.

Mr. Grass, 47, of Virginia Beach, who was the company's chairman and chief executive officer; Franklin Brown, 74, of Harrisburg, Pa., former vice chairman and counsel; and Franklyn Bergonzi, 57, of Hummelstown, Pa., former executive vice president and chief financial officer, are the primary defendants.

Charges against the trio include conspiracy to defraud, fraud involving the purchase or sale of securities and making false statements to the Securities and Exchange Commission. Mr. Grass and Mr. Brown also are charged with tampering with witnesses and obstructing investigations.

Also arraigned yesterday was Eric S. Sorkin, 53, of Mechanicsburg, Pa., Rite Aid's executive vice president for pharmacy services, who was suspended last month after he was indicted on charges of conspiracy to obstruct justice and making false statements to a grand jury.

The judge advised the defendants of the penalties they may face. Most of the offenses carry a maximum of five years in prison and a $250,000 fine, but the securities-fraud charge is punishable by as long as 10 years behind bars and a $1 million fine.

U.S. District Judge Yvette Kane set a trial date of Sept. 9, though prosecutors said the date was likely to be pushed back to allow time for lawyers to spar over pretrial motions.

Mr. Grass, Mr. Brown and Mr. Bergonzi are accused of orchestrating a wide-ranging conspiracy to inflate Rite Aid's profits and understate its losses. Prosecutors say, for example, that numerous false entries were made in financial records filed with the SEC and that Rite Aid defrauded vendors of tens of millions of dollars by claiming bogus credits for damaged and outdated products.

In separate, civil lawsuits, the SEC is seeking penalties and the repayment of more than $4 million in annual bonuses by Mr. Grass, Mr. Bergonzi and Mr. Brown, who left Rite Aid in 1999 and 2000. Authorities also want an order barring any of them from ever serving as an ofcompany.

Yesterday's arraignments came one day after Timothy J. Noonan, the former Rite Aid executive who helped federal prosecutors, pleaded guilty to a felony charge of withholding information from the company's internal investigators.

Noonan also was released on his own recognizance. The 60-year-old Mechanicsburg resident, who became the company's president and chief operating officer during a three-decade career at Rite Aid, faces up to three years in prison and a $250,000 fine. No sentencing date has been set.

Under a plea agreement he signed in November, Noonan agreed to cooperate with prosecutors in building the case against the other executives, including working in an "undercover capacity."

Rite Aid operates about 3,450 stories in 30 states and the District.

On the New York Stock Exchange, Rite Aid shares closed down 8 cents to $2.38.

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