Wednesday, June 18, 2003

Former boss of Rite Aid guilty in fraud case

Faces prison, $3.5M in penalties

By Mark Scolforo
The Associated Press

HARRISBURG, Pa. - The former head of Rite Aid Corp. pleaded guilty to conspiracy Tuesday in a billion-dollar accounting scandal that foreshadowed other cases of American corporate wrongdoing.

Martin L. Grass, 49, faces an eight-year prison sentence and penalties totaling more than $3.5 million under a deal submitted by federal prosecutors. He becomes the first major CEO to plead guilty in an accounting fraud case since the Enron scandal led to public outrage over white-collar offenders.

"Mr. Grass and his associates had a very large appetite, a greedy appetite. ... They're getting their just desserts today," U.S. Attorney Thomas A. Marino said after the plea hearing.

The Rite Aid probe began before other high-profile business scandals made household names of such companies as Enron and WorldCom, but it shares common elements with the later investigations, said Bryan Sierra, spokesman for the Department of Justice's criminal division.

"The circumstances you had in the Rite Aid case (were) precisely what we're looking at on a national scale now," said Sierra - accounting fraud, conspiracy and the implication of top executives.

Grass, the former chairman and CEO of the drugstore chain his father founded, 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 company.

Flanked by his attorneys, Grass appeared 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 if Rambo accepts the deal. She said she would make a decision following a pre-sentence investigation.

Grass, who was set to go to trial next week, agreed to the prison term, a fine of $500,200 and forfeiture of $3 million stemming from the use of company money to finance a private real estate deal.

He also promised to cooperate with the government and potentially testify against other defendants.

Afterward, Grass attorney William H. Jeffress Jr. called it "a sad day" for his client but noted Grass never sold his shares as the company's stock price skyrocketed.

"Nobody's ever accused Martin of lining his pockets at the expense of Rite Aid," Jeffress said.

Grass did not respond to questions on his way into and out of the federal building.

Grass, who has already submitted to interviews with prosecutors, remained free on a personal-recognizance bond.

If Grass' cooperation satisfies prosecutors, they could ask Rambo to reduce the eight-year term, but Marino said there is "absolutely no possible way" Grass will avoid imprisonment.

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