Former Rite Aid CEO gets 8 years
Rite Aid Corp.'s former chief executive, Martin Grass, was sentenced to eight years in prison for directing an accounting fraud that prompted the company to erase $1.6 billion in reported profit.
Grass, 50, was also fined $500,000 for conspiring to defraud investors and obstruct US investigations. He pleaded guilty last June and helped prosecutors unravel the fraud at Rite Aid, the number three US drugstore chain. Grass, one of six executives convicted in the case, apologized to Rite Aid and its shareholders and employees at his sentencing hearing.
"For the harm caused to them, I am truly sorry," Grass told US District Judge Sylvia Rambo in Harrisburg, Pa.
Grass faced up to 10 years in prison under a new plea agreement he reached with prosecutors this month. Rambo rejected an earlier agreement that set a maximum of eight years before she weighed a request for leniency based on his cooperation.
Assistant US Attorney Kim Daniel today asked Rambo to sentence Grass to seven years, noting that his assistance helped convict three other executives who once hid the truth from investigators at Rite Aid, the Securities and Exchange Commission, and the US Justice Department.
After the sentencing, the SEC settled a civil fraud suit it filed against Grass. The agency agreed to drop the suit. In exchange, Grass agreed to be barred from serving as a director or officer of a public company.
The agency also dropped a demand for disgorgement of ill-gotten gains because Grass had previously forfeited $3 million as part of his criminal case. Rambo must review the settlement.
Grass, whose father, Alex, founded Rite Aid, pleaded guilty on the eve of his scheduled trial last June. He admitted inflating income and giving backdated severance letters, which he signed after resigning. The letters would have given seven employees $23 million over 20 years, prosecutors said.
Grass told the judge he began at Rite Aid at age 13, and was a stock boy and warehouse employee who worked during school vacations before joining the company as an executive, he said.
"I was ambitious for the company, and I was ambitious for myself," Grass told Rambo. "I wanted to build Rite Aid into a major national drugstore chain."
Grass took control in 1995 and began an acquisition spree. Rite Aid grew from 1,618 stores and $943 million in debt in 1995 to 3,821 stores and $4.1 billion in debt by 1999.
"As it turned out, I tried to do too much, too fast," Grass told the judge. "In early 1999, when things started to go wrong financially, I did some things to try to hide that fact. Those things were wrong. They were illegal. I did not do them to line my own pockets."
Grass, who lives in Boca Raton, Fla., will surrender to the US Bureau of Prisons on June 28. Rambo will recommend that he serve his term at the federal prison camp in Eglin, Fla. After his guilty plea, Grass forfeited the $3 million to the government.
Grass was the fourth Rite Aid executive sentenced this week for the four-year fraud. Wednesday, Rambo ordered former chief financial officer Frank Bergonzi, 58, to serve 28 months in prison for conspiring to defraud investors. Philip Markovitz, 63, a close friend of Grass and a former vice president of real estate, was sentenced to one month in jail and five months of home detention for plotting to obstruct justice.
On Tuesday, former vice president Eric Sorkin was sentenced to five months in prison and five months of home confinement for lying to investigators. On June 8, Timothy Noonan, the former president and chief operating officer, will be sentenced.
