Former Rite Aid Corp. chief executive Martin L. Grass was sentenced to eight years in prison Thursday for conspiring to falsely inflate the value of the company his father founded and cover up the scheme.
Grass, 50, who headed up the nation’s third-largest pharmacy chain in the late 1990s before being forced out in October 1999, also was fined $500,000 and given three years’ probation for his role in a billion-dollar accounting fraud that sent the company’s stock tumbling.
Before U.S. District Judge Sylvia H. Rambo handed down the sentence, Grass apologized to Rite Aid, its stockholders and employees.
“For the harm caused to them, I am truly sorry,” he said.
Grass was indicted by a federal grand jury two years ago. On the eve of trial that was to start last June he pleaded guilty to conspiracy to defraud Rite Aid and its shareholders and conspiracy to obstruct justice, in a deal that required him to cooperate with prosecutors.
He reached a plea deal that called for up to eight years in prison, but Rambo refused to go along with it. A new deal called for him to serve up to 10 years in prison for conspiring to defraud and obstruct justice.
At the time of his plea, prosecutors said Grass admitted to a series of illegal activities, from backdating contracts and severance letters to misleading the company and federal investigators about a $2.6 million real estate deal. They said he also met with employees called to testify before the grand jury and encouraged them to lie.
During Grass’ time at the head of the Camp Hill-based company founded by his father, Alex Grass, its stock price soared as Rite Aid engaged in an aggressive expansion effort. But the grand jury said the boom years were accomplished by “massive accounting fraud, the deliberate falsification of financial statements, and intentionally false SEC filings.”
Less than a year after Grass left the company, the new management team restated the company’s net earnings in 1998 and 1999 down by $1.6 billion. Rite Aid recently recorded its first profits since the Grass years.
“As it turns out, I tried to do too much, too fast,” Grass told the judge Thursday.
When the company’s finances took a turn for the worse in early 1999, he said, “I did some things to try and hide that fact.”
“Those things were wrong. They were illegal,” he said. “I did not do them to line my own pockets.”
Grass’ sentence is considerably longer than those imposed on three other former Rite Aid executives sentenced this week after pleading guilty to conspiracy.
Former chief financial officer Franklyn M. Bergonzi was sentenced to 28 months in prison, former vice president Eric S. Sorkin received five months in jail and five months house arrest, and former vice president Philip Markovitz will serve a month in jail and five months house arrest.
The man who briefly succeeded Grass as interim CEO, Timothy Noonan, is scheduled to be sentenced June 8 for one count of withholding information from company investigators.
A sixth man, former Rite Aid vice chairman and chief counsel Franklin C. Brown, was the only defendant to go to trial and was found guilty by a jury in October of 10 criminal counts. No sentencing date has been set for Brown.
Rite Aid operates 3,400 stores in 28 states and the District of Columbia and has 72,500 employees.
