Ex-CEO of Rite Aid Gets Eight-Year Prison Term

Former Rite Aid Corp. Chief Executive Martin L. Grass was sentenced Thursday to eight years in prison for conspiring to inflate the value of the company his father founded more than four decades ago and to 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.

Six former Rite Aid executives in all were convicted or pleaded guilty in the scandal, in which the company overstated its earnings.

Before U.S. District Judge Sylvia H. Rambo handed down the sentence, Grass apologized to the Camp Hill, Pa.-based company, its stockholders and its employees: “For the harm caused to them, I am truly sorry.”

On the eve of a trial that was to start last June, Grass pleaded guilty to conspiracy to defraud Rite Aid and its shareholders and to conspiracy to obstruct justice in a deal that required him to cooperate with prosecutors.

Assistant U.S. Atty. Kim Douglas Daniel described Grass’ crimes to the judge: The company made millions from improper vendor charges and recorded income improperly, $2.8 million in company funds were used for a land deal that benefited Grass personally and, after he left the company, Grass issued seven backdated severance letters to fellow executives worth a combined $23 million.

In the process, he “deceived and misled thousands of individual and institutional investors and creditors,” Daniel said.

The “grand conspiracy to obstruct justice” that Grass helped orchestrate was designed to fool the company, the Securities and Exchange Commission, the FBI and the grand jury, Daniel said.

During Grass’ time at the head of the company founded in 1962 by his father, 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, Rite Aid’s new management restated the company’s earnings for 1998 and 1999, reducing them by $1.6 billion.

Rite Aid recently recorded its first profits since the Grass years.