Rite Aid official gets separate trial

Judge splits Sorkin case from 3 executives accused of accounting fraud

January 08, 2003|By BLOOMBERG NEWS

HARRISBURG, Pa. - A Rite Aid Corp. vice president should be tried on obstruction of justice charges separately from three former executives accused of accounting fraud at the No. 3 drugstore chain, a judge ruled yesterday.

Eric Sorkin's case would be prejudiced by trying him with Rite Aid's former Chief Executive Officer Martin Grass, former Chief Counsel Franklin Brown and former Chief Financial Officer Frank Bergonzi, U.S. District Judge Sylvia Rambo ruled.

Sorkin is accused of lying to a grand jury and conspiring with Brown and Grass to obstruct investigations into an alleged accounting fraud that led Rite Aid to restate $1.6 billion in profits. Rambo ruled that jurors in Sorkin's case shouldn't hear evidence of the accounting fraud allegedly run by Grass, Brown, and Bergonzi.

"The only manner to ensure that Defendant Sorkin receives a fair trial is to grant his motion for severance," Rambo ruled in Harrisburg. "The bulk of the evidence in this case will concern the fraud counts, most of which will be inadmissible against Defendant Sorkin."

Rambo scheduled Sorkin's trial for March 3, the original trial date for all four men. Jury selection for Grass, Brown, and Bergonzi will begin May 5, she said.

"We're pleased with the judge's decision, and we look forward to vindicating Mr. Sorkin at trial," said his attorney, John Carroll.

The trial should last no more than two weeks, Carroll said. Attorneys have said that the trial against the other three could take as long as six months.

Prosecutors claim that Grass, Brown and Bergonzi boosted Rite Aid share price by 306 percent from 1995 through 1999 by overstating income and understating expenses. They claim that officers lied to the U.S. Securities and Exchange Commission, bank lenders, former auditors KPMG LLP and internal investigators. Grass, Brown, and Bergonzi pleaded not guilty.

Sorkin, an executive vice president of pharmacy sales, was placed on administrative leave without pay after his indictment in June last year, said Karen Rugen, a spokeswoman for the Camp Hill, Pa.-based company.

Prosecutors said Sorkin played a "key role in a substantial portion of the accounting fraud" because he negotiated $76 million in rebate credits that Rite Aid got from two other companies. The indictment says Bergonzi improperly recorded the credits as revenue in the 1999 fiscal year.

Sorkin's obstruction of justice and perjury charges are "hopelessly intertwined with the underlying fraud conspiracy," prosecutors argued in court papers. Rambo ruled that Sorkin acted correctly in negotiating the rebate credits.

In another ruling, Rambo denied Bergonzi's request for a separate trial on the obstruction counts in the indictment.

A fourth former top executive at Rite Aid, ex-president Timothy Noonan, pleaded guilty and is cooperating with prosecutors. He made secret recordings of Grass and Brown, who are seeking to have them excluded as evidence from their trial. Rambo hasn't ruled on their request.

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