KPMG to settle lawsuits for $200 million

Investors in Rite Aid, Oxford sued accountants

March 11, 2003|By BLOOMBERG NEWS

NEW YORK - KPMG LLP agreed yesterday to pay $200 million to settle lawsuits filed by shareholders of Rite Aid Corp. and Oxford Health Plans Inc. accusing the third-largest accounting firm of misstating the companies' finances.

KPMG, the former auditors for Rite Aid, the No. 3 drugstore chain, denied wrongdoing in both settlements, saying that it was settling them to avoid protracted litigation costs and "for practical business reasons."

Rite Aid's shareholders will get $125 million and Oxford's will get $75 million in the settlements.

Three former top officers of Camp Hill, Pa.-based Rite Aid face trial in June on charges of accounting fraud, and a fourth has pleaded guilty.

The Securities and Exchange Commission called the accounting fraud at Rite Aid one of the most egregious ever and filed a civil suit against the three officers facing trial. KPMG resigned as the company's auditor in November 1999, saying it couldn't trust the information provided by management.

"The federal indictments of former Rite Aid management in June 2002, which included charges of lying to and misleading KPMG, affirm our position that Rite Aid represents a clear example of an auditing firm being victimized by company management," KPMG said. Rite Aid had no immediate comment.

In the other case, investors claimed that KPMG gave a false and misleading opinion in a 1996 audit of Oxford, a Trumbull, Conn., firm that provides health-benefit insurance programs in New York, New Jersey and Connecticut.

The settlement follows Oxford's agreement last week to pay $225 million to the same shareholders to settle the suit. Investors sued Oxford and KPMG after Oxford's stock fell 63 percent Oct. 27, 1997, after an announcement that there would be a third-quarter loss because of billing delays and errors.

The Oxford shareholders' suit had been scheduled to go to trial yesterday in federal court in White Plains, N.Y.

KPMG also faces charges from the Securities and Exchange Commission that it allowed Xerox Corp. to manipulate the company's books to inflate revenue. Xerox investors also have sued it over the alleged misstatements.

Xerox agreed to pay a $10 million fine to the SEC in April 2002. KPMG has said it stands behind its Xerox audit work.

KPMG agreed in 2001 to pay $9 million to end a lawsuit related to Medicare fraud against HCA Inc., the biggest U.S. hospital chain. KPMG did not admit to any wrongdoing.

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