Rite Aid secretary got car after backdating letters

Defendant Brown paid her $25,000, she testifies

October 01, 2003|By BLOOMBERG NEWS

HARRISBURG, Pa. - Rite Aid Corp.'s former top lawyer, Franklin C. Brown, bought his secretary a new car after she backdated documents that enhanced stock grants to him and three other executives, the secretary testified at his fraud trial yesterday.

Mary Lou Egan said Brown persuaded her to type letters in April 1998 that were backdated to April 1995 and that awarded him and other executives hundreds of thousands of shares under a long-term incentive plan. Egan said she also typed compensation committee minutes backdated to March 1995 that authorized the awards. Several days later, Brown gave her a $25,000 check to pay for a new car, Egan said.

The Brown check, which she cashed, was "an overly generous offer that I was uncomfortable with," she said. "I indicated I couldn't accept a gift of that magnitude."

Egan's testimony in U.S. District Court in Harrisburg was part of the initial evidence presented by prosecutors in their attempt to prove that Brown conspired with other executives to defraud Rite Aid and obstructed a U.S. investigation of that alleged fraud.

Egan told jurors she used $23,000 of the payment to buy a Chrysler Sebring and returned the rest to Brown, who was then vice chairman and chief counsel at Rite Aid, the No. 3 U.S. drugstore chain.

Under questioning by Brown's lawyer, Reid H. Weingarten, Egan said her longtime boss had first proposed buying a car for her in January 1998, before she had backdated any documents.

"I did not have the feeling that the car was in exchange for any work that I did," she said.

None of the executives benefited from the enhanced stock grants authorized in the backdated documents, she testified.

Besides Brown, the letters offered millions of dollars in stock awards to former Chief Executive Officer Martin L. Grass, one-time Chief Financial Officer Frank M. Bergonzi, and former President Timothy J. Noonan, all of whom were employed by Rite Aid at the time, prosecutors allege.

The 1998 severance letters were an effort to honor promises made by Grass, who left the company in October 1999, to veteran employees who feared punishment by new management, Weingarten said yesterday in opening remarks.

Grass, Bergonzi and Noonan pleaded guilty to helping inflate Rite Aid revenue and understate expenses by hundreds of millions of dollars at Rite Aid, which is based in Camp Hill, Pa. They are expected to testify against Brown, the last defendant in the case.

Prosecutors allege that Brown helped fabricate $100 million in earnings to fill a projected shortfall in the company's 1999 fiscal year. They also accuse him of directing a cover-up among top executives after the Justice Department and the Securities and Exchange Commission began investigating. Brown retired in March 2000.

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