Former Rite Aid executive gets 5-month prison term

Sorkin also fined, given home detention for fraud

May 26, 2004|By BLOOMBERG NEWS

HARRISBURG, Pa. - A judge sentenced former Rite Aid Corp. Vice President Eric Sorkin to five months in federal prison and five months of home detention yesterday for lying about his role in an accounting fraud that cost the company $1.6 billion in profit.

U.S. District Judge Sylvia Rambo also ordered Sorkin to serve two years of supervised release. He also was fined $5,000, First Assistant U.S. Attorney Martin Carlson said.

Sorkin is the first of five executives who pleaded guilty to the fraud to be sentenced.

Last month, Rite Aid, the No. 3 U.S. drugstore chain behind Walgreen Co. and CVS Corp., reported an eightfold rise in its fourth-quarter profit after five years of losses and a housecleaning of top management.

The company's performance has improved in the wake of the management reshuffling, said Josh Rothe, of SKBA Capital Management in San Francisco, which owns Rite Aid shares among its $350 million in assets.

"It's definitely doing better than it was," Rothe said.

Prosecutors will "refrain from any reaction" to Sorkin's sentence until all sentencing hearings in the case are complete, Carlson said.

Rambo has scheduled hearings this week for Martin L. Grass, the former chief executive officer, and Frank Bergonzi, former chief financial officer.

Sorkin pleaded guilty in June to lying about his receipt of backdated severance letters signed by Grass. The letters entitled Sorkin to $1.1 million. Sorkin got the letters in November 1999, just before authorities began investigating Rite Aid.

Sorkin, who worked at Rite Aid for 23 years and was executive vice president of pharmacy sales, could have received up to five years in prison. He cut a deal with prosecutors for a lighter sentence.

Under federal guidelines, he faced a maximum of 18 months in prison.

He testified as a government witness in October at the trial of the company's former chief counsel and vice chairman, Franklin C. Brown, who was convicted of plotting with Grass to inflate income at Rite Aid and urging witnesses to lie.

Sorkin said Brown, who is appealing his conviction, gave him the letters signed by Grass.

Sorkin told jurors at Brown's trial that he lied to investigators at the urging of Brown, who repeatedly shaped a cover story on the severance letters, which were dated April 1999.

Sorkin said he felt trapped by the lies Brown urged him to tell to internal investigators, prosecutors and grand jurors.

"I knew I was in this thing and there was no way out," Sorkin testified. "I was scared to death."

Sorkin, who was earning $250,000 a year, said Brown gave him a letter that ensured him three years of salary and bonus. Sorkin said he asked whether the benefits applied if he quit instead of being fired.

"I think I have another copy that may be a little clearer on that," Sorkin recalled Brown telling him. Sorkin got that letter a few days later, he testified.

Rambo set sentencing for today for Bergonzi and Philip Markovitz, a former vice president of real estate who pleaded guilty. Grass, who could get up to 10 years in prison, is to be sentenced tomorrow.

Timothy Noonan, former president and chief operating officer, who also pleaded guilty, is to be sentenced Tuesday.

Prosecutors say Grass, Bergonzi, Noonan and Brown inflated income through a plan that boosted Rite Aid shares by 306 percent, to $50.94, in January 1999. The stock plunged that year as Rite Aid failed to reach earnings targets.

Grass left the company in October 1999.

Shares of Camp Hill, Pa.-based Rite Aid rose 3 cents to close at $4.98 yesterday on the New York Stock Exchange.

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