Ex-Rite Aid official Bergonzi gets 28-month term

One-month sentence given to Markovitz, former vice president

May 27, 2004|By BLOOMBERG NEWS

HARRISBURG, Pa. - Former Rite Aid Corp. Chief Financial Officer Franklyn M. Bergonzi was sentenced to 28 months in prison yesterday for his role in a $1.6 billion accounting fraud.

Former Vice President Philip Markovitz, 63, a 29-year company veteran, was sentenced earlier yesterday to one month in prison and five months of home detention for lying about his role in the fraud.

The two are among five former Rite Aid executives being sentenced this week and next.

Tomorrow, former Rite Aid Chief Executive Officer Martin L. Grass, son of the company's founder, will be sentenced for conspiring to inflate income at Rite Aid, which resulted in a $1.6 billion reduction in its reported profit in July 2000. In a plea bargain, Grass faces a maximum of 10 years in prison, fines totaling $500,000 and the forfeiture of $3 million.

On Tuesday, former Vice President Eric Sorkin was ordered to serve five months in prison and five months of home confinement for his role.

Bergonzi, 57, also settled an accounting fraud suit yesterday with the Securities and Exchange Commission, agreeing to be barred from serving as an officer or director of a public company.

He pleaded guilty in June to filing phony financial statements to boost Rite Aid's share price by inflating income and understating expenses by hundreds of million of dollars at the No. 3 U.S. drugstore chain.

"I let down the company that I spent 30 years of my life helping to build," Bergonzi said in U.S. District Court, where more than a dozen of his relatives were in attendance. "I let down the shareholders, my family and myself."

Earlier, Markovitz had pleaded guilty to conspiring to obstruct justice by concealing that senior company executives had received backdated letters promising severance pay allegedly linked to the fraud.

Prosecutors had recommended a sentence of 28 months for Bergonzi, who was also fined $5,100 and will have to serve two years of probation after prison. They recommended a sentence of six to 10 months for Markovitz, who was also sentenced to two years of probation.

U.S. District Judge Sylvia H. Rambo followed prosecutors' recommendation on Bergonzi and chose the minimum sentence for Markovitz. The first five months of Markovitz' home detention are to be served concurrently with his probation term, said Rambo, who fined him $5,100.

Bergonzi's lawyer, Ira Raphaelson, said his client had no money to pay the fine after having used his pension and savings on his legal defense. The SEC did not fine Bergonzi as part of its settlement with him and waived a $498,000 payment that represented his alleged ill-gotten gains.

The sentence recommended by prosecutors was 40 percent shorter than the one called for by federal guidelines because Bergonzi's decision to cooperate with prosecutors was the "catalyst" for guilty pleas from Sorkin, Grass and Markovitz, Assistant U.S. Attorney Kim Daniel said.

Bergonzi's two-day testimony at the trial of former top lawyer Franklin C. Brown in October helped secure convictions on 10 of 11 charges, Daniel said. Brown is appealing.

Former Rite Aid chief operating officer and president Timothy Noonan is scheduled to be sentenced Tuesday for his part in the fraud.

Prosecutors say the fraud occurred from March 1995 through October 1999. Grass, Bergonzi, Noonan and Brown inflated income through a plan that boosted Rite Aid shares by 306 percent to $50.94 in January 1999, prosecutors said. The stock plunged that year as Rite Aid failed to reach earnings targets. Grass left the company in October 1999.

Rite Aid said last month that its fourth-quarter profit jumped more than eightfold after five years of losses and a housecleaning of top management.

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