2 Former HBOC Executives Indicted on Fraud Charges

A federal grand jury indicted two former HBO & Co. executives Thursday for an alleged stock scheme that cost shareholders $9 billion and began shortly before the software firm’s 1999 merger with medical products supplier McKesson Inc.

Former HBOC executives Jay Gilbertson and Albert Bergonzi face 17 counts of conspiracy and fraud charges for directing an alleged scam to “cook the books” in what officials said was one of the largest financial crimes ever investigated by the FBI and Securities and Exchange Commission.

“This case is a poster child for the devastating effects of financial fraud by corporate management,” U.S. Atty. Robert Mueller told reporters at a San Francisco news conference.

The SEC also brought civil charges against the pair and announced a settlement with Dominick DeRosa, a former HBOC vice president who cooperated with authorities. DeRosa, who neither admitted nor denied the SCE’s allegations, does not face criminal charges.

Lawyers for Gilbertson and Bergonzi said they could not comment on specific allegations because they had not seen the indictment. DeRosa’s attorney did not return a telephone call.

“Mr. Gilbertson denies the charges and will defend himself vigorously,” attorney Robert Plotkin said.

Gilbertson and Bergonzi were co-presidents and co-chief operating officers at Atlanta-based HBOC, which was acquired by McKesson in early 1999 and then renamed McKesson HBOC Inc. Gilbertson was also HBOC’s chief financial officer.

The federal indictment alleges that for more than a year before the merger the two former executives carried out a scheme that defrauded HBOC shareholders and the investing public by illegally inflating the firm’s financial results.

This allowed the pair to sell some $11 million of their own McKesson stock before the alleged fraud was uncovered, and receive lucrative bonuses based on the false financial statements, authorities said.

Authorities said the alleged fraud was concealed from McKesson during merger negotiations but continued after the deal was completed.

Gilbertson and DeRosa left HBOC before the merger but Bergonzi remained until he was fired in June 1999 following an investigation by McKesson HBOC’s board.

When the company announced in April 1999 that they discovered financial irregularities, McKesson’s stock price plunged more than 40% from $65 per share to $34 per share. The drop lowered the firm’s market value by more than $9 billion.

McKesson HBOC stock rose 38 cents to close at $30.50 on the New York Stock Exchange on Thursday.

Federal officials noted McKesson HBOC cooperated fully with authorities. A spokesman for the firm had no comment on the charges other than to say McKesson would continue to cooperate with the ongoing investigation.