Former Rite Aid CEO Pleads Guilty to Conspiracy

Former Rite Aid Corp. Chief Executive Martin L. Grass faces up to eight years in prison after pleading guilty Tuesday to two counts of conspiracy in connection with a billion-dollar accounting fraud at the national drugstore chain.

Grass, the son of Rite Aid founder Alex Grass, also admitted during a hearing in U.S. District Court in Harrisburg, Pa., that he conspired to obstruct a federal grand jury investigation of a $1.6-billion overstatement of Rite Aid profit that occurred during the late 1990s.

He becomes the first CEO of a major company to be held criminally accountable for accounting fraud since the Enron Corp. scandal led to that company’s collapse and to public outrage over corporate wrongdoing.

His guilty plea was the result of an agreement with federal prosecutors under which Grass also would pay a $500,000 fine and forfeit $3 million.

Under the plea agreement, prosecutors could recommend a more lenient sentence if Grass, 49, cooperates in an investigation that is expected to bring new indictments against others.

On the New York Stock Exchange, shares Rite Aid, based in Camp Hill, Pa., rallied to $4.69, their highest level since January 2002, before closing down 5 cents at $4.38.

Grass, who had been scheduled to face trial on a 35-count indictment, was the second Rite Aid executive to plead guilty in less than two weeks.

Former Chief Financial Officer Frank Bergonzi, 57, pleaded guilty to a count of fraud conspiracy on June 5 and faces up to five years in prison.

Bergonzi, Grass and former Rite Aid Vice Chairman and legal counsel Frank Brown were named in the same indictment and initially pleaded not guilty.

By Tuesday, only Brown, 75, remained on the court schedule for trial next week.

“Martin Grass and his associates had a very large appetite, a greedy appetite,” Thomas Marino, U.S. attorney for the Middle District of Pennsylvania, told reporters. “They’re getting their just desserts today, and we’ll force feed it if necessary.”