McKesson Aims to Keep Probe Secret

Health services industry giant McKesson Corp. is trying to keep secret its internal investigation into a company stock fraud that led to $9 billion in investor losses in one day in 1999.

The investigation, details of which were turned over to federal regulators, is believed to have prevented the company from being indicted, but it provided prosecutors with a road map that has led to the indictment of seven former company executives.

Media groups said the information should become part of the public domain. Attorneys for investors want the documents to bolster their securities fraud lawsuits and will argue their case today in U.S. District Court in San Francisco.

“They interviewed a bunch of their employees. By getting this, it makes it easier to get to the truth, in order to tell the jury the story,” said Jason Frier, an attorney representing Georgia shareholders in one of dozens of stock fraud suits against the San Francisco-based company.

McKesson will ask U.S. District Judge Martin Jenkins to close the courtroom during parts of the upcoming criminal prosecution of Richard Hawkins, McKesson’s former chief financial officer. Attorneys for Hawkins said that the internal investigation could help clear his name and that he intended to introduce at least portions of it during the trial.

When the trial turns in that direction, McKesson wants the courtroom closed and any documents from the report introduced as evidence kept sealed.

The company, with $70 billion in annual revenue, says the report to the Securities and Exchange Commission and federal prosecutors was turned over in a bid to cooperate, not to help shareholders recover their losses.

“McKesson continues to assert that the report is protected from disclosure by the attorney-client privilege and the attorney work product doctrine,” company attorney Keith Krakaur said in court documents.

News outlets including Associated Press, the San Francisco Chronicle and Bloomberg News said the public had a 1st Amendment right to access trial proceedings and documents submitted in court. They said it was an unusual request because closing parts of the trial would not assist Hawkins in getting a fair trial.

“McKesson does not even argue that closure is necessary to secure anyone a fair trial,” media attorney Karl Olson wrote in court briefs.

Olson added that the public’s right of access “serves not only the general public interest of monitoring what happens in public courtrooms but also the specific interest many people have in learning why hundreds of millions of dollars in investments in McKesson stock were lost.”

Hawkins, indicted in March, was the first executive to be charged in the scandal who was employed at the company before it merged with Atlanta-based HBOC & Co. in January 1999. Six former HBOC executives have been charged in the accounting scandal; four of them have pleaded guilty to charges that they conspired to make HBOC’s pending merger with McKesson more attractive.

After detecting the fraud, the merged McKesson restated its financial results for 1998 and the first three months of 1999. The revised accounting revealed gross exaggerations. In late 1998, for instance, healthcare software maker HBOC reported a profit that was seven times higher than the true result.

After news of the scandal broke in April 1999, the merged company’s shares plunged from $65.75 to $34.50 -- a one-day drop of 48%. Investors immediately lost $9 billion in what at the time was one of the nation’s largest cases of accounting fraud.

Hawkins, who resigned his post in 1999, is accused of misrepresenting the merged company’s finances in the first quarter after McKesson acquired HBOC.

McKesson shares Wednesday fell a penny to $30.66 on the New York Stock Exchange.