Former Rite Aid chief Martin Grass agrees to plea deal that calls for eight-year sentence

Tuesday, June 17th 2003, 12:00 am

By: News On 6

HARRISBURG, Pa. (AP) _ Former Rite Aid Corp. chief executive officer Martin L. Grass told a judge Tuesday he has agreed to plead guilty to two counts of conspiracy in a deal that calls for an eight-year prison sentence.

Flanked by his attorneys, Grass appeared in federal court before U.S. District Judge Sylvia H. Rambo as prosecutors outlined a plea bargain that calls for him to plead guilty to one count of conspiracy to defraud Rite Aid and its shareholders and one count of conspiracy to obstruct justice. Remaining charges would be dismissed.

Grass, who was set to go to trial next week, agreed to an eight-year prison sentence, a fine of $500,200, and forfeiture of $3 million in connection with a real estate deal. He also promised to cooperate with the government and potentially testify against remaining defendants.

Rambo said she would take the deal under advisement pending a presentence investigation.

Grass, the son of the drug store chain's founder and its former chairman and chief executive officer, was indicted by a federal grand jury a year ago along with two other former executives and one current employee.

Grass becomes the second of the defendants to strike a deal with federal prosecutors this month. Former chief financial officer Franklyn M. Bergonzi pleaded guilty to one count of conspiracy on June 5 and agreed to cooperate with prosecutors.

If accepted by the judge, Grass' plea will leave Rite Aid's former vice chairman and chief counsel, Franklin C. Brown, to stand trial alone next month. Brown faces the same charges as Grass had: conspiracy, fraud in the purchase or sale of securities, obstructing grand jury proceedings, witness tampering, lying to the Securities and Exchange Commission, mail fraud and other counts.

The fourth defendant, Eric S. Sorkin, Rite Aid's vice president for pharmacy purchasing, is expected be tried separately on charges of conspiracy to obstruct justice and lying to a grand jury.

The indictments allege that the meteoric increase in Rite Aid's stock price under the Grass team's management in the late 1990s was accomplished by ``massive accounting fraud, the deliberate falsification of financial statements, and intentionally false (SEC) filings.''

In the wake of the scandal, Rite Aid was compelled to issue a $1.6 billion restatement of net earnings in July 2000, the largest in history at the time but since eclipsed by WorldCom Inc.'s $9 billion earnings overstatement.

To turn the company around, the new management team has unloaded assets, closed hundreds of stores and restructured Rite Aid's once-crippling debt.

The court action has had no effect on the nation's third-largest drugstore chain, said Rite Aid spokeswoman Karen Rugen.