Accounting & Tax

Former McKesson CFO Acquitted

Defense attorneys agreed to forgo a jury trial because of the complex accounting involved and due to concerns regarding public perception of execut...
Stephen TaubJuly 12, 2005

In a case largely overshadowed by recent high-profile trials, former McKesson Corp. chief financial officer Richard Hawkins was found not guilty of securities fraud

After a one-month non-jury trial and 17 weeks of deliberation, U.S District Judge Martin Jenkins issued cleared Hawkins on all charges. Defense attorneys had agreed to forgo a jury trial, according to The Recorder, a San Francisco legal newspaper, because of the complex accounting involved and due to concerns regarding public perception of executives.

In March 2004 Hawkins was indicted by the U.S. Attorney’s Office for the Northern District of California on charges of conspiracy and securities fraud, stemming from the drug wholesaler’s accounting scandal, which wiped out $9 billion of McKesson’s market value. Civil securities-fraud charges were also filed against Hawkins by the Securities and Exchange Commission.

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Specifically, Hawkins and other former McKesson officers were accused of taking part in a scheme to artificially inflate the company’s financial results for the fiscal quarter ended March 31, 1999. They sought to do that by fraudulently recognizing revenue on a $20 million transaction between McKesson and Data General Corp., according to filings at the time.

The scheme was discovered after McKesson, the nation’s largest distributor of prescription drugs, bought software maker HBO & Co. (HBOC) for $12 billion in 1999. McKesson had to restate its earnings; Hawkins resigned later that year. In January, McKesson announced that it agreed to pay $960 million to settle a class-action lawsuit stemming from the restatement.

Hawkins is the first of seven former executives charged in the scandal to be cleared of criminal charges. Four others have pleaded guilty, including two former HBOC co-presidents and CFOs, Albert Bergonzi and Jay Gilbertson.

The government’s case against former HBOC chief executive officer and McKesson chairman Charles McCall, and former HBOC general counsel Jay Lapine, may suffer from the judge’s ruling, wrote The Recorder, since many of the witnesses against Hawkins were expected to testify in the upcoming trials.

Judge Jenkins questioned the quality of the prosecution witnesses, who had leniency deals with the government and a history of questionable business dealings themselves, wrote the newspaper, and even rejected one of the prosecution’s business and accounting experts.

Walter Brown, an attorney for Hawkins, told the Associated Press that the former finance exec hopes to work for another company, but “for right now, he is just exulting in this decision.”