Accounting & Tax

Two More Former McKesson Execs Acquitted

They are found not guilty of conspiracy in the accounting case, and a mistrial was declared for six other charges.
Stephen TaubNovember 6, 2006

For the third time in one week, a celebrated accounting scandal from the 1990s was resolved. But this time, none of the former executives were convicted of the charges or pleaded guilty as part of a settlement.

Two former executives of McKesson Corp.—one-time Chief Executive Officer and Chairman Charles W. McCall and general counsel Jay Lapine—were acquitted Friday of a conspiracy charge stemming from a scandal that resulted in $9 billion in losses for investors, according to the San Francisco Chronicle. A mistrial was declared for six other charges.

The pair were accused of inflating revenue by more than $300 million by backdating contracts before the drug wholesaler bought HBO & Co., a medical software company, according to the paper. The pair, who worked for HBO prior to the merger, then allegedly tried to cover up a conspiracy to inflate profits to make HBO appear to be better off financially than it really was, and therefore a more attractive takeover target, the paper explained.

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Jurors deliberated for about 20 hours over six days, according to the report. But one juror held out, which led to an 11-1 vote of guilt on three securities fraud counts against each defendant, and thus, a mistrial, added the Associated Press.

McCall was HBO’s chairman until the company was sold to McKesson in January 1999 for $12 billion. He briefly served as chairman of the newly merged company, before being fired in June 1999 after the accounting scandal became public, which resulted in a 48 percent drop in the company’s stock, according to the AP. Lapine remained general counsel after the merger, but was also eventually fired, according to the AP.

It is not clear whether the pair will be tried again on the charges the jurors couldn’t agree upon, including securities fraud and falsifying financial statements. “Mr. McCall and I are very happy that he was found not guilty on the conspiracy count. It is very difficult to represent a CEO in this post-Enron/WorldCom environment,” said McCall’s attorney, Theodore Wells, according to theChronicle.

Marcus Topel, Lapine’s lawyer, told the paper he was pleased the jury was “able to look past the current climate of near-hysteria about corporate malfeasance. This is the first verdict, post-Enron, where a general counsel of a company charged with this type of crime has been acquitted in the United States.”

Last year, reported that 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. Defense attorneys had agreed to forgo a jury trial because of the complex accounting involved and based on concerns regarding public perception of executives.

The other lawsuits that originated in the 1990s, and came to a close last week, included the case against former Cendant Chairman Walter Forbes, who was found guilty by a federal jury for his role in a massive accounting scandal that was deemed to be the largest corporate fraud in the pre-Enron era, according to published reports. In his third trial, Forbes was found guilty of conspiracy to commit securities fraud and two counts of making false statements. He was found not guilty of a fourth count, securities fraud.

In the resolution of another major 1990s case, John Brincat, the one-time chief executive officer of Mercury Finance pleaded guilty to wire fraud and lying to a bank, last week, said the Associated Press. Brincat reportedly admitted to overstating the sub-prime lender’s earnings and delaying the reporting of bad loans, resulting in the company’s eventual collapse nine years ago. His actions cost investors more than $2 billion, according to the wire service.