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Drugstore Cowboys

Former Rite Aid CFO and other ex-brass get hit with fraud charge. Also: Former Webvan CFO joins ARC International. Plus: Can new finance chief make...
Lisa YoonJune 24, 2002

>> Former CFO Frank Bergonzi was among three former Rite Aid Corp. executives who were hit with fraud charges by the Securities and Exchange Commission… On Friday, the SEC filed accounting fraud charges against Bergonzi, along with former CEO Martin Grass and former vice chairman Franklin Brown… It ordered the three men to disgorge themselves—that is, to give back annual bonuses—and to pay civil penalties… In addition, the SEC is seeking an order barring each of them from serving as an officer or director of a public company… According to the commission, the former executives engineered a complex scheme including “massive” overstatement of income from May 1997 to May 1999… In 2000, under new management, the drugstore chain restated net income by $1.6 billion, the largest revenue restatement in U.S. corporate history…

The charges close three-year investigation into drugstore chain’s accounting practices… Though news of accounting fraud seems invariably to prompt mention of Enron, Rite Aid was among a wave of high-profile companies already making headlines for sketchy accounting before Enron’s collapse… Others on that list: Xerox Corp. and Cendant Corp….

Troubles at Rite Aid began surfacing in November 1999, when longtime auditor KPMG resigned and the SEC started its investigation… The probe turned up, among other things, failure to disclose several related-party transactions, in which former CEO Grass allegedly “concealed his use of company assets to line his own pockets.”

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Separately, Rite Aid management said it entered a cease-and-desist order with the SEC, in which it admits or denies no wrongdoing and would pay no fine… “Our new management team has changed the way Rite Aid does business, including strengthening our internal financial controls and maintaining the proper records to file accurate financial reports with the SEC,” said CEO Bob Miller…

The U.S. Attorney for the Middle District of Pennsylvania announced related criminal charges against the former Rite Aid execs, said the SEC…

>> Immune Response Corp. hoping Michael Jeub can help bring company out of critical condition… AIDS-drug developer put Jeub on payroll as VP of finance and CFO… Replaces Howard Sampson, who resigned one month ago, after company’s auditors questioned Immune Response as going concern…

A partner at finance-chief-for-hire firm Tatum CFO Partner, Jeub joins Immune Response as a client, with Tatum getting monthly percentage of his salary… Before joining the CFO contractor, Jeub was CFO for Jenny Craig International from 1994 to 1999… During his five years at weight-loss company, Jeub credited with negotiating a multi-million-dollar bank financing and cutting annual human resources expenses…

Besides knack for securing financing, Jeub also has knowledge of biopharm industry… Before Jenny Craig, held CFO posts at National Health Laboratories, Medical Imaging Centers of America, and International Clinical Laboratories…

That seems to be the kind of medicine Immune Response needs, but is it enough? At the time of Sampson’s resignation, company said it only has enough funds to operate through the end of June… In addition to cash shortage, Immune Response also carrying debt load of some $232.6 million… It recently refinanced $1.5 million in equipment loans… When asked by San Diego Daily Transcript what he thought of Immune Response’s financial state, Jeub said: “I think nothing is ever as bad as it seems, or as good as it seems.”

>> Monica Johnson heading back to work after last employer, Webvan Group, went down with the new economy… Johnson, former CFO of the online grocery-delivery service that crashed and burned a year ago, was named SVP and CFO of semiconductor and software licenser ARC International… Before Webvan, Johnson worked at Hewlett-Packard’s semiconductor products group for 10 years… She replaces Simon Poulton, who resigned after two years at ARC because he was unable to relocate to the company’s San Jose, Calif., offices, company said…

From Webvan experience, Johnson brings familiarity with tough times—something management at ARC knows about… After two profits warnings, company overhauled management team late last year…

>> Bermuda short: Lloyd’s of London syndicate operator Goshawk Insurance named Jonathan Beck CFO of Goshawk Reinsurance, its new Bermuda-based reinsurance subsidiary… Beck joins from ACE Capital Re in Bermuda, where he was VP and CFO…