Risk Management

Former McKesson CFO Indicted for Fraud

The charges concern artificial inflation of revenue just after the company acquired HBOC.
Stephen TaubApril 1, 2004

An ex-finance chief of McKesson Corp. was indicted on Tuesday for his role in the drug wholesaler’s accounting fraud.

The U.S. Attorney’s Office indicted Richard Hawkins on charges of conspiracy and securities fraud. Civil securities fraud charges were also filed against Hawkins by the Securities and Exchange Commission.

These U.S. Attorney’s action represents the first federal criminal charges brought against any McKesson officer who was not associated with HBOC & Co. before its acquisition by McKesson in January 1999, the Justice Department said.

Hawkins was McKesson’s CFO before and after the HBOC acquisition. He was indicted on charges of securities fraud, conspiracy to commit securities fraud, and making false statements to an accountant in connection with an audit of McKesson. The charges relate to Hawkins’ conduct in the first quarter after McKesson acquired HBOC.

The civil and criminal filings allege that Hawkins, along with other former McKesson officers, took part in a fraudulent 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 the filings.

Hawkins and others caused revenue from the Data General transaction to be reported as part of the company’s earnings release on April 22, 1999 despite the fact that McKesson’s independent auditors told Hawkins that revenue from the transaction could not be recognized, the Justice Department said in its announcement. Reuters could not immediately reach lawyers for Hawkins’ lawyers for comment, the news service reported.

Soon after the fraud was discovered in April 1999, McKesson’s stock price was nearly halved, from about $65 to $34. That slashed the company’s market value by more than $9 billion.

Hawkins is the twelfth person charged civilly by the SEC in connection with this investigation. Six former HBOC executives have been charged with crimes. Four have pled guilty, among them two former HBOC co-presidents and CFOs, Albert Bergonzi and Jay Gilbertson.