Financial Statement Fraud Report: Rite-Aid public prosecutor for Pennsylvania's middle district also announced other related illegal charges. The SEC's protest charges the former Chief executive of Rite Aid Corp., Martin Grass and former CFO Frank Bergonzi alongside with the prior VC of Rite Aid Corp. Franklin Brown for leading and scheming a widespread accounting Rite Aid deception scandal.
Fraudulent financial reporting can really have unfavorable results on companies, as well as, public confidence in capital markets. This paper will examine the financial statement fraud and will also investigate the financial statement fraud that happened at Rite Aid in the beginning of the 2000's. The outcome of Rite Aid's fraud, as well as a lot of other key accounting scandals, led to the formation of the Sarbanes-Oxley (SOX) Act of 2002. SOX help the increasing need to reestablish customer confidence in reporting and accounting practices. AAER No. 1579 on June 21, 2002 discloses to the public the SEC's commands to Rite Aid appropriate to their activity that is fraudulent. Rite Aid's recounted financial statements were misleading and false, and its records and books were imprecise. Rite Aid was told that they to reaffirm stated cumulative pre-tax income by a total of $2.5 billion and increasing net income by $1.7 billion. Rite Aid was also ordered to stop-and- discontinue pursuant to section 21C of the Securities and Exchange Act of 1934 from obligating or producing any defilement, and from executing or producing any violation in the future, of Sections 13(a) and 13(b)(2) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder.
In Washington D.C. (June 21, 2002) The Securities and Exchange Commission filed accounting fraud that is known as the Rite Aid Fraud accuses in contrast to three ex-executives of a well-known association of U.S., Rite Aid Corp. The U.S. public prosecutor for Pennsylvania's middle region also announced other connected criminal accusations. The SEC's disorder charges the previous Chief executive of Rite Aid Corp., Martin Grass and former CFO Frank Bergonzi alongside with the previous VC of Rite Aid Corp. Franklin Brown for planning and conducting a widespread accounting Rite Aid fraud scandal.
Just to give a little background, Alex Grass decided to first open up a Rite Aid in 1962 and then it began to grow into what would become one of the biggest drugstore chains in the United States. Alex made this major contribution by being "traditional and looking for underestimated possessions" (Bell, 2007, p. 3). As Rite Aid began to expand, Alex's son, Martin was coached as inheritor even though Alex was indifferent to give up power. In 1994 Martin then became the CEO while Alex just stayed as the COB. However, Martin starting getting tired of doing all the waiting and desired to chase a more aggressive opportunity than his father followed. Martin developed a plan, making deals with board members, to get rid of his father by over throwing his power. Martin contended that his father Alex was very scared to grow the company and did not want the corporation to be overleveraged (Callahan, 2004). Martin's plan incorporated just that, debt and growth.
In an exertion to exceed Walgreens to be the number one drugstore chain, Martin merged a new forceful plan for growth. It began with an effort to buy Revco for $1.8 billion supposing $800 million in duty in the deal. Nevertheless, the deal fell through which led Rite Aid to scavenge up another deal that would make growth that was fast. Rite Aid established on combining with west coast chain Thrifty-PayLess for 2.4 billion. Rite Aid also made the purchase of the PCS Health Systems for around $1.5 billion. Those who were financial analysts adored the fact that Martin thought he could do no wrong. Martin had "multiplied his business's value" (Callahan, 2004). Banks enthusiastically loaned money to Rite Aid and the stock price went up.
It is the idea of companies to want to put their best foot forward when they announce financial statements. This has led a lot of companies to present false financial statements that really misinform creditors and investors. Every so often this is done intentionally and deliberately. According to Cooper (2005), this does involve the following:
- The fabrication, manipulation or alteration of material financial records;
- Material, misrepresentation of events or intentional omissions, transactions, accounts, or other important information from which financial statements are ready;
- Purposeful misuse of accounting values, policies, and events that are expended to measure, identify, report and reveal monetary events and business transactions; or - Intentional omission of revelations or ...
The complaint announces that Rite Aid Corp. overstated its income in each quarter from May 1997 to May 1999, by massive quantities. The complaint also blames that Martin Grass caused the whole company to go down because they failed to divulge many transactions, in which he pursued to grow himself at the detriments of Rite Aid Corp's backers (Bell, 2007).
This disapproval also makes the claim that these crooks abused the Consumer Fraud Act (CFA) accompanied by the Weights and Measures Act because of offensive price scanning at around 76 stores. These previous executives of Rite Aid Corp. were punished for their roles in this crime. Former CEO of Rite Aid Corp. Frank Bergonzi was given 28 months in jail by a U.S. local judge.
In contrast for providing "significant assistance" to U.S. DAs aided Bergonzi reduce his ruling. And he also decided to be striped forever from functioning as an executive director or officer or chairman of any public traded company. Even though the second culprit, which is a former SVP of Rite Aid Corp, Philip Markovitz, got a sentence of only one month in jail and then an additional five months of home imprisonment collectively with a penalty of $5,000. According to the state of New Jersey all of these defenders were concerned in selling the terminated produce at drug stores, selling of drugs that are non-prescribed, tot formulas, food that was for babies along with charging consumer prices that are very high.
In my opinion, Rite aid still has some scheming issues that have not gone away from the fraud case. I think that Rite Aid does advertise prices in the store and then when you rush to the cash register the price charged is not the same advertised price for sale, but up it is dramatically up to $1 more. I think that this has happened to me several times and I catch it and they always blame it on corporate. The cashier mentions that the company mails them the sales expenses, and that all of the UPC coding that they get are scanned at the register. Their point is that it is done the through the company and that they really do not have any control over what happens. Maybe if the manager of the store informed the company about this problem it could be resolved. I go to Rite-Aid because it is close to my house, but of course I can certainly make other preparations. Another person that was before me saw all of this going on while buying a whole new different product today and so I have determined that this is a practice that is committed frequently and perhaps goes ignored by a lot of customers, and the ends up creating a numerous amounts of money for either business, or the store in question. It is a disgrace that we cannot even depend on our local drugstore to charge the price that is advertised unless we are hyperactive about ensuring the receipt while still trying to be well-mannered to the clienteles in line behind us. I believe that Rite Aid counts on this and that they are still living in this shadow of the Rite-Aid fraud case.
In conclusion, as talked about previously, as an outcome of all this fraudulent endeavor, Rite Aid was told that they had to reiterate their income which was the biggest financial restatement in history. Rite aid was also commanded to stop -and- discontinue from any more…
public prosecutor for Pennsylvania's middle district also announced other related illegal charges. The SEC's protest charges the former Chief executive of Rite Aid Corp., Martin Grass and former CFO Frank Bergonzi alongside with the prior VC of Rite Aid Corp. Franklin Brown for leading and scheming a widespread accounting Rite Aid deception scandal.
Rite Aid Fraud Over the years, there have been numerous cases of financial fraud perpetuated within the organizational mainstream of major companies. Financial fraud is often a well-coordinated sort of white-collar crime that often -- but not always - requires complicity and collusion amongst financial accountants, top management and auditors. Rite Aid came to the limelight after the U.S. Securities and Exchange Commission announced that it would be filing accounting fraud
Bush, who declared that corporations which jeopardized the investments and jobs of millions of individuals should pay their dues. The United States Senate and the House of Representatives also became involved and proposed numerous modifications. The pillar of the changes occurred in financial reporting after the accounting scandals is based on increased transparency and more support in conducting audit operations. The XBRL system for instance will allow the Securities and
Government Since gang-related crimes fall within the jurisdiction of state, this research will give an insight on the need to find solutions that increasingly include all levels of government. Congress needs to pass legislation that will change immigration enforcement laws and make more aliens deportable. In addition, the federal government should take a more active participation in helping local and state jurisdictions develop anti-gang responses. The local, state and federal governments