Analyze the case against Martin L Grass of Rite Aid Project Paper

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Martin L. Grass of Rite Aid Accounting Scandal

Rite Aid is a pharmaceutical and drugstore chain, which was founded in 1968 as public. The founder of the company was Alexander Grass. The Headquarter of the company is situated in Camp Hill, Pennsylvania (Rite Aid: Our Company, 2009). The company is also named in the fortune 500 list and it is one of biggest drug store in East Coast area and held third position in the United States of America. The company runs approx 4900 drug stores in more than 31 states (Rite Aid: Our Company, 2009). There are more than 113,000 employees are working. At the end of fiscal year 2007, total revenue of the company was $27 Billion (USD) (Rite Aid: Our Company, 2009).

This paper is related to the accounting scandal of Rite Aid that was done by Martin L. Grass. This was the biggest accounting scandal of the company and it was a huge cost. Due to this most senior executive of the company was suffered in a drastic manner (Kercheval, 2002). By mean of this report, the reader would be able to understand the various aspects that are associated with the Accounting Scandal of Rite Aid and Martin L. Grass, who was the responsible for this kind of scandal.

The Securities and Exchange Commission filed a case regarding accounting scandal in June 21, 2002, against senior executives of Rite Aid Corporation, Martin L. Grass. This case was filed in federal district court in the Middle District of Pennsylvania (Securities and Exchange Commission, 2002).

In order to sort out this problem the subject (Martin L. Grass) could be tried in the civil court of USA legal system.

The defendants of this case were involved in the fraud and misrepresentation from March 1997 to September 1999. In this scandal, the key executives of the company manipulated all the data and financial information and present a false data to the public. The main reason behind this scandal was the make enrich themselves (Key Executives) with the help of performance based bonus and cash (Kercheval, 2002). According to the defendant's direction, the accounting staff of Rite Aid Company had evaluated all the records and financial data and found a lot of misrepresentation and manipulation in the data. All the financial entries were found inadequate and based on unsubstantiated.

Due to this false representation, the financial report of the company in the eyes of public was also false and misleads the public. A part from this, Defendants were also found guilty to report public the failed data to public and to disclose various party transactions. Grass also made some material misrepresentation to the lenders of Rite Aid, so that he can get a loan from them. For this he arranged a formation and made a deal with them to obtain a good amount of loan (U.S. Securities and Exchange Commission, 2005).

In the proceeding of the case, it has been found that this scandal had comprised various kinds of accounting fraud such as irregularities in the vendor related accountings, false representation of stock appreciations rights, improper vendor deductions, undisclosed markdowns, reduction in previously recorded expenses, inventory shrinks, fraud related to the canceled benefited party transaction, fraud related to stock pledge, etc. (Securities and Exchange Commission, 2002).
On the basis of these acts, security and exchange commission charged against CEO and CFO of the company that these fraudulent transactions were the cause of significant inflation in the net income of the Rite Aid from the period of May 1997 to May 1999. Another charged on Grass and Brown was related to conceal some related parties transactions that improve the share holder expenses of Grass (U.S. Securities and Exchange Commission, 2005). The final judgment of the case was based on these facts and true presentation of various frauds in the organization and according to this Martin L. Grass was founded guilty (Securities and Exchange Commission, 2002).

Martin L. Grass had entered in to a plea bargaining agreement (Kercheval, 2003). According to this plea bargaining agreement, Mr. Grass had been agreed about his fraud with the company. Mr. Brown and Mr. Bergonzi were also incorporated in this agreement. For this act Mr. Grass was charged for eight years in federal prison and penalty of US $500,000 and forfeiture of $3 million (Former Rite Aid CEO Grass Pleads Guilty, 2003).

If Mr. Grass were not entered into a plea agreement, these charges would be high. There might be chances to block all the property of Grass and he would punish to recover all the loss of the company. It would be possible that he would spend more time than eight years in prison (Judge Rejects Plea Deal, 2004). All these charges would be differed from the charges of plea bargaining agreement. The conclusion of case was that, Martin L. Grass was found guilty and charged for eight years prison and penalty of $500,000.

Although, this was a massive accounting scandal of that time but Mr. Martin L. Grass had entered into a plea agreement in a smart way. In 2002, at the time of proceedings and evaluating the process Martin L. Grass said that ''did not knowingly engage in any illegal acts and I intend vigorously to defend the charges" (Gilpin, 2002). This was the situation when Rite Aid was facing the charges claimed by US Security and exchange Commission.

According to Martin, he didn't want to enter in any kind of illegal act, but ...