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Franklin Brown started with Rite Aid Corp. in 1963, when it had a single pharmacy. As the company grew into one of the largest drugstore chains in the country, he rose to become chief counsel and vice-chairman of the board. Last year, however, federal prosecutors charged that Brown and other Rite Aid executives almost destroyed the company by engaging in a $1.6 billion accounting fraud. At the end of June, Brown was trying to decide whether to strike a plea agreement with prosecutors, or face trial on a 35-count criminal indictment. Judge Sylvia Rambo gave the 75-year-old lawyer until July 14 to make his decision. One of Brown’s defense attorneys, Reid Weingarten of Washington, D.C. — based Steptoe & Johnson, said at press time that while he didn’t know which way his client would go, “trial is likely.” If Brown decides to take his chances in the courtroom, he will stand alone. His fellow defendants, former CEO Martin Grass and former CFO Frank Bergonzi, pled guilty in June and are cooperating with prosecutors. The initial charges against the three executives claim that they conspired to cook the books from 1997 to 1999 in order to falsely inflate Rite Aid’s stock value, and then lied to the Securities and Exchange Commission. The company brought in new management in late 1999, admitted that it had overstated its income by $1.6 billion, and narrowly avoided bankruptcy. According to Weingarten, Brown made “Rite Aid his second family for more than 30 years. His actions are completely inconsistent with a guy who was trying to hurt Rite Aid.” (Weingarten also represents Mark Belnick, the former GC of Tyco International Ltd.) Brown’s other defense attorney, Joseph Metz of Philadelphia’s Dilworth Paxon, says his client “believes in the validity of his position — that there may have been some errors in judgment, but he committed no fraud.” According to Metz, Brown held on to Rite Aid stock that dropped from a high of $50 per share to around the current $4, losing “millions in stock value.” Metz maintains, “A slick white-collar criminal wouldn’t have done that.” The U.S. attorney’s office declined to discuss the case. But the indictment against Brown accuses him of misleading Rite Aid’s outside accountants at KPMG regarding the timing of a $17 million litigation settlement in order to cover up a $1 million loss. Brown is accused of causing KPMG to include the settlement in the quarter in which an oral agreement was reached, but before any settlement money had changed hands. The ex-chief counsel is also charged with knowingly allowing Rite Aid to defraud its vendors by systematically inflating deductions against amounts they were owed for damaged and outdated products, and for rebates and other vendor charges. In addition, Brown allegedly prepared backdated documents for Grass in an effort to cover up some real estate misdealings. Ex-CEO Grass, the son of Rite Aid’s founder, pled guilty to two counts of conspiracy. In his plea, Grass implicated Brown in the backdating of documents. Ex-CFO Bergonzi pled guilty to one count of conspiracy. Former president Timothy J. Noonan, the first to flip, helped gather evidence against the other three executives.

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