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The U.S. attorney’s office on Sept. 28 announced it will charge two former top executives of a Georgia-based health care company with massive securities fraud. A 17-count federal grand jury indictment accuses the former president and chief operating officer of HBO & Co., Albert Bergonzi, 50, and the company’s former chief financial officer, Jay Gilbertson, 40, of making false revenue statements, altering company books, and misleading regulators in connection with the company’s acquisition by San Francisco-based health care giant McKesson Corp. “This case is a poster child for the devastating effect of fraud by corporate management,” Northern District U.S. Attorney Robert Mueller III said. “When corporate managers engage in financial accounting fraud, they must be held accountable.” The year-long investigation by the U.S. attorney’s office, the FBI and the Securities and Exchange Commission paralleled a massive private securities fraud suit filed by McKessonHBOC shareholders in San Jose federal court. That case is expected to settle for as much as $1 billion. Mueller has vowed to crack down on Silicon Valley shenanigans. He formed a high-tech crime unit earlier this year. But despite a thriving plaintiffs bar in civil stock fraud suits, criminal fraud indictments like the ones announced Thursday remain rare. The federal investigation began shortly after McKesson and HBOC merged. Auditors retained by the company discovered the alleged fraud and announced they would restate earnings, causing the stock to drop more than 40 percent in one day, a market loss of $9 billion. Several executives at McKessonHBOC Inc. lost their jobs as a result, but only Bergonzi and Gilbertson have so far been charged with crimes. Mueller said the investigation is continuing. The SEC also announced Thursday a civil suit aimed at the same defendants, seeking to recover millions of dollars in profits the two made from the alleged misdeeds. Both men are expected to surrender to authorities within the next week. “Because we haven’t seen any of the papers and haven’t done any analysis on them, we really can’t discuss them in any intelligent fashion,” said Gilbertson’s attorney, Robert Plotkin, of counsel at Paul, Hastings, Janofsky & Walker in Washington, D.C. Plotkin did, however, deny the charges. Gilbertson left the company in November 1998 to become president and chief operating officer of WebMD Corp., but left that company last year after it was announced that Santa Clara-based Healtheon Corp. would purchase the Internet start-up. Bergonzi is being represented by Cooley Godward partner and former U.S. Attorney Joseph Russoniello, who could not be reached for comment. Helane Morrison, district administrator for the SEC in San Francisco, said the case was “one of the largest financial fraud cases we’ve ever seen. “This case shows that financial fraud can occur at a major, respected company and can reach the highest levels of management,” Morrison said. “They succumbed to the pressures of the marketplace.” The SEC has settled its case with Dominick DeRosa, the former vice president of enterprise sales at HBOC. DeRosa will return $361,000 in ill-gotten gains, pay a $50,000 fine and agree not to serve as an executive with any publicly traded company for five years. Despite the high volume of private stock-drop suits filed in recent years, criminal charges have been few and far between. Mueller said such cases are “time intensive [and] paper intensive,” despite McKessonHBOC’s and some plaintiffs attorneys’ reported cooperation with the FBI. Even U.S. District Judge Ronald Whyte remarked in Aronson v. McKessonHBOC, 99-20743, the private securities class action, that McKessonHBOC’s announcement of the accounting irregularities was a “rather startling admission.” In a tentative ruling, Whyte has refused to dismiss civil claims leveled against several more individual defendants, including Charles McCall, the former chairman of HBOC who later became the chairman of the combined firm. He is no longer with the company. “To me, it reinforces the importance of the private enforcement of securities fraud,” said Alan Schulman, who is marshaling the civil McKessonHBOC suit for his firm, the San Diego office of New York’s Bernstein Litowitz Berger & Grossmann, and for Philadelphia’s Barrack, Rodos & Bacine. “This will put the pressure on everyone to settle this litigation,” Schulman said. He declined to say whether he had been contacted by the U.S. attorney’s office during its investigation. Noting that it took a year to bring charges against executives of the company, some in the plaintiffs bar blame poor funding of the SEC’s local enforcement division, although the U.S. attorney’s office is better funded. In 1993, indictments were handed down against former California Micro Devices Corp. executives, also concurrent with a large private securities suit. Those convictions, however, were recently overturned by the 9th U.S. Circuit Court of Appeals. “Once I finish saying [Cal Micro], I can’t think of another [indictment],” said Milberg Weiss Bershad Hynes & Lerach partner Reed Kathrein, a veteran securities class action lawyer. The U.S. attorney’s office has not announced if it will retry the defendants in the Cal Micro case.

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