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Former Rite Aid chief sent back to prison

By - Last modified: February 15, 2011 at 11:11 AM

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Former Rite Aid Corp. chief counsel and vice chairman Franklin Brown will go back to prison.

Federal Judge Sylvia Rambo on Wednesday re-sentenced Brown to seven and a half years in prison for fraud, obstruction of justice and tampering with a witness and other related charges, said the U.S. Attorney’s Office for the Middle District of Pennsylvania. The court told Brown to report to the Bureau of Prisons Oct. 18 to start his new sentence, according to the attorney’s office.

Brown, 82, was a key player in an infamous late 1990s company accounting scam that also involved former Rite Aid CEO Martin Grass, the son of founder Alex Grass, and former chief financial officer Frank Bergonzi, according to the attorney’s office. Brown participated in fraud and obstruction of justice for six years, the attorney’s office said.

Brown helped Bergonzi inflate company earnings using $93 million in unearned pharmaceutical rebate credits, the attorney’s office said. Rite Aid shareholders lost millions of dollars because of the fraud, and the nation’s third-largest drug store chain based in East Pennsboro Township almost folded, according to the attorney’s office.

In 2003, Brown was convicted of 10 of 11 counts and sentenced to 10 years in prison, two years of supervised release, a $20,000 fine and $1,000 in special assessments, according to the attorney’s office. Brown began serving his time on March 3, 2005. The new sentence replaces Brown's 10-year sentence. He has served five and a half years of the sentence and two more years to serve, according to the attorney's office.

A 2005 U.S. Supreme Court decision pertaining to another case forced Rambo to re-sentence Brown and consider sentencing factors, the attorney’s office said. On Aug. 16, Rambo released Brown on bail pending re-sentencing and by that time he had served five and a half years of his sentence, according to the attorney’s office.

Brown and Grass also set up a back-dated severance letter scheme that would have forced Rite Aid to pay more than $12.7 million to six corporate officers, including Brown, according to the attorney’s office. Had the scam worked, the company would have paid Brown $4.4 million when he retired, the attorney’s office said. Brown prepared the severance letters on Grass’s CEO letterhead, and Grass signed the letters after he resigned as CEO in 1999, according to the attorney’s office.

This item was modified from its previous version to clarify how much time Franklin Brown must now serve.

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