Great frauds in history: Martin Grass’s debt binge
AS CEO of pharmacy chain Rite Aid. Martin Grass borrowed heavily to fund a string of acquisitions, then cooked the books to manage the debt, inflating profits by $1.6bn.
Martin Grass was born in 1964 and grew up in Harrisburg, Pennsylvania. After graduating from the University of Pennsylvania and doing an MBA at Cornell, he started working for Rite Aid, the pharmacy chain set up by his father, Alex, in 1962. In 1989 he was arrested for attempting to bribe a member of the Ohio state pharmacy board to step down in exchange for $33,000, although he was ultimately acquitted 15 months later when a judge ruled that the prosecution’s evidence was “circumstantial”. Despite this scandal, he took over from his father as both CEO and chairman of Rite Aid in 1995.
What was the scam?
What happened next?
The gap between the stated financials and reality grew so big that by October 1999 Rite Aid was forced to restate its earnings between 1997 and 1999, and lower its guidance for future profits, causing its shares to plunge by more than three-quarters. Grass was forced to resign, though it was later revealed that, even after he quit, he colluded to forge backdated documents giving several Rite Aid executives generous severance payments. He was charged with fraud in 2002 and sentenced in 2004 to eight years in jail.
MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Lessons for investors
Investigations revealed that Grass’s deceptions inflated profits by $1.6bn between 1997 and 1999. Rite Aid’s shares were trading at more than $50 at the start of 1999, but they fell to less than $10 a share by the end of the year, wiping more than $40bn off their value. At one point in 2009 they were trading at just $0.25. Borrowing large sums of money to fund expansion can work, but it can also create pressures on CEOs to cut corners. More generally, studies suggest that shares of firms with higher levels of debt tend to underperform.
-
Halifax: UK house prices at lowest level since summer as growth slowsProperty prices fell by 0.6% month-on-month in a typical Christmas season slowdown, Halifax’s latest house price index shows.
-
In the money: how my trading tips fared in 2025The success of the open positions offset losses on closed ones, says Matthew Partridge
-
In the money: how my trading tips fared in 2025
The success of the open positions offset losses on closed ones, says Matthew Partridge
-
Vietnamese stocks are charging ahead – what to buyVietnam has been upgraded from a frontier to an emerging market. It remains a promising pick, says David Prosser
-
'Investors will reap long-term rewards from being bullish on UK equities'Opinion Nick Train, portfolio manager, Finsbury Growth & Income Trust, highlights three UK equities where he’d put his money
-
The graphene revolution is progressing slowly but surely – how to investEnthusiasts thought the discovery that graphene, a form of carbon, could be extracted from graphite would change the world. They might've been early, not wrong.
-
A strong year for dividend hero Murray International – can it continue its winning streak?Murray International has been the best-performing global equity trust over the past 12 months, says Max King
-
The shape of yields to comeCentral banks are likely to buy up short-term bonds to keep debt costs down for governments
-
The sad decline of investment clubs – and what comes nextOpinion Financial regulation and rising costs are killing off investment clubs that once used to be an enjoyable hobby, says David Prosser
-
How to profit from the UK leisure sector in 2026The UK leisure sector had a straitened few years but now have cash in the bank and are ready to splurge. The sector is best placed to profit
