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.
-
Pension investors targeted by fine wine scams – the tactics to watch forWine has emerged as the latest lure in investment fraud, with pensioners being specifically targeted by scammers
-
FCA car finance compensation: £700 each expected for 14 million driversEligible motorists could begin getting a payout from next year under the financial watchdog’s planned car finance compensation scheme
-
Pierre-Édouard Stérin wants to make France great againConservative billionaire Pierre-Édouard Stérin is seeking to lead a political and spiritual renaissance across the Channel. The planning looks meticulous
-
Global investors have overlooked the top innovators in emerging marketsOpinion Carlos Hardenberg, portfolio manager, Mobius Investment Trust, highlights three emerging market stocks where he’d put his money
-
Pinewood Technologies: a drive for growthPinewood Technologies’ platform is one of the best in the business. Investors should buy in
-
'EV maker Faraday Future will crash'Faraday Future Intelligent Electric is failing dismally to live up to its name, says Matthew Partridge
-
Investors should cheer the coming nuclear summerThe US and UK have agreed a groundbreaking deal on nuclear power, and the sector is seeing a surge in interest from around the world. Here's how you can profit
-
8 of the best houses for sale with folliesThe best houses for sale with follies in the grounds – from a five-storey Victorian Gothic tower in Tonbridge, Kent, to a former mill in Oxfordshire with gardens that include a folly on an island in a lake
-
A tale of two Reits – why performance matters for valuationAEW UK and Regional are two Reits that are valued very differently, despite a shared focus on properties outside London
-
Healthcare stocks look cheap, but tread carefullyShares in healthcare companies could get a shot in the arm if uncertainty over policy in the US wanes, but are they worth the risk?
