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US: Former McKesson CFO Indicted in Fraud



by Henry K. LeeSan Francisco Chronicle
March 31st, 2004

The former chief financial officer of San Francisco health care giant McKesson Corp. was indicted Tuesday by a federal grand jury for his role in a huge criminal securities fraud that wiped out $9 billion of shareholder value five years ago.

Richard Hawkins, 53, of Atherton was indicted by the grand jury in San Francisco on charges of conspiracy, securities fraud and making false statements to an accountant in connection with an audit of McKesson. Hawkins also faces similar civil charges filed Tuesday by the Securities and Exchange Commission.

The indictment, the latest in a 5-year-old investigation, constitutes the first charges brought by federal authorities against any McKesson officer who was not associated with Atlanta medical software firm HBO & Co. before its acquisition by McKesson in January 1999 for $13.9 billion. The charges relate to Hawkins' conduct during the first quarter after McKesson acquired HBOC.

In an interview Tuesday, Hawkins' attorney, Walt Brown of San Francisco, denied any wrongdoing by his client, who he helped to uncover the fraud. "Mr. Hawkins is innocent," Brown said. "It is a travesty that after a five-year investigation, on the eve of the statute of limitations, they would try to take a good-faith judgment made by an innocent man and turn it into a criminal case."

In a statement, McKesson reiterated that the company is not being investigated and noted that Hawkins left McKesson in June 1999.

HBOC grew to become the nation's leading supplier of software for hospitals, pharmacies and other medical businesses. McKesson's purchase of HBOC pummeled McKesson's stock when fraud was discovered just 3 1/2 months later. Company executives were accused of orchestrating a bogus accounting scheme that falsified company ledgers to boost HBOC's profit.

"In this case, the allegations, which now reach into the McKesson side of the company, involve a deception of striking magnitude, with an overall loss to investors from a fraudulent scheme involving this and other defendants that reaches into the billions of dollars," U.S. Attorney Kevin Ryan said in a statement.

According to the civil and criminal charges, Hawkins participated in a fraudulent scheme with other former McKesson officers to artificially inflate the company's financial results for the quarter that ended March 31, 1999, by fraudulently recognizing revenue from a $20 million transaction between McKesson and Data General Corp.

Hawkins and others reported revenue from the Data General transaction as part of the company's earnings release on April 22, 1999, despite the fact that McKesson's independent auditors told Hawkins that revenue from the transaction could not be recognized.

Soon after the fraud was discovered in April 1999, McKesson's stock price fell from about $65 to $34, slashing the company's market value by more than $9 billion.

Hawkins is the 12th person to face civil charges in the wide-ranging investigation. The SEC complaint seeks to force Hawkins to pay disgorgement and civil penalties and prevent him from serving as an officer or director of a public company.

Of six former HBOC executives who have been criminally charged, four have pleaded guilty, including former co-chief executives Albert Bergonzi and Jay Gilbertson, former sales vice president Dominick DeRosa and former finance vice president Timothy Heyerdahl.

Charges are pending against ex-HBOC chief executive Charles McCall and former general counsel Jay Lapine.





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