Rite-Aid.docx - Background Established in 1968 Rite-Aid was...

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Background Established in 1968, Rite-Aid was incorporated as a business dealing with the supply of medical drugs through the operation of several retail prescription stores[Tho04]. The corporation was also involved in the marketing and promotion of prescription plans, management of pharmacy benefits as well as the management of health care services. The headquarters of the company were located in the state of Pennsylvania, even though its primary accounting staff were located in a separate facility within the same state. Given that Rite-Aid was a publicly traded company, its stocks were traded in the New York Stock Exchange (NYSE) and by mid of May, 1999 the corporation had an excess of 257 million ordinary shares[Gov02]. The company also dealt in the trade of other securities apart from ordinary shares such as debentures and other forms of short term notes. Since the company was selling securities to the public, it was under obligation to comply with the federal securities regulations, particularly the Securities Act and the Securities Exchange Act of 1933 and 1934 respectively[Law05]. The primary objective of these laws is to ensure that companies prepare and present accurate, transparent and reliable financial information as well full disclosure of the same to the public. Additionally, Rite-Aid was under requirement to produce quarterly financial reports reflecting its performance in addition to the conventionally required annual statements. Charges Filed By the SEC in November of 1995, Rite-Aid filed a statement of registration with the SEC. This statement contained comprehensive information relating to its operations and financial statements of prior years and as a consequence, the SEC mailed several correspondence letters aimed at questioning the validity of the company’s financial statements[Tho02]. During the subsequent ten months,
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the company submitted answers to the questions of SEC in the form of misleading and inaccurate financial information, causing the SEC to commence an in-depth scrutiny of the company. An investigation by the SEC revealed that the company’s executives had orchestrated a strategy aimed at portraying Rite-Aid as a profitable company in order to gain and maintain a respectable position on the NYSE, while in the real sense this was a mirage and ruse. This was achieved through the perpetration of significant fraudulent accounting and reporting, deliberate fabrication of the reported financial information as well as the filing of inaccurate and misleading information with the SEC[Nic10]. the corporation was found to be understating its expenditure and overstating its incomes by large proportions in order to report incorrect profits amounting to hundreds of millions of dollars. The reports were created in ways that were in direct contravention with the Generally Accepted Accounting Principles (GAAPs).
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