Criminal charges last week against a seventh executive in connection with an accounting scandal at McKesson Corp. continue a sequence of prosecutions, guilty pleas and new indictments that has kept the federal investigation going-and the scandal in the public eye-for nearly five years.
In the latest action, Richard Hawkins, 53, pleaded not guilty to federal grand jury charges of securities fraud, conspiracy and making false statements to an auditor in connection with an improperly recorded $20 million sale of software to Data General Corp. in the first quarter of 1999. That transaction, allegedly signed in early April but backdated to the first quarter, was among hundreds of sales agreements recorded improperly from January 1998 to April 1999 to artificially inflate earnings and meet expectations of industry analysts and shareholders, according to the U.S. attorney's office in San Francisco.
The charges against Hawkins, who was chief financial officer when the $20 million deal was transacted, were the first against an executive on the McKesson side of a January 1999 merger with HBO & Co. that formed McKesson HBOC. The company changed its name back to McKesson Corp. in 2001. Of the six other officers brought up on various securities fraud charges, four have pleaded guilty, including former HBO senior executives Albert Bergonzi and Jay Gilbertson.
Trials are pending for Charles McCall, former chairman and chief executive officer of HBO and chairman of the McKesson HBOC board after the merger; and Jay Lapine, former HBO general counsel.
Also last week, Hawkins became the 12th McKesson officer to be charged by the Securities and Exchange Commission in connection with the scandal. In a civil action the SEC accused Hawkins of securities fraud, falsifying records and lying to accountants.
The deal with Data General, according to the indictment, not only was illegally backdated but should not have been recorded as a sale at all because it was contingent on a reciprocal agreement requiring McKesson to buy equipment from Data General in return, and because McKesson had to buy back any software Data General could not sell.
Hawkins, according to the government, spoke to other officers about negotiating the backdated transaction and later misrepresented or concealed aspects of it from an outside auditor that would have disqualified the transaction from being recognized as revenue. But Walter Brown, an attorney representing Hawkins, said his client sought out McKesson's auditors as soon as he was told of the questionable transaction, asking them to "give it special attention" in their audit.
Calling the indictment "a grave injustice," Brown said Hawkins also was not aware of the undisclosed facts regarding the disqualifying aspects of the transaction, and Hawkins' actions will prove it.