Former executives of medical software maker HBO & Co., which merged last year with San Francisco's McKesson Corp., were charged with falsifying company ledgers to boost HBOC's profits. Jay Gilbertson, 40, and Albert Bergonzi, 50, HBOC's co-presidents and co-chief operating officers prior to the merger, have been charged with 17 counts of securities fraud, conspiracy, mail fraud and wire fraud related to what investigators termed "cooking of books" at HBOC, The Chronicle reported. Gilbertson also served as the company's chief financial officer, the paper said.

According to authorities, Gilbertson, Bergonzi and a third suspect, Dominick DeRosa, conspired beginning in late 1997 to boost HBOC's share price by fraudulently exaggerating the company's financial results, The Chronicle reported.

Securities regulators said Gilbertson and Bergonzi coordinated HBOC's efforts to manipulate accounting records by concealing and back-dating various contracts and by altering ledgers to inflate the company's net income, according to the report last week.

Investors were misled when HBOC and, later, McKesson HBOC reported financial results based on the bogus accounting. The alleged scheme came to light three months after the merger when company auditors reported to McKesson HBOC's board of directors that something was seriously wrong with the books, according to the paper.

An outside accounting firm was brought in to investigate, and McKesson HBOC announced on April 28, 1999, that it would be forced to restate several years' worth of earnings reports, plummeting its stock pricing. That day, the firm's stock tumbled to $34.50 from a high of almost $66 a share. According to the report, the company's stock last week at closed $30.50.

Morrison said that before the alleged accounting fraud was revealed, Gilbertson sold off $7 million worth of HBOC shares and Bergonzi unloaded $4 million worth of the company's stock.

"This case is a poster child for the devastating effect of financial fraud by corporate management," U.S. Attorney Robert Mueller reportedly told The Chronicle.

The indictments represent one of the largest financial crimes ever investigated by the FBI, Bruce Gebhardt, head of the FBI's San Francisco office reportedly said.

DeRosa, who served as HBOC's vice president of enterprise sales, has reportedly since settled with the SEC, agreeing to pay more than $400,000 in restitution and fines, and is cooperating with investigators in their case against the former co-presidents, The Chronicle said.

According to McKesson spokesman Larry Kurtz, Gilbertson left HBOC before the merger, in November 1998, and Bergonzi, who served as head of information technology for the merged company, was fired in June 1999, along with three other former HBOC executives, the paper reported. Kurtz said McKesson HBOC has cooperated "fully and completely" with federal investigators since the alleged fraud was revealed.

According to the article, Mueller, the U.S. attorney, said Gilbertson and Bergonzi face a maximum of ten years in prison and a fine of $1 million if found guilty of violating securities fraud laws. Each count of conspiracy, mail fraud and wire fraud carries a maximum penalty of five years in prison and a fine of $250,000. Mueller also said the investigation of McKesson HBOC is continuing, but declined to say whether additional indictments are expected.

-- SmartPros News Staff

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