Summary Of Aaer No. 1579 On Rite Aid's Fraud

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Subject: AAER on Financial Statement Fraud by Rite Aid AAER No. 1579 on June 21, 2002 discloses to the public the SEC’s orders to Rite Aid due to their fraudulent activity. Rite Aid’s reported financial statements were false and misleading, and its books and records were inaccurate. Rite Aid was ordered to restate reported cumulative pre-tax income by a total of $2.3 billion and cumulative net income by $1.6 billion. Rite Aid was also ordered to cease-and-desist pursuant to section 21C of the Securities and Exchange Act of 1934 from committing or causing any violation, and from committing or causing any future violation, of Sections 13(a) and 13(b)(2) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder. This particular AAER does not disclose the specific facts that caused the SEC investigation, but it is my understanding that Rite Aid was being investigated due to disagreements with its auditor, KPMG, and its suspicious severance letters granting millions of dollars that were given to employees to keep them quiet over Rite Aid’s fraud. Soon after the SEC investigated Rite Aid, they uncovered a number of violations by Rite Aid. Rite Aid failed to disclose improper vendor deductions or “up charges.” Rite Aid failed to accrue expenses for Stock Appreciation Rights (SARs). Previously recorded expenses were reversed to overstate income. “Gross profit entries” were made to reduce COGS and A/P. Rite Aid was also guilty of undisclosed markdowns and creating vendor rebates to hide its “gross profit entries.” A litigation settlement was also prematurely recognized to boost revenues. Rite Aid had been capitalizing expenses for new sites for their stores. However, they did not write-off the expenses when they had a “dead deal” and did not build a new store. Instead, they continued to capitalize the expenses. Rite Aid also reversed “will-call

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