Stockholders v McKesson
Drug Distributor Settles Consolidated Accounting Fraud Claims for 960 Million
McKesson Corporation, a drug distributor embroiled in an accounting-fraud case since 1999, announced on January 12, 2005 that it has agreed to pay $960 million to settle a class-action shareholder lawsuit. The lawsuit was filed in April 1999, shortly after the company disclosed that its software subsidiary, HBOC, had prematurely booked $40 million in revenue, forcing an earnings restatement. On the day of the disclosure, McKesson's shares plummeted 47%, losing $8.6 billion in value. According to Bloomberg News, the settlement is the fifth-largest in U.S. history. The settlement will not become final until it has been reviewed and approved by the court at a fairness hearing. No hearing has been scheduled at this time.
The company will increase its reserves by $240 million to pay the settlement. Resolving the case will cost the company $810 million, or $2.70 a share, in net income for the third quarter ended Dec. 31.
A Justice Department probe of the accounting case resulted in criminal charges against seven former executives of McKesson and HBOC, including Charles McCall, who was McKesson's chairman when the fraud was exposed. The case against Richard Hawkins, former chief financial officer at McKesson, is scheduled to go to trial this month.
Four former HBOC executives have pleaded guilty and are cooperating with the government.
