Former McKesson HBOC Chairman Convicted of Securities Fraud Defrauded Investors Lost in Excess of $8 Billion

U.S. Attorney’s OfficeNovember 19, 2009

Northern District of California(415) 436-7200

SAN FRANCISCO—Charles W. McCall was convicted by a federal jury today of four counts of securities fraud and one count of circumventing internal accounting controls at a public company, announced First Assistant United States Attorney David L. Anderson.

The jury, after deliberating two days, found that McCall, 65, of Delray Beach, Fla., had engaged in an accounting fraud between December 1997 and April 1999 that falsely inflated the publicly reported revenues of HBO & Company of Alpharetta, Ga. (“HBOC”) and McKessonHBOC of San Francisco. The guilty verdict followed a three-week jury trial before U.S. District Court Judge William H. Alsup.

In 1997, when the fraud began, McCall was Chief Executive Officer of HBOC. On Jan. 12, 1999, when McKesson Corporation acquired HBOC, the corporation’s name changed to McKessonHBOC, and McCall became Chairman of the Board of Directors of the newly-combined company. On April 28, 1999, MckessonHBOC announced that it would restate its financial performance for the quarter ending March 31, 1999 after detecting aspects of the fraud. The price of McKessonHBOC’s stock, which traded on the New York Stock Exchange, dropped by approximately 47percent with the news of the restatement wiping out approximately $8 billion in shareholder value in one day.

Co-defendant Jay M. Lapine, 58, of Duluth, Ga., the former General Counsel of HBOC and former in-house counsel at McKessonHBOC, was acquitted of securities fraud, falsifying books and records, and circumventing internal accounting controls. McCall was acquitted of one count of falsifying books and records.

Evidence at trial showed that McCall participated in a scheme to defraud that falsely inflated, by an amount in excess of $100 million, the software revenues reported by HBOC and McKessonHBOC. McCall knew that sales persons within the companies entered into contingent software sales that, if known, would have required the revenue to be deferred but were concealed in so-called side letters and withheld from the companies’ outside independent auditors. The jury found that McCall had falsified HBOC’s financial statements for the quarter ending June 30, 1998, the quarter ending Sept. 30, 1998 and in a registration statement filed on Nov. 13, 1998 in conjunction with the announced merger with McKesson. The jury further found that McCall engaged in a similar scheme that continued into the quarter ending March 1999 and involved the financial statements of the newly-merged company, McKessonHBOC.

McCall and Lapine were indicted on June 3, 2003. The first trial of this indictment resulted in a mistrial in November 2006.

Judge Alsup scheduled McCall for sentencing on March 2, 2010 at 2 p.m. in San Francisco.The maximum statutory penalty for each count in violation of 15 U.S.C. §§ 78j(b) and 78ff and 17 C.F.R. § 240.10b-5 (securities fraud) and 15 U.S.C. §§ 78m(b)(2)(B), 78m(b)(5) and 78ff (circumventing internal accounting controls) is twenty years and a fine of $5,000,000, plus restitution if appropriate. However, any sentence following conviction would be imposed by the Court after consideration of the U.S. Sentencing Guidelines and the federal statute governing the imposition of a sentence, 18 U.S.C. § 3553.

First Assistant U.S. Attorney David L. Anderson and Assistant U.S. Attorney Adam A. Reeves prosecuted the case with the assistance of Paralegal Specialist Lakisha Holliman and Legal Assistant Jennifer Hiwa. The prosecution is the result of a multi-year investigation by the Federal Bureau of Investigation and the United States Securities and Exchange Commission.

Further Information:

Case #: CR 00-0505 (WHA)

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