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Aug 16 2007 12:00am EDT

The Scandal That Won' t Die

Federal regulators have settled their civil case against yet another executive implicated in the massive McKesson HBOC scandal of a decade ago.

Michael G. Smeraski, a senior sales vice president at HBO, a health services software maker McKesson acquired in the 1990s, agreed to pay a civil penalty of $50,000 to settle the Securities and Exchange Commission's case against him. He neither admitted nor denied the allegations.

A half dozen former HBO executives were implicated in a scheme to inflate their company's revenue while McKesson was in talks to acquire the company. Several of them pleaded guilty to securities fraud after admitting they had conspired to falsify earnings reports by inflating software sales and backdating contracts to make HBO more attractive.

When the fraud was uncovered in April 1999, shares in McKesson—then a Fortune 100 company—shares plunged 48 percent in a single day.

That was because of the scale of the fraud: At one point HBO falsely said its profit was seven times higher than it really was. McKesson eventually restated its financial results for 1998 and the first three months of 1999.

by Mark Stein


Laura Rich is a co-founder of Recessionwire, which provides news, advice, perspective and humor about the recession and the recovery.
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