U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 21527 / May 20, 2010
Accounting and Auditing Enforcement Release No. 3136 / May 20, 2010
Securities and Exchange Commission v. Charles McCall, Case No. C-03-2603 WHA (N.D. Cal.)
SEC Settles Civil Fraud Injunctive Action Against Former McKesson Corporation Chairman
On May 18, 2010, a consent and final judgment against Charles McCall was entered by the United States District Court for the Northern District of California. McCall was charged in a previously-filed action with securities fraud in connection with a financial reporting fraud at McKesson HBOC, Inc. (now, McKesson Corporation), a Fortune 100 company headquartered in San Francisco, California. McCall consented to the entry of judgment without admitting or denying the allegations of the Commission's complaint except as to jurisdiction.
The Commission's Complaint
The complaint, filed June 4, 2003, alleged that McCall, together with other senior executives, participated in a long-running fraudulent scheme to inflate the revenue and net income of HBO & Company (HBOC), an Atlanta, Georgia-based vendor of health care technology that merged with McKesson in 1999. McCall, the Chief Executive Officer and Chairman of HBOC and then Chairman of McKesson HBOC, personally took part in negotiating at least two contracts with side letter agreements containing cancellation contingencies, one of which was also backdated. As a result of the scheme, according to the complaint, the companies were able to recognize revenue in earlier reporting periods. These practices failed to comply with Generally Accepted Accounting Principles.
The complaint alleged that the fraud allowed HBOC and McKesson HBOC to report falsely in press releases and in periodic reports HBOC filed with the Commission that the companies were having an unbroken run of financial success and had continually exceeded analysts' expectations. However, when McKesson HBOC announced in April 1999 that the company was conducting an internal investigation into financial reporting irregularities, its shares tumbled from approximately $65 to $34, a drop that slashed its market value by more than $9 billion.
The final judgment against McCall permanently enjoins him from violating Section 17(a) of the Securities Act of 1933 and Sections 10(b), 13(b)(5) and 20(a) of the Securities Exchange Act of 1934 ("Exchange Act") and Rules 10b-5, 13b2-1 and 13b2-2 thereunder. In addition, McCall was permanently barred him from acting as an officer or director of a public company and was ordered to pay a total of $1,878,128 in disgorgement and prejudgment interest. On November 19, 2009, McCall was convicted of securities fraud and related charges arising from the fraud at HBOC and McKesson HBOC. He was sentenced to ten years' incarceration and ordered to pay a $1 million criminal fine.