Former McKessonHBOC Chairman Sentenced to 10 Years in Prison

March 8, 2010 - SAN FRANCISCO—On March 5, 2010, Charles W. McCall was sentenced to 10 years in prison following his convictions for four counts of securities fraud and one count of circumventing internal accounting controls at a public company, First Assistant United States Attorney David L. Anderson announced.

On Nov. 19, 2009, a jury 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.

At the sentencing hearing, U.S. District Court Judge William H. Alsup sentenced McCall to 120 months on each securities fraud count and 60 months on the circumventing internal accounting controls count, sentences to run concurrently. Judge Alsup also imposed a $1 million fine. The United States introduced expert testimony to establish that the loss to investors from the fraud exceeded $8.6 billion. Judge Alsup denied McCall bail pending appeal and ordered that he surrender to the United States Marshal on March 31, 2010, at noon.

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 47 percent with the news of the restatement wiping out approximately $8 billion in shareholder value in one day.

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 September 30, 1998 and in a registration statement filed on November 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 was indicted on June 3, 2003. The first trial of this indictment resulted in a mistrial in November 2006.

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.