Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

Friday, May 21, 2010

Former HBOC CEO Settles Financial Fraud Charges

The SEC settled fraud charges against Charles McCall, former CEO and Chairman of HBOC and then Chairman of McKesson HBOC, stemming from allegations of 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.  McCall was previously 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.

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. According to the SEC, McCall 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 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.

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