If you think back to late 1998 you may remember that stodgy drug distributor McKesson bought hospital software company HBOC. HBOC had grown into being the biggest HIT software supplier, mostly through a series of acquisitions through the 1990s. At that point most observers believed that McKesson was mistakenly buying a  company that had run out of growth potential and was selling out at the top. If you remember 1999 (and if you owned McKesson stock you probably do!), it became apparent to McKesson that the news was much worse. They discovered that HBOC’s profits were fictional and found that Charles McCall, its new CEO acquired with HBOC, was behind the fraud. In one day McKesson lost half its value. 

Fast forward to last Friday, a mere 4 years and 6 odd months later, and one of the guilty parties, former Exec VP Albert Bergonzi admitted it. Meanwhile the biggest fish, McCall, was indicted only in June 2003. Evidence given by some of the others, notably ex-CFO Jay Gilbertson, shows that the fraud was started in early 1997 basically to dress the company up for sale.

So apart from the awful luck McKesson had by failing to do its due diligence properly, and the consequent suffering of the shareholders (Mckesson’s stock is still where it was immediately after the fraud was announced), the real question is why does it take the better part of 5 years for this fraud to be prosecuted? And does that delay help to encourage other white collar criminals to cheat the books and the rest of us?