Troubling Times

Nov 1, 2000 12:00 PM, Susanne Hopkins and Richard Park

Former HBO & Co. Execs Indicted; McKesson Sues W3Health for Alleged Theft of Trade Secrets

San Francisco

In what is being called one of the nation's largest securities fraud cases, two former HBO & Co. top executives were indicted by a federal grand jury on 17 counts of fraud and conspiracy.

Albert Bergonzi, 50, of Alpharetta, Ga., and Jay Gilbertson, 40, of Duluth, Ga., former co-presidents of the health care software firm, are suspected of inflating company revenue by millions of dollars and defrauding shareholders and investors from 1997 to 1999. They are also accused of concealing accounting irregularities during merger discussions with medical products wholesaler McKesson. The two companies merged in January 1999 to become McKesson HBOC.

After McKesson discovered the irregularities in April 1999, the announcement of the accounting problems prompted the company's stock to go into a free fall, losing half its market value and causing millions of shareholders to lose an estimated $9 billion, according to government prosecutors.

According to the indictment, Gilbertson reaped $7 million through bonuses tied to company performance and by trading inflated stocks. Bergonzi allegedly made $4 million in bonuses and inflated stock trades.

The Securities and Exchange Commission has filed a civil complaint against the two. The complaint also names Dominick A. DeRosa, formerly the vice president of enterprise sales at HBO & Co. DeRosa settled allegations that he concealed the fraudulent activities, agreeing to repay the $361,000 that authorities said he made illegally and a $50,000 penalty.

In other news, McKesson HBOC is suing W3Health and 12 former McKesson employees in Massachusetts Superior Court, claiming theft of trade secrets and proprietary information associated with its Clinical Resource Management System, a reporting and risk-analysis software package.

Specifically, the suits allege that W3Health, based in Wilmington, Mass., solicited the individual defendants to leave McKesson and help develop and market W3Health's competing Distributed Reporting System software.

In addition to monetary damages, McKesson is seeking to enforce agreements it claims its former employees signed barring them from working at competing companies or disclosing trade secrets. "Our intellectual property is one of our core business assets, and we will not allow others to unfairly profit from its use," said David Mahoney, co-chief executive officer of McKesson HBOC. "McKesson HBOC intends to pursue the full range of relief available to it in the courts."

Doug Percy, W3Health chairman and chief executive officer, said: "McKesson HBOC is using an increasingly common business tactic: suing a potential competitor that has developed a superior product. ...We believe this is an obvious effort to slow down our growth. ... W3Health does not intend to change its business strategy in reaction to this suit."