Rent-Way Executives Plead Guilty

United States Attorney Mary Beth Buchanan announced today, July 22, 2003, that three individuals have pleaded guilty in federal court in Erie, Pennsylvania, to charges stemming from an investigation into a sixty million dollar financial reporting fraud involving the Erie-based company Rent-Way, Inc. (Rent-Way). All three defendants, then residents of Erie, Pennsylvania, waived Indictment and pleaded guilty to criminal charges before United States District Judge Sean J. McLaughlin.

Jeffrey A. Conway, age 45, of 268 Delta Drive, Mandeville, Louisiana, formerly the Chief Financial Officer and President of Rent-Way, pleaded guilty to a conspiracy to falsify Rent-Way's books and records and to circumvent Rent-Way's internal controls; Matthew J. Marini, age 38, a resident of Erie, Pennsylvania, formerly the Controller and Chief Accounting Officer of Rent-Way, pleaded guilty to securities fraud; and Jeffrey K. Underwood, age 47, a resident of Bradenton, Florida, formerly the Senior Vice President of Operations of Rent-Way, pleaded guilty to a charge of falsifying books, records, and accounts of Rent-Way.

According to information presented to the court by United States Attorney Buchanan and Assistant United States Attorney Marshall J. Piccinini, Conway conspired with Marini, Underwood and others in an illegal scheme to artificially meet or exceed Wall Street analysts' earnings expectations by circumventing Rent-Way's internal accounting controls and falsifying Rent-Way's books and records. The accounting falsifications served to artificially inflate Rent-Way's publicly reported earnings by falsely and fraudulently reducing reported expenses and by overstating the value of various asset accounts. Rent-Way filed with the Securities and Exchange Commission quarterly reports in 1999 and 2000, and an annual report in 1999 that materially misstated Rent Way's income and earnings per share. Conway, Marini, and Underwood, and other former employees at Rent-Way, circumvented internal accounting controls, and altered certain books, records, and accounts in an effort to artificially meet or exceed the earnings per share projections and expectations of investment analysts and its shareholders.

Marini directed Rent-Way's accounting staff to make fraudulent entries, falsely crediting various accounts and falsely debiting other accounts, without supporting documentation or proper business rationale. These false entries inflated Rent-Way's publicly reported earnings, income, and earnings per share. Marini also caused false and fraudulent entries to be made in Rent-Way's general ledger, took steps to delay or hold the recognition of various expenses in the proper fiscal period, and artificially inflated the value of Rent-Way's inventory.

Underwood, in order to artificially reduce expenses and meet the company's earnings projections, directed operations personnel not to write-off various operational expenses. As a result, Rent-Way deferred approximately $550,000 of operational expenses from fiscal year 1999 to fiscal year 2000, and held write-offs of approximately $1.1 million in operational expenses in fiscal year 2000.

United States Attorney Buchanan stated "these convictions send a strong message to companies in this district and throughout the United States, that executives who lie on company financial statements to manipulate earnings, and circumvent the internal accounting controls of the companies they lead, will be prosecuted to the fullest extent of the law." With regard to the conviction of Jeffrey A. Conway, Ms. Buchanan noted that "the days where senior corporate executives can avoid criminal liability by hiding behind the veil of plausible deniability and deliberate ignorance of criminal accounting procedures being conducted under their watch are over. Corporate executives who know or strongly suspect that their officers, managers or employees are involved in criminal conduct, but deliberately avoid learning about the exact nature or extent of the conduct, will be held criminally responsible."

Ms. Buchanan also recognized the significant cooperation provided by company officials at Rent-Way and stated that "this case is a good example of how a company can alleviate some of the significant consequences stemming from the misconduct of its former employees, by fully and openly cooperating with the government."

The law provides for a maximum total sentence for Conway of five years in prison, a fine of $250,000, or both. For Marini and Underwood the law provides for a total sentence of ten years in prison, a fine of $1,000,000, or both. Under the Federal Sentencing Guidelines, the actual sentence imposed would be based upon the seriousness of the offenses and the prior criminal history, if any, of the defendants. The Federal Bureau of Investigation and the Securities and Exchange Commission conducted the investigation leading to the guilty pleas in this case.