U.S. Securities and Exchange Commission

Litigation Release No. 16008 / December 22, 1998.
Accounting and Auditing Enforcement Release No. 1091
SEC SUES W.R. GRACE & CO. FOR FINANCIAL FRAUD INVOLVING
EARNINGS MANIPULATION

Securities and Exchange Commission v. W.R. Grace & Co., Civil
Action No. 98-8942 CIV Hurley  (S.D. Florida, filed December 22,
1998)

   The Securities and Exchange Commission today sued W.R. Grace
& Co. for financial fraud, including manipulation of its reported
quarterly and annual earnings.  The complaint, filed in federal
court in Florida’s Southern District, seeks an injunction and
civil penalties.

   The Complaint alleges that W.R. Grace & Co. (Grace), based
in Boca Raton, Florida, violated the antifraud, reporting, and
books and records provisions of the Securities Exchange Act of
1934.  All of the allegations in the Complaint arise out of
events that occurred while Grace owned National Medical Care,
Inc. (NMC) which was located in Waltham, Massachusetts.

   The Complaint alleges that Grace, through members of senior
management of Grace and NMC, falsely reported results of
operations for Grace and its Health Care Group segment for fiscal
years 1991 through 1995.  The Complaint further alleges that,
from 1991 through 1995, Grace deferred reporting income earned by
NMC, the primary component of the Health Care Group, primarily to
smooth the earnings of the Health Care Group.  According to the
Complaint, Grace deferred reporting income by increasing or
establishing reserves not in conformity with generally accepted
accounting principles.  The Complaint further alleges that Grace
used the reserves to manipulate its reported quarterly and annual
earnings of the Health Care Group and of Grace.
   
   The Complaint alleges that these excess reserves were
primarily used for profit planning purposes, i.e., to bring the
Health Care Group’s quarterly reported results of operations in
line with Grace’s targets.  The Complaint further alleges that
Grace also released some of the excess reserves to increase
Grace’s earnings per share.  According to the Complaint, when
Grace reversed the excess reserves from its reported financial
statements in the fourth quarter of 1995, it improperly netted
the excess reserves with other charges and adjustments and
misleadingly described the reversal as "a change in accounting
estimate."

   The  SEC’s  complaint  further alleges that for fiscal years
1991  through 1995, Grace filed  false  and  misleading  periodic
reports  with  the  SEC  that  incorporated  the  effects  of its
deferred  reporting  of  NMC  income.   In  addition,  the  SEC’s
complaint  alleges  that  Grace disseminated false and misleading
statements  to  the investing  public  in  the  course  of  press
releases and discussions  with  analysts  that  incorporated  the
effects  of  its  deferred  reporting  of  NMC income.  The SEC’s
complaint  alleges  that  Grace,  through its senior  management,
failed  to  disclose  to  the  investing   public   that  it  was
manipulating its earnings.

   In  1997,  the SEC ordered that Grace cease and desist  from
committing or causing any violations and any future violations of
Sections 13(a) and  14(a)  of  the  Exchange Act and Rules 13a-1,
14a-3, and 14a-9 thereunder.

   The  SEC’s complaint charges that  Grace  violated  Sections
10(b), 13(a),  and  13(b)(2) of the Exchange Act and Rules 10b-5,
12b-20, 13a-1, and 13a-13 thereunder.