0:13 tonight on front line they were just
0:16 playing corporate hard ball company was
0:18 growing cash was growing squeeze and
0:20 leverage suppliers but it got out of
0:24 hand cabinets stuffed with held checks
0:26 up1 million sing deeper and deeper and
0:29 deeper Frontline correspondent Paul
0:30 solman investig Ates how one
0:32 high-rolling entrepreneur and his loyal
0:35 followers covered up one of the largest
0:36 corporate frauds in United States
0:39 history full the Auditors cooked the
0:41 books tonight on front
0:44 line how to steal 500 [Music]
0:53 [Music]
0:56 million in Youngstown Ohio it's the
0:58 fraud of the century and they're still
1:00 arguing as to how hometown hero Mickey
1:04 monus wound up losing $500 million of
1:06 other people's money while building what
1:09 seemed to be a retail Empire a discount
1:11 chain called
1:14 pharmore Mickey monus crook or classic
1:17 entrepreneur depending on your point of
1:20 view the story of pharmore is a tale of
1:22 fraud one of the largest in American
1:25 corporate history but it's also a modern
1:28 morality play in which previously honest
1:30 people hired more or less a at random
1:34 sustained the fraud for years we'll show
1:36 you how they did it but you'll have to
1:38 decide for yourself as to why and why
1:40 they were allowed to carry On by
1:42 everyone in a position to stop them from
1:45 investors to the board of directors to
1:47 the auditing firm of Coopers and
1:49 liebrand but maybe the best question to
1:51 ask as you watch the fraud unfold is
1:55 simply this what would you have done had
1:57 you been a part of the Juggernaut that
2:00 was far more some people in this world
2:03 have one thing on their mind deals in
2:05 1982 monus opened his first Farm more a
2:08 deep discount store that sold everything
2:10 from prescription drugs to shampoo all
2:13 at unbelievably low
2:16 prices a key to low prices was power
2:18 buying monus's catchphrase for loading
2:20 up when suppliers offered Rock Bottom
2:23 deals thus creating far more savings for
2:26 cost conscious customers the prices were
2:28 so low competitors couldn't figure out
2:33 monus looked like a winner to David
2:36 shapira the Pittsburgh grocery executive
2:37 who bankrolled the new Venture and
2:40 served as its CEO shapira had the
2:43 credibility monus the gambling
2:46 Spirit strong sales at the first store
2:48 so impressed monus's bosses that a
2:51 second store followed within 7 months
2:54 within a year there were
2:56 eight to help him build the new firm
2:58 monus hired young men many of them
3:00 lacked experience but but they made up
3:02 for it in loyalty to the boss to run
3:05 accounting he chose Pat Finn you could see
3:06 see
3:09 yourself um going after problems
3:11 challenging yourself solving problems
3:13 and accounting you know you work through
3:15 a problem there was a right answer and a
3:17 wrong answer things were things were
3:21 black and white and um that's probably
3:23 part of my personality things are black
3:25 and white things are either right or
3:28 wrong to Pat Finn the ethical calls had
3:31 been easy until he met Mickey monus a
3:33 man with a Brash exterior but an
3:35 inspiring ability to create jobs and
3:38 make money he had the ability to
3:40 motivate all of his uh everyone who
3:42 worked for him to to have that same type
3:44 of fire and that same type of dedication towards
3:46 towards [Music]
3:48 [Music]
3:50 farmwork monus used his growing
3:52 reputation as a business Prodigy to
3:55 boost his hometown he was often on the
3:57 front lines at public celebrations
3:59 inviting people to believe in whatever
4:01 Enterprise as he pushed whether it was
4:03 Farm more or a summer camp for local city
4:04 city
4:08 kids he became almost like a cult figure
4:11 he really did he he was bigger than life
4:13 was bigger than life he could do no
4:15 wrong he had the mightest touch however
4:16 you want to say
4:20 it uh he was he was a very very
4:23 important person in for the psyche of
4:26 the Youngtown area word of monus's
4:28 success spread quickly among local banks
4:31 and investors who in the recessionary
4:33 days of the early 1980s were starved for
4:35 fast growing investment
4:38 opportunities people looked upon Pharm more
4:40 more
4:44 as perhaps the greatest success story in
4:47 the retail industry ever I remember when
4:50 when Sam Walton from Walmart came out
4:51 and made the announcement that the only
4:54 company that he fears at all in the
4:56 expansion of Walmart his number one
5:00 competitor is Farm more
5:02 as it grew farmer found itself up
5:05 against Walmart in mall after Mall in
5:09 1985 there were 12 stores by 1987
5:12 40 to win in the world of Deep Discount
5:14 you beat the other guy's price and H to
5:16 capture his
5:19 customers so for the next 2 years monus
5:22 committed pharmore to underselling
5:25 Walmart but the prices were so low he
5:32 Pat Finn watched nervously as Year bye
5:34 the profit margins of the entire company
5:38 eroded by 1989 he realized farmor now
5:40 faced a loss of millions Finn went to
5:42 monus with the bad
5:44 news Mickey monus was in a tough
5:46 position five years into running what
5:48 had seemed a white hot company in a
5:51 sizzling industry he was losing money
5:53 what were his options he could announce
5:54 the losses and risk losing his
5:57 credibility his credit and quite
5:59 possibly his company or he could buy a
6:02 little little time by parking the losses
6:04 temporarily and put more effort into
6:06 improving efficiency getting lower
6:08 prices from suppliers something that
6:10 would enable him to turn a profit once
6:13 again monus chose to buy time according
6:16 to his chief financial officer pat Finn
6:17 states that when he brought the
6:20 disappointing results to his boss Mona
6:21 simply crossed them out with a pen and
6:24 wrote in higher numbers showing a profit
6:26 now this was illegal but the report was
6:29 mainly an internal document Farm more
6:32 was primarily to its owners you knew you
6:35 were doing something wrong but you never
6:37 understood how
6:39 wrong I think he he helped me believe
6:42 that you know starting it for him uh I
6:45 was being a team ball player give him
6:48 time and he'll fix the
6:50 problem the true numbers were kept in a
6:52 separate set of books called the
6:54 subledger and farmor's accounting
6:56 manager John Anderson was brought into
6:58 the plot to keep track of the
7:01 temporarily altered f figures it was
7:04 really a report that Pat Finn wanted
7:06 done wanted to kept track of so he can
7:09 see where everything was at and and what
7:12 I guess um problems he needed to
7:15 cover Finn had hired Anderson directly
7:17 out of Youngtown State University where
7:18 this kind of accounting presumably was
7:20 not part of the
7:23 curriculum had Finn always had an
7:28 aggressive approach to accounting and
7:31 call it uh aggressive or call it
7:33 creative uh that's the way it was done
7:35 ever since I remembered losses can be
7:37 parked for a while but eventually they
7:39 need to be covered with something
7:42 tangible by Finn's account Mona set out
7:44 to cover the shortfall by putting the
7:47 arm on farmor's vendors the merchandise
7:50 show where retailers and vendors haggle
7:52 over the price of say a year supply of
7:54 strawberry kiwi
7:57 juice for years the name brand vendors
8:00 had the power here but the success of
8:02 huge Deep Discount chains like Walmart
8:05 and now Farm more had gradually tilted
8:07 the balance the chains were now big
8:10 enough to muscle the suppliers monus's
8:12 inspiration was to squeeze upfront
8:14 payments from vendors in return for not
8:17 selling their competitors products he'd
8:19 use these exclusivity fees to cover his
8:21 losses Coca-Cola for instance paid far
8:24 more $10 million to keep Pepsi out of
8:26 pharmore for just 5
8:29 years vendors let themselves be strong
8:31 on Med by a retail newcomer without ever
8:33 wondering it seems if the farmer
8:35 phenomenon was for
8:38 real meanwhile farmor's accountants used
8:40 the millions in exclusivity fees to help
8:42 offset the losses they were
8:46 hiding which had now reached 18
8:49 million but the fees were not enough
8:51 Farm more wasn't Mickey monus's only
8:53 interest he had invested in over a dozen
8:55 other businesses and even had The Moxy
8:57 to take on the National Basketball
9:00 Association monus's World Basketball
9:03 League had a hook no player was taller
9:06 than 6'5 and the nine teams were located
9:08 in smaller markets in cities like
9:10 Youngstown but in reality things at
9:13 pharmore were a mess even with the
9:15 exclusivity money the company was still
9:17 facing a $12 million loss and the
9:19 Auditors were coming so how do you make
9:21 a $12 million loss
9:24 disappear well you can start by dividing
9:27 it up into smaller amounts $12 million
9:31 divided by 129 stores comes out to
9:35 $93,000 about 25 a store so you put that
9:37 on the expense side of each store's
9:40 Ledger and to make it balance you need
9:41 to add
9:44 $93,000 and about 25 to each store's
9:47 assets now you can't claim cash you
9:49 haven't got any auditor can see through
9:51 that but you can claim another category
9:54 of assets your inventory is worth more
9:56 than it actually is and that's the first
9:59 thing they did
10:01 so Farm more claimed every sixpack of
10:04 Coke in the store was worth say
10:06 $2.30 when in reality it may have sold
10:09 for a buck 98 multiply that Difference
10:12 by thousands of six packs of Coke in 129
10:14 stores and you're on your way to a $12
10:20 up it's a whole new world facing today's
10:23 chief executive competition is fierce
10:25 but how could farmor's respected
10:28 Auditors Coopers and liebrand who sell
10:30 themselves on their knowhow be so easily
10:32 fooled especially since a good auditor
10:34 checks the inventory while it's
10:36 physically counted now you can't check
10:39 all the inventory in every store
10:41 moreover Coopers having won the Farmer
10:44 account with a very low bid wanted to
10:46 limit its costs so Cooper checked only
10:48 four stores out of
10:51 129 and get this Farm more found out
10:53 from Coopers which locations would be
10:56 checked months in advance so when
10:58 Coopers arrive to examine the stores
11:00 it's not too surprising that everything
11:02 appeared to be in
11:05 order we went to Cooper and libran to
11:07 ask them why they were unable to uncover the
11:08 the
11:11 fraud an accountant is a watchdog but
11:14 not a blood hound uh an accountant
11:18 cannot be expected uh to F search out
11:21 and find every piece of fraud uh it's
11:22 there's there's really a big difference
11:24 between being a blood hand and a
11:30 distinction but perhaps a fair question
11:32 is not whether Coopers was hired as a
11:36 blood hound but whether the Watchdog was
11:39 asleep with only a tiny sample to go by
11:41 Cooper accepted farmor's inflated
11:44 inventory figures year after year even
11:46 though Finn couldn't back them up with
11:48 documents in the end the Auditors not
11:50 only bought farmor's numbers but
11:52 declared that the company had actually
11:54 earned a record
11:57 profit monus was at home in the world of
12:00 big bets and make believe he even built
12:03 three stores in Las Vegas monus's
12:04 activities would eventually be
12:07 scrutinized by bankruptcy examiner Jay
12:09 Alex the sense I have is like it was a
12:12 boy club it was like a big boys club is
12:13 what it was and they were having a great
12:15 time and the company was growing and
12:17 cash was flowing and there were no rules
12:20 and restrictions and they were hot
12:23 losses were now more than $45 million
12:25 and growing but monus refused to raise
12:28 prices or Retreat just couldn't admit
12:32 the feat it's a flaw that he had he just
12:34 couldn't look himself in the mirror and
12:38 say hey we made a mistake here we got to
