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