0:03 to cover up the continuing losses pad
0:06 Finn was now faxing falsified Financial
0:08 reports to the board of directors and to
0:10 David shapira every
0:14 week but in November of 1990 a secretary
0:16 mistakenly faxed a report with the real
0:19 numbers to shapira here in black and
0:22 white was a report which no CEO could
0:24 ignore when he saw these startling
0:26 numbers shapira summoned Pat Finn to his Pittsburgh
0:28 Pittsburgh
0:31 offices Pat Finn told David shapir that
0:33 you know everything uh those are just
0:35 preliminary numbers we have to make some
0:37 adjustments to them and once we make the
0:38 adjustments to them then they'll they'll
0:41 be okay in the end the CEO of pharmore
0:43 failed to check the figures
0:45 independently he seems to have bought
0:48 Pat Finn's excuse now remember we're
0:51 three years into the fraud is CEO David
0:54 shapira really as gullible as he seems
0:56 well a cynic might say that considering
0:59 shapira's huge personal stake as a major
1:01 share shareholder in pharmore he
1:05 believed Finn because he wanted to after
1:07 all he'd put his money on Mickey monus
1:09 just like Pat Finn the people of
1:13 Youngstown the banks vendors and
1:16 investors but what none of them knew was
1:23 made the deficits continued to grow and
1:25 knowledge of the fraud was now about to
1:28 extend to another member of the company
1:31 Stan chlin joined farmer in 1990 he
1:32 quickly Rose to the position of
1:34 controller a job that placed him in
1:35 charge of all cash
1:38 dispersements well I I learned about the
1:41 fraud almost two years after my joining the
1:42 the
1:44 company that's when John Anderson took
1:46 me into his office and closed the door
1:49 and told me that well you're the
1:51 controller for Farm War now and and you
1:53 should be aware of this situation and he
1:56 pulled out a subledger
2:00 schedule and uh told me basically that
2:01 the financial statements at the end of
2:04 June 1991 were misstated by
2:11 million if anybody was likely to blow
2:12 the whistle it would seem to have been
2:15 the newcomer Stan cherelstein but he
2:19 didn't he too was persuaded to tow the
2:24 line I felt that through exclusivity
2:27 money through perhaps raising the prices
2:30 I felt that there were some options at
2:32 that point that Pat and Mickey had
2:35 available to them to correct the
2:38 situation and that's why I stayed on
2:40 with the company and that's why I never
2:45 told another Soul uh that coupled with
2:48 uh a fear that I I believe I had at the
2:52 time that maybe if I did go over their
2:55 heads maybe some harm could come to
2:59 myself physical harm physical harm I
3:01 would go back there
3:03 John Anderson had spent much of his
3:05 four-year career inside the fraud
3:07 cherelstein was the closest thing he'd
3:09 found to a moral
3:11 compass he was able to make a lot of
3:14 sense of things
3:18 and you know seem to to Give opinions
3:20 and and seem to say that no this is not
3:22 the way it should be we should be doing
3:24 things this way or know that is
3:28 absolutely wrong and
3:30 um he was was in there actually trying
3:32 to to fight and trying to change things
3:35 and um it just you know was up against a brick
3:36 brick
3:39 wall hiding the fraud was becoming more
3:41 and more of a problem the company was
3:44 frequently strapped for day-to-day cash
3:49 bills went unpaid for months we had
3:52 cabinets stuffed with held checks at the
3:54 company that had been generated out of
3:57 the accounts payable system but we
3:58 couldn't mail them because if we mailed
4:00 them the checks would have bounced so
4:03 they kept accumulating and accumulating
4:05 by the spring of 1991 farmer was holding
4:09 back $155 million it owed to vendors
4:12 they retaliated by halting shipments to some
4:13 some
4:15 stores Shoppers began to notice an
4:19 unusual site empty shelves an image at
4:21 odds with Farm more TV ads which
4:24 promised customers everything that's
4:26 Farm more continued to live in its dream
4:28 world even though CEO and board member
4:30 David shapira knew about most of the
4:33 held checks discover how far More's
4:36 power buying gives you far more buying
4:38 power so what was more important to
4:40 shapira and the directors than pressing
4:42 for explanations perhaps selling farmor's
4:44 farmor's
4:47 stock the prestigious New York
4:49 investment firm corporate Partners makes
4:51 large Investments on behalf of state and
4:53 corporate Pension funds Farm more had
4:55 caught their eye because if it kept
4:57 growing it would be a great candidate
4:58 for selling its shares on the New York
5:00 Stock Exchange
5:02 the company was growing and had hoped to
5:05 go public at some point and by having a
5:08 reputable uh investment firm make a
5:09 sizable investment would give a lot of
5:11 credibility to the company and its stock
5:13 for a future public
5:16 offering the stakes were substantial
5:19 once pharmore went public monus Shapiro
5:20 Finn and everyone else with a piece of
5:22 the company figured to realize the
5:25 entrepreneurial dream cashing in Big
5:28 Time corporate Partners wanted to invest
5:30 $200 million
5:31 but first quite naturally they would
5:33 send in their own accountants to check
5:37 the books charity imry farmor's legal
5:38 council had been asked to watch over
5:41 monus by farmor's CEO David shapira
5:43 afraid monus might jeopardize the
5:45 corporate Partners deal but in the
5:47 process imry picked up some alarming
5:50 scuttlebutt a farmor vice president told
5:52 her that some vendors were refusing to
5:55 supply stores because bills were going
5:58 unpaid imry documented her concerns in a
6:00 confidential memo to David Shira
6:02 covering everything from disgruntled
6:06 vendors to cash flow problems what did
6:07 the CEO
6:11 do he told her to rip it up imry chose
6:13 to keep one copy anyway and at the
6:16 bottom she noted what shapira had said
6:19 that quote he was aware of most of the
6:22 items listed in this memo and that quote
6:24 it was particularly important to rip it
6:26 up now because of pending financing
6:28 stock sale with CP that is Corporate partners
6:30 partners
6:32 if they went ahead with their stock
6:33 purchase corporate Partners would own
6:36 177% of farm more David shapira stood to
6:38 make more than $2 million on the deal
6:42 Mickey monus an even million shielded
6:44 from the rumors corporate Partners saw
6:46 only farmor's commanding role at the
6:48 convention and they were suitably
6:51 impressed I think what they saw was what
6:52 everybody else saw on the outside this
6:55 company with this unique buying
6:57 philosophy and buying ability and low
7:00 prices and and rapid growth coming from
7:03 nowhere to $3 billion in sales in in
7:05 record time and the Mystique that it was
7:08 taking over the Deep Discount world and
7:09 and they were going to end up on top of
7:11 the whole Heat by the time it was done 4
7:13 Weeks Later corporate Partners announced
7:17 their $200 million investment in
7:19 pharmore the official story was that
7:21 this would give pharmore the much needed
7:23 cash to continue its aggressive growth
7:26 plans but there were more pressing needs
7:28 for the money than growth or even
7:30 covering the fraud
7:32 much of it had to go first towards
7:34 paying off angry
7:37 vendors had corporate Partners known
7:42 that their money was going to be used to
7:45 pay Revlon and Proctor and Gamble and
7:49 Helen Curtis invoices from 3 four months
7:51 ago I don't think they ever would have
7:54 invested in the company but they didn't
7:57 know nor did anyone else Farm more was
8:00 now in the hole by 145 Mill
8:03 but Pat Finn was becoming more and more
8:06 anxious according to Finn monus had now
8:08 distanced himself from managing the
8:10 fraud which required more attention than
8:12 ever and Finn was stuck with the
8:15 responsibility of Designing new ways to
8:18 cover it up my energy and people who
8:20 work for me was going
8:25 to cover up a situation and it really
8:29 wasn't going towards uh making farmer a
8:31 better company and that really hurt and
8:35 I think we we all long for the day that
8:37 we could just kiss this goodbye and just
8:39 dedicate ourselves to making the company
8:42 better but if Finn still harbored some
8:45 hope chlin and Anderson had lost the
8:46 last shred of
8:49 Faith John and I continually talked
8:53 about the the fraud and what we were
8:57 going to do to resolve it we had these
9:00 discussions probably every day for lunch
9:02 and Pat was aware that we were talking
9:04 about it all the time and he knew that
9:07 we were nervous and it was those
9:09 concerns that we brought to Pat's
9:13 attention that really forced the April
9:16 meeting Finn now went to monus and told
9:17 him the junior Executives were
9:20 threatening to quit if something wasn't
9:22 done to address the
9:25 problem a meeting was set for a Saturday
9:28 morning in April of '92 cherelstein was
9:30 especially worried that if the fraud
9:32 were discovered monus could lay blame on
9:35 the accounting department so I went into
9:38 the April
9:40 meeting knowing
9:43 that I didn't want the situation blamed
9:47 on me cuz I had just arrived six months
9:50 earlier so I decided to tape it we're
9:52 getting real close to audit time here
9:55 right and we got some major problems on
9:57 right and now we're talking about how to
9:59 cover it next year that assumes we get
10:01 do an audit and you know I'm on the
10:04 front line out there I know that with
10:06 these Auditors and if something comes
10:08 out the light I'm there first and I got
10:10 to sit down try and cover this stuff
10:12 some comes out going to have to get the
10:15 T but the numbers are just uh well
10:17 problems are multiplying and the numbers
10:21 are multiplying yeah to get through the
10:24 audit else to tell that's we got to
10:28 do we a good spot here obviously keep
10:31 our fingers cross and get through it and
10:32 get the number
10:34 down leaving that
10:37 meeting you know there was a very
10:40 discouraging um a feeling a sense of
10:44 almost that um you know whatever the
10:46 guy's saying probably is not going to
10:48 happen Mickey's personality is he's in
10:50 essence he's a
10:53 gambler uh if he loses a bet he's going
10:56 to double up on the BET to hope hope
