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The rapid rise and stunning fall of Phar-Mor, and how president/co-founder Michael "Mickey" Monus and other top executives were able to hide one of the largest corporate frauds in U.S. history from the company's auditors.

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00:00Tonight on Frontline, they were just playing corporate hardball.
00:11Company was growing. Cash was flowing.
00:14Squeeze and leverage suppliers.
00:16But it got out of hand.
00:17Cabinets stuffed with held checks.
00:20Covered up $10 million.
00:21I kept seeing deeper and deeper and deeper.
00:23Frontline correspondent Paul Solman investigates how one high-rolling entrepreneur and his loyal followers
00:29covered up one of the largest corporate frauds in United States history.
00:33Fool the auditors. Cook the books.
00:36Tonight on Frontline, how to steal $500 million.
00:46Funding for Frontline is provided by the Corporation for Public Broadcasting
00:52and by annual financial support from viewers like you.
00:56This is Frontline.
01:01The End
01:35We get your opinions of Mickey Monis on WKBN.
01:39First, we go to Youngstown.
01:41What do you think about Mickey Monis?
01:43The guy was a hero in this area.
01:46Jim, you're on WKBN.
01:47Hello.
01:47Yeah, Al Capone, Dillinger, Mickey Monis.
01:50They're all the same.
01:52I'll tell you what.
01:52He played Youngstown for a bunch of hicks from Mayberry.
01:56That's what I think.
01:58I thank you.
01:58On WKBN to the east side.
02:01Sam, you're on Great Talk Radio.
02:02Hello.
02:02I would like to say that the Monis family has done more good for this valley than any harm to this valley.
02:08And Mickey was trying to do the same.
02:10I think the books were cooked.
02:11And Mickey was not aware of the books being cooked.
02:14What do you think of Mickey Monis?
02:16782-8191 in Youngstown.
02:19That's 782-8191.
02:20In Youngstown, Ohio, it's the fraud of the century.
02:24And they're still arguing as to how hometown hero Mickey Monis wound up losing $500 million of other people's money while building what seemed to be a retail empire, a discount chain called Farmore.
02:37I'd like to introduce, at this time, Michael Monis, the president of Farmore, who brought us to 33 states from zero to 300 stores.
02:47Thank you, Carol.
02:48And having reached this 300 store, there's no stopping us now to being a national retailer and to having store in every major market across the country.
02:57Mickey Monis, crook or classic entrepreneur, depending on your point of view.
03:02The story of Farmore is a tale of fraud, one of the largest in American corporate history.
03:09But it's also a modern morality play, in which previously honest people, hired more or less at random, sustained the fraud for years.
03:19We'll show you how they did it.
03:21But you'll have to decide for yourself as to why.
03:23And why they were allowed to carry on by everyone in a position to stop them.
03:27From investors, to the board of directors, to the auditing firm of Coopers & Librand.
03:33But maybe the best question to ask, as you watch the fraud unfold, is simply this.
03:38What would you have done, had you been a part of the juggernaut that was Farmore?
03:44Some people in this world have one thing on their mind.
03:47In 1982, Monis opened his first Farmore, a deep discount store that sold everything from prescription drugs to shampoo, all at unbelievably low prices.
03:59A key to low prices was power buying, Monis' catchphrase for loading up when suppliers offered rock-bottom deals, thus creating Farmore savings for cost-conscious customers.
04:10The prices were so low, competitors couldn't figure out how Farmore did it.
04:17Monis looked like a winner to David Shapira, the Pittsburgh grocery executive who bankrolled the new venture and served as its CEO.
04:25Shapira had the credibility, Monis the gambling spirit.
04:30Strong sales at the first store so impressed Monis' bosses that a second store followed within seven months.
04:36Within a year, there were eight.
04:38To help him build the new firm, Monis hired young men.
04:43Many of them lacked experience, but they made up for it in loyalty to the boss.
04:48To run accounting, he chose Pat Finn.
04:50You could see yourself going after problems, challenging yourself, solving problems.
04:57In accounting, you know, you work through a problem, there was a right answer and a wrong answer.
05:01Things were black and white, and that's probably part of my personality.
05:08Things are black and white.
05:09Things are either right or wrong.
05:11To Pat Finn, the ethical calls had been easy until he met Mickey Monis, a man with a brash exterior, but an inspiring ability to create jobs and make money.
05:21He had the ability to motivate all of his, everyone who worked for him to have that same type of fire and that same type of dedication towards farm work.
05:34Monis used his growing reputation as a business prodigy to boost his hometown.
05:40He was often on the front lines at public celebrations, inviting people to believe in whatever enterprise he pushed, whether it was farm work or a summer camp for local city kids.
05:49He became almost like a cult figure.
05:53He really did.
05:54He was bigger than life.
05:56He was bigger than life.
05:57He could do no wrong.
05:59He had the Midas touch, however you want to say it.
06:03He was a very, very important person for the psyche of the Youngstown area.
06:10Word of Monis' success spread quickly among local banks and investors,
06:14who, in the recessionary days of the early 1980s, were starved for fast-growing investment opportunities.
06:22People looked upon Farmore as perhaps the greatest success story in the retail industry ever.
06:31I remember when Sam Walton from Walmart came out and made the announcement that the only company that he fears at all
06:38in the expansion of Walmart, his number one competitor, is Farmore.
06:45As it grew, Farmore found itself up against Walmart in mall after mall.
06:50In 1985, there were 12 stores.
06:53By 1987, 40.
06:54To win in the world of deep discount, you beat the other guy's price and hoped to capture his customers.
07:03So, for the next two years, Monis committed Farmore to underselling Walmart.
07:08But the prices were so low, he began losing money in those stores.
07:15Pat Finn watched nervously as, year by year, the profit margins of the entire company eroded.
07:20By 1989, he realized Farmore now faced a loss of millions.
07:25Finn went to Monis with the bad news.
07:28Mickey Monis was in a tough position.
07:30Five years into running what had seemed a white-hot company in a sizzling industry, he was losing money.
07:36What were his options?
07:38He could announce the losses and risk losing his credibility, his credit, and quite possibly his company.
07:43Or he could buy a little time by parking the losses temporarily and put more effort into improving efficiency,
07:51getting lower prices from suppliers, something that would enable him to turn a profit once again.
07:57Monis chose to buy time, according to his chief financial officer.
08:01Pat Finn states that when he brought the disappointing results to his boss,
08:05Monis simply crossed them out with a pen and wrote in higher numbers showing a profit.
08:09Now, this was illegal, but the report was mainly an internal document.
08:14Farmore was lying primarily to its owners.
08:20According to Pat Finn, Monis continued to change the weekly financial reports for four months
08:25before entrusting the task to him.
08:33Monis refused to talk to us about this or any other issue, but Pat Finn gave us his account.
08:39You knew you were doing something wrong, but you never understood how wrong.
08:45I think he helped me believe that, you know, starting it for him was being a team ball player.
08:52Give him time and he'll fix the problem.
08:56The true numbers were kept in a separate set of books called the sub-ledger.
09:01And Farmore's accounting manager, John Anderson,
09:03was brought into the plot to keep track of the temporarily altered figures.
09:07It was really a report that Pat Finn wanted done, wanted to keep track of,
09:13so he can see where everything was at and what, I guess, problems he needed to cover.
09:21Finn had hired Anderson directly out of Youngstown State University,
09:24where this kind of accounting presumably was not part of the curriculum.
09:27Pat Finn always had an aggressive approach to accounting.
09:35And call it aggressive or call it creative, that's the way it was done ever since I remembered.
09:46Now, losses can be parked for a while, but eventually they need to be covered with something tangible.
09:51By Finn's account, Mona set out to cover the shortfall by putting the arm on Farmore's vendors.
10:05Merchandise show is now open.
10:06The merchandise show, where retailers and vendors haggle over the price of, say, a year's supply of strawberry kiwi juice.
10:22For years, the name brand vendors had the power here.
10:26But the success of huge, deep discount chains like Walmart, and now Farmore, had gradually tilted the balance.
10:34The chains were now big enough to muscle the suppliers.
10:37They were certainly in a position to squeeze and leverage suppliers, no doubt about it.
10:43Everyone is under pressure to make sales.
10:45Here's a company that looked like it was going to be another Walmart.
10:49Monas' inspiration was to squeeze upfront payments from vendors in return for not selling their competitors' products.
10:57He'd use these exclusivity fees to cover his losses.
11:00They may have said to one company, we'll keep your line if you'll give us $500,000 or $1 million fee.
11:08And if they said no, they would go to the other company and give them the business.
11:12They'd give them the business all right.
11:14Coca-Cola, for instance, paid Farmore $10 million to keep Pepsi out of Farmore for just five years.
11:22Vendors let themselves be strong-armed by a retail newcomer without ever wondering, it seems, if the Farmore phenomenon was for real.
11:31Meanwhile, Farmore's accountants used the millions in exclusivity fees to help offset the losses they were hiding,
11:37which had now reached $18 million.
11:42But the fees were not enough.
11:44Farmore wasn't Mickey Monas' only interest.
11:52He had invested in over a dozen other businesses
11:54and even had the moxie to take on the National Basketball Association.
11:59Did you ever think you'd be a professional basketball bearer here?
12:02Always a dream of mine.
12:03Really?
12:04Right.
12:05Did you play ball?
12:06Just in high school.
12:07And how tall are you?
12:095'9".
12:105'9".
12:11So you could have made this league sometime if it was 20 years ago.
12:13I don't think I have the quickness.
12:14Okay, let's go back to courtside and jam.
12:20Monas' World Basketball League had a hook.
12:23No player was taller than 6'5", and the nine teams were located in smaller markets in cities like Youngstown.
12:29There's a lot of people who lose a lot of money in minor league sports.
12:38So, yeah, it was a challenge because he was going to, again, do something that nobody had done.
12:42He was going to be a success where others had failed.
12:44As at Farmore, Monas concentrated on image.
12:49He personally assembled the All-American Girls, a professional cheerleading squad which traveled from game to game throughout the country.
12:59He pushed to popularize the league by broadcasting games.
13:03Using a TV production company, he bankrolled with borrowed money.
13:06But how could Monas, whose Farmore was hemorrhaging money, think he could make a pro sports league fly?
13:21These were people, you know, who had extreme confidence in their ability.
13:27And it was just kind of a foregone conclusion that if we're going to create a new basketball league from scratch
13:33and we're going to make money on it when no one else has,
13:35well, hey, we're the people who started Farmore.
13:38We can do these kind of things.
13:40But in reality, things at Farmore were a mess.
13:43Even with the exclusivity money, the company was still facing a $12 million loss and the auditors were coming.
13:50So, how do you make a $12 million loss disappear?
13:53Well, you can start by dividing it up into smaller amounts.
13:57$12 million, divided by 129 stores, comes out to $93,023 and about 25 cents a store.
14:06So, you put that on the expense side of each store's ledger.
14:09And to make it balanced, you need to add $93,023 and about 25 cents to each store's assets.
14:16Now, you can't claim cash you haven't got.
14:19Any auditor can see through that.
14:20But you can claim another category of assets.
14:24Your inventory is worth more than it actually is.
14:27And that's the first thing they did.
14:28So, Farmore claimed every six-pack of Coke in the store was worth, say, $2.30, when in reality, it may have sold for $1.98.
14:39Multiply that difference by thousands of six-packs of Coke in 129 stores, and you're on your way to a $12 million cover-up.
14:49It's a whole new world facing today's chief executive.
14:53Competition is fierce.
14:54But how could Farmore's respected auditors, Coopers and Librand, who sell themselves on their know-how, be so easily fooled?
15:02Especially since a good auditor checks the inventory while it's physically counted.
15:10Now, you can't check all the inventory in every store.
15:14Moreover, Coopers, having won the Farmore account with a very low bid, wanted to limit its costs.
15:20So, Coopers checked only four stores out of 129.
15:24And get this, Farmore found out from Coopers which locations would be checked months in advance.
15:30So, when Coopers arrived to examine the stores, it's not too surprising that everything appeared to be in order.
15:38We went to Coopers and Librand to ask them why they were unable to uncover the fraud.
15:42An accountant is a watchdog, but not a bloodhound.
15:48An accountant cannot be expected to search out and find every piece of fraud.
15:55There's really a big difference between being a bloodhound and a watchdog.
15:59And I think that's an important distinction.
16:01But perhaps a fair question is not whether Coopers was hired as a bloodhound, but whether the watchdog was asleep.
16:11With only a tiny sample to go by, Coopers accepted Farmore's inflated inventory figures year after year,
16:18even though Finn couldn't back them up with documents.
16:21In the end, the auditors not only bought Farmore's numbers,
16:24but declared that the company had actually earned a record profit in 1989.
16:42For the next two years, Farmore grew, and by all appearances, it continued to prosper.
16:47To the folks back home, Mickey Monas had become a legend who breathed new life into their old town.
17:05He just produced jobs for everybody.
17:09You know, not just the jobs around Youngstown, but around the country,
17:13because every time they opened a store, they hired more people.
17:16Kim's Cafe was where far more executives came to celebrate their victories.
17:21Monas, the local boy made good, would occasionally stop by to serve as celebrity bartender.
17:27All the girls from upstairs requested, I forget the title of the song,
17:32but it went, Mickey, Mickey, you're so fine, you're so fine, you blow our mind.
17:37And they'd be singing it over there, and then they'd be all pointing over this way at the bar.
17:42And then they'd get the whole diorome singing the song.
17:48Despite monumental losses, Monas played on, as if nothing were wrong.
17:53He'd apparently convinced himself that Farmore was destined for glory,
17:57and with salary and bonus of half a million dollars, he lived accordingly.
18:00In addition, he took another half-million dollars to add a room to his house,
18:08to pay off a rather generous visa balance,
18:15to pick up an engagement ring for his new fiancée.
18:19Monas developed an attachment to posh West Palm Beach,
18:25where his second marriage took place, poolside, at the Ritz-Carlton Hotel.
18:34The bride wore gold, an 18-carat gold mesh gown donated for the day by a vendor, Absolute Vodka.
18:42It was worth more than half a million dollars and came complete with two armed guards.
18:47Monas loved the high life, loved to be where the action was.
18:55It would be three o'clock in the afternoon, and they'd say,
18:58let's go to Vegas, and we're going now.
19:00Just take your wall and let's go.
19:04And we would fly into Las Vegas,
19:06and there would be a limo from Caesars Palace that would meet the plane on the tarmac.
19:10And we would get taken to Caesars Palace,
19:13and there would be a suite for Mickey, 24 hours a day, seven days a week.
19:17It did not matter when we came there, there was always a suite.
19:23Monas was at home in the world of big bets and make-believe.
19:27He even built three stores in Las Vegas.
19:29And then there was the nightlife.
19:35Life was a game.
19:37Life was just this ride you're on.
19:40You know, you're working hard.
19:41You've got all this money, you know, coming through your hands,
19:44whether you own it or not.
19:45You know, that's for someone else to decide.
19:47But you have the power, the ability to do anything.
19:49The gambling was insane.
19:55I mean, my coaches would come back and say,
19:58yeah, Mickey gave me $4,000 to gamble with last night, and I lost it all.
20:04Monas' activities would eventually be scrutinized by bankruptcy examiner Jay Alex.
20:09The sense I have is like it was a boys' club.
20:12It was like a big boys' club is what it was.
20:14And they were having a great time, and the company was growing,
20:16and cash was flowing, and there were no rules and restrictions, and they were hot.
20:23But at Farmore, back in 1990, they were beginning to feel a different sort of heat.
20:31Losses were now more than $45 million and growing,
20:35but Monas refused to raise prices or retreat.
20:38He just couldn't admit defeat.
20:40It's a flaw that he had.
20:42He just couldn't look himself in the mirror and say,
20:45hey, we made a mistake here.
20:48We've got to fix it, and we've got to go on.
20:53To cover up the continuing losses,
20:55Pat Finn was now faxing falsified financial reports
20:58to the board of directors and to David Shapira every week.
21:03But in November of 1990,
21:05a secretary mistakenly faxed a report with the real numbers to Shapira.
21:09Here in black and white was a report which no CEO could ignore.
21:19While Shapira was ultimately responsible for Farmore,
21:22he'd long ago left day-to-day operations to Mickey Monas.
21:26When he saw these startling numbers,
21:32Shapira summoned Pat Finn to his Pittsburgh offices.
21:36Pat Finn told David Shapira that, you know, everything,
21:39those are just preliminary numbers.
21:41We have to make some adjustments to them.
21:43And once we make the adjustments to them, then they'll be okay.
21:47In the end, the CEO of Farmore failed to check the figures independently.
21:51He seems to have bought Pat Finn's excuse.
21:53Now, remember, we're three years into the fraud.
21:58Is CEO David Shapira really as gullible as he seems?
22:02Well, a cynic might say that considering Shapira's huge personal stake
22:05as a major shareholder in Farmore,
22:08he believed Finn because he wanted to.
22:12After all, he'd put his money on Mickey Monas,
22:14just like Pat Finn, the people of Youngstown,
22:17the banks, vendors, and investors.
22:20But what none of them knew was just how bad a bet they'd made.
22:28The deficits continued to grow,
22:30and knowledge of the fraud was now about to extend
22:33to another member of the company.
22:35Stan Cherlstein joined Farmore in 1990.
22:38He quickly rose to the position of controller,
22:40a job that placed him in charge of all cash disbursements.
22:43Well, I learned about the fraud almost two years after my joining the company.
22:50That's when John Anderson took me into his office and closed the door
22:53and told me that,
22:55well, you're the controller for Farmore now,
22:57and you should be aware of this situation.
23:00And he pulled out a sub-ledger schedule
23:03and told me basically that the financial statements at the end of June 1991
23:10were misstated by approximately $150 million.
23:16If anybody was likely to blow the whistle,
23:18it would seem to have been the newcomer, Stan Cherlstein.
23:21But he didn't.
23:23He, too, was persuaded to toe the line.
23:25I felt that through exclusivity money,
23:32through perhaps raising the prices,
23:35I felt that there were some options at that point
23:37that Pat and Mickey had available to them to correct the situation.
23:43And that's why I stayed on with the company,
23:46and that's why I never told another soul.
23:48That coupled with a fear that I believe I had at the time
23:56that maybe if I did go over their heads,
24:00maybe some harm could come to myself.
24:03Physical harm?
24:04Physical harm.
24:06I would go back there.
24:08John Anderson had spent much of his four-year career inside the fraud.
24:12Cherlstein was the closest thing he'd found to a moral compass.
24:16He was able to make a lot of sense of things
24:20and, you know, seemed to give opinions
24:25and seemed to say that, no, this is not the way it should be.
24:28We should be doing things this way
24:30or, no, that is absolutely wrong.
24:33And he was in there actually trying to fight
24:39and trying to change things.
24:41It was just, you know, it was up against a brick wall.
24:43Hiding the fraud was becoming more and more of a problem.
24:48The company was frequently strapped for day-to-day cash.
24:51Bills went unpaid for months.
24:54We had cabinets stuffed with held checks at the company
24:59that had been generated out of the accounts payable system,
25:03but we couldn't mail them
25:05because if we mailed them, the checks would have bounced.
25:07So they kept accumulating and accumulating.
25:09By the spring of 1991, Farmore was holding back $155 million it owed to vendors.
25:16They retaliated by halting shipments to some stores.
25:21Shoppers began to notice an unusual sight, empty shelves,
25:25an image at odds with Farmore TV ads which promised customers everything.
25:31Farmore continued to live in its dream world,
25:33even though CEO and board member David Shapira knew about most of the held checks.
25:38Discover how Farmore's power buying gives you Farmore buying power.
25:43This is the kind of issue that would rise to a board-level concern, I would think,
25:47in most companies.
25:48When a company needs hundreds of millions of dollars more than it planned on,
25:52the question would have to be asked why.
25:54So what was more important to Shapira and the directors
25:57than pressing for explanations?
25:59Perhaps selling Farmore's stock.
26:02The prestigious New York investment firm, Corporate Partners,
26:07makes large investments on behalf of state and corporate pension funds.
26:11Farmore had caught their eye because if it kept growing,
26:13it would be a great candidate for selling its shares on the New York Stock Exchange.
26:18The company was growing and had hoped to go public at some point,
26:22and by having a reputable investment firm make a sizable investment
26:26would give a lot of credibility to the company and its stock
26:29for a future public offering.
26:32The stakes were substantial.
26:34Once Farmore went public,
26:36Monis, Shapiro, Finn, and everyone else with a piece of the company
26:39figured to realize the entrepreneurial dream,
26:42cashing in big time.
26:45Corporate Partners wanted to invest $200 million,
26:47but first, quite naturally,
26:49they would send in their own accountants to check the books.
26:52Corporate Partners would also make its decision by evaluating Mickey Monis in action.
27:00They picked an event that happened to show off his strengths as a showman
27:03in one of his favorite haunts.
27:07Each May, Las Vegas hosts the biggest real estate convention of the year.
27:12Every major retailer in the country attends, including Farmore,
27:15to make deals for new store locations.
27:23Hi, how are you, Tom Hudson?
27:25Nice meeting you.
27:26Realtors were intent on impressing Farmore.
27:30Monis was intent on impressing Corporate Partners.
27:33What Monis didn't know was that someone else was also watching him.
27:38Charity Imbri, Farmore's legal counsel,
27:41had been asked to watch over Monis by Farmore's CEO, David Shapira,
27:45afraid Monis might jeopardize the Corporate Partners deal.
27:50But in the process, Imbri picked up some alarming scuttlebutt.
27:54A Farmore vice president told her that some vendors
27:56were refusing to supply stores because bills were going unpaid.
28:02Imbri worried about the image of cheerleaders wearing hot pants
28:05employed as company hostesses.
28:08She also heard about a senior VP of Coca-Cola
28:11who said he hated doing business with Farmore
28:14because he was always being pressured
28:15to support the World Basketball League.
28:22Imbri documented her concerns
28:24in a confidential memo to David Shapira,
28:27covering everything from disgruntled vendors
28:29to cash flow problems.
28:35David Shapira received the incriminating memo
28:45shortly after Imbri returned from the convention.
28:48So, what did the CEO do?
28:51He told her to rip it up.
28:54Imbri chose to keep one copy anyway,
28:56and at the bottom she noted what Shapira had said.
28:59That, quote,
29:00he was aware of most of the items listed in this memo,
29:04and that, quote,
29:05it was particularly important to rip it up now
29:07because of pending financing stock sale with CP,
29:11that is, Corporate Partners.
29:13If they went ahead with their stock purchase,
29:15Corporate Partners would own 17% of Farmore.
29:18David Shapira stood to make more than $2 million on the deal,
29:21Mickey Monis, an even million.
29:24Shielded from the rumors,
29:26Corporate Partners saw only Farmore's commanding role
29:29at the convention,
29:30and they were suitably impressed.
29:33I think what they saw
29:35was what everybody else saw on the outside,
29:37this company with this unique buying philosophy
29:40and buying ability and low prices
29:42and rapid growth coming from nowhere
29:45to $3 billion in sales in record time,
29:49and the mystique that it was taking over
29:50with the deep discount world,
29:52and they were going to end up on top of the whole heap
29:54by the time it was done.
29:58Four weeks later,
29:59Corporate Partners announced
30:00their $200 million investment in Farmore.
30:04The official story was that this would give Farmore
30:07the much-needed cash
30:08to continue its aggressive growth plans.
30:11But there were more pressing needs for the money
30:13than growth or even covering the fraud.
30:17Much of it had to go first
30:18towards paying off angry vendors.
30:20Had corporate partners known
30:24that their money was going to be used
30:28to pay Revlon and Procter & Gamble
30:32and Helene Curtis invoices
30:33from three, four months ago,
30:36I don't think they ever would have invested
30:38in the company.
30:40But they didn't know,
30:42nor did anyone else.
30:43Welcome to the million-dollar Farmore Championship,
30:47the Farmore in Youngstown.
30:49As summer spread across the Mahoning Valley,
30:51Mickey Monis presided over the annual Farmore Open,
30:54an LPGA tournament sponsored by Farmore.
31:02Farmore was now in the hole by $145 million,
31:05but Monis appeared as upbeat as ever at the tournament
31:08where he would dole out half a million dollars in prize money.
31:12We got a little check here for her.
31:14$75,000 for first place.
31:17Much of it was raised from Farmore vendors.
31:23But Pat Finn was becoming more and more anxious.
31:26According to Finn,
31:28Monis had now distanced himself from managing the fraud,
31:30which required more attention than ever.
31:33And Finn was stuck with the responsibility
31:35of designing new ways to cover it up.
31:38My energy and people who work for me
31:41was going to cover up a situation,
31:46and it really wasn't going towards
31:48making Farmore a better company.
31:52And that really hurt.
31:54And I think we all longed for the day
31:56that we could just kiss this goodbye
31:58and just dedicate ourselves to making the company better.
32:03About Pat having his own agenda.
32:05But if Finn still harbored some hope,
32:08Charlstein and Anderson had lost the last shred of faith.
32:12John and I continually talked about the fraud
32:16and what we were going to do to resolve it.
32:20We had these discussions probably every day for lunch.
32:25And Pat was aware that we were talking about it all the time.
32:28And he knew that we were nervous.
32:31And it was those concerns that we brought to Pat's attention
32:35that really forced the April meeting.
32:38Finn now went to Monus and told him
32:41the junior executives were threatening to quit
32:43if something wasn't done to address the problem.
32:46A meeting was set for a Saturday morning in April of 92.
32:52Charlstein was especially worried that if the fraud were discovered,
32:56Monus could lay blame on the accounting department.
32:58So I went into the April meeting knowing that I didn't want the situation blamed on me
33:08because I had just arrived six months earlier.
33:11So I decided to type it.
33:15We're getting real close to audits in the year.
33:17Right.
33:18And we've got some major problems out there.
33:20Right.
33:21And, you know, we're talking about how to cover it next year.
33:23Yeah.
33:23Not as soon as we get through an audit.
33:24And, you know, I'm on the front line out there with these auditors.
33:30And if something comes out the light, I'm there first.
33:32And I've got to sit down and try and cover this stuff.
33:34If something comes out, you're going to have to get to Pat.
33:38But the numbers are just, the problems are multiplying
33:41and the numbers are multiplying.
33:43Try to get through the audit.
33:46We don't know what else to tell you.
33:48I mean, that's what we've got to do.
33:49I mean, it's really good fire, obviously.
33:52We've got to keep our fingers crossed and get through it
33:56and get the numbers done.
33:58Leaving that meeting, you know, there was a very discouraging feeling,
34:04a sense of almost that, you know, whatever the guy's saying
34:09probably is not going to happen.
34:12Mickey's personality is he's, in essence, he's a gambler.
34:16If he loses a bet, he's going to double up on the bet
34:19to hope, hopefully, the next time he can recover his funds.
34:26It is very testy in Youngstown.
34:31Monis's penchant for doubling up his bets
34:33was about to prove his undoing.
34:37The WBL was a disaster, soaking up money.
34:41In the first year alone,
34:42Monis personally had to put up over a million dollars for the league,
34:45and still it wasn't enough.
34:47But where would he get more money to prop up the league?
34:50From a familiar source of funding, as it happens,
34:53far more vendors.
34:55Tom Zawistowski says Farmore's executive in charge of buying
34:59simply ordered vendors to become sponsors.
35:02We'd go to his office and he'd say,
35:04all right, you know, here's who I think will buy.
35:06You know, Frito-Lay, Kota, Fucci Film, you know, people like that.
35:11And then, basically, he'd get them on the speakerphone
35:14and he'd say, listen, you know, this is important to us.
35:18You're going to buy a $50,000 sponsorship.
35:21Period.
35:23But when fans lost interest in Monis' basketball league,
35:27so did the sponsors.
35:30Remarkably, Monis directed that far more funds
35:33be used to keep the league going.
35:34Monis' signature had been printed on dozens of Farmore checks
35:43to prop up the basketball league.
35:45By 1991, millions of dollars had been embezzled.
35:51But then, a check to this travel agency for WBL expenses
35:56would cause the entire scheme to unravel.
35:59The travel agent showed the check to her landlord,
36:02who happened to be a Farmore investor.
36:05He brought it to the attention of David Shapira.
36:09David Shapira called in Pat Finn for an explanation.
36:13Now, try to put yourself in Pat Finn's shoes for a moment.
36:17What would you have done?
36:18Well, true to form, Finn stonewalled.
36:21Then admitted that a million dollars of far more money
36:24had gone to support Monis' basketball league.
36:26When, in fact, more than 10 million had already been embezzled for this purpose.
36:32Shapira said he wanted to see the check registers himself.
36:34So, Finn raced back to Monis, afraid the entire fraud might now be exposed.
36:42Monis suggested one last desperate gamble.
36:45According to Finn, he said there was still time to paper over the WBL fraud,
36:50as long as they didn't lose their nerve.
36:53I felt like I was almost like in quicksand.
36:57I kept sinking deeper and deeper and deeper.
37:02But I always had a belief that we could fix it.
37:06I never wanted to tell myself that we couldn't fix it.
37:10Because if we couldn't fix it, there was nothing but bad.
37:14I remember it really distinctly.
37:16He called Stan and myself in his office.
37:20And he said that, well, we have to get these checks
37:25and type over who they were paid out to
37:28or white out who they were paid to.
37:30I flat out refused.
37:31As soon as I heard that, I said, there's no way that I'm going to do that.
37:37Finally, someone had drawn the line.
37:39But there was still Stan Cherlstein.
37:42Finn asked his controller to come to his home the next morning.
37:46I arrived at Pat's house early Saturday morning.
37:51We looked through the journals very briefly
37:54before we looked at each other
37:56and knew that there was no way that we could cover up
37:58$10 million in advances to the World Basketball League.
38:02And I think at that point in time,
38:05he and I both knew that it was over.
38:09Cheryl Steen and Finn decided it was time to get a lawyer.
38:15They went to Cleveland attorney Jerry Gold with their story.
38:19They thought the worst would happen, they'd get fired.
38:22Yeah, as soon as I learned the amount of money involved,
38:27nobody walks away from those kind of situations.
38:29When you sign your name and somebody loses $100 million,
38:32you can't walk away.
38:36Early the next week,
38:37the first public sign that something might be amiss
38:39was a broadcast to Farmore's employees.
38:42Good afternoon, everybody.
38:45Mickey Monis and David Shapira announced a corporate readjustment.
38:48The board of directors of Farmore,
38:53in conjunction with David and myself,
38:55have come up with a restructuring plan.
38:58I will relinquish my role as a president and chief operating officer
39:01and become a vice chairman of the office of the chairman.
39:06In fact, Shapira had wanted to fire Monis,
39:09but was convinced by board members
39:11to keep him on until investigations were complete
39:13in a position of no real power.
39:15I will be the new chief operating officer.
39:21The senior vice presidents will report to me.
39:26I'm going to be running the business on a day-to-day basis.
39:31His bet on Monis gone bad,
39:33Shapira needed to find out how much money was missing.
39:36Who did he turn to?
39:37The auditors, Coopers and Librand.
39:41When we first heard that these checks had been found,
39:44we pulled together the audit team
39:46who simply went out to start digging into areas
39:49that had not been dug into prior to this discovery.
40:00Coopers began interviewing employees
40:02who could tell them what they'd missed.
40:04John Anderson was anxious to talk.
40:07They needed my help.
40:08And I knew that I wanted divorced from the Pat Finn situation.
40:14And I must admit I was overwhelmed,
40:17but at the same time I was not hesitant or reluctant at all
40:23to kind of show them everything that I knew was going on.
40:26Anderson told them the WBL payments
40:28were just the beginning of a huge fraud.
40:31With Anderson leading them by the hand,
40:34Coopers now discovered the full extent
40:35of what it had missed during four years of audits.
40:41And Farmore's board now discovered the awful truth.
40:45Charles Cohen, a Farmore director,
40:47says the board was shocked.
40:48It was at that point that we realized
40:52that we were talking about a massive accounting fraud
40:56in which the accounting department,
41:00apparently under the direction of Mickey Monis,
41:03had cooked the books in a world-class way.
41:10The board had to do something.
41:12It fired the auditors,
41:14blaming them for not finding the fraud.
41:16The game was over.
41:21In fact, the company that even Walmart feared
41:23hadn't earned a dime in five years.
41:28A tip about a check for travel arrangements
41:31had led to the discovery
41:32of one of the biggest corporate frauds in U.S. history.
41:38Hope in God, I will praise you, my Savior, and my God.
41:42Hope in God, I will praise you, my Savior, and my God.
41:47Pat Finn had decided to come clean and confess everything.
41:50But there was one great danger,
41:52that he would be blamed for the whole thing
41:54if Monis were to claim ignorance of the fraud.
42:01So on Tuesday, July 28th,
42:04Finn called Monis at home.
42:05Finn wanted taped proof of Monis' involvement
42:20to take with him when he went to the authorities.
42:22I mean, when we go in and we talk about this,
42:26I mean, are you going to protect me and my guys
42:28and say that, you know, you basically were authorizing this?
42:33Hey, I'm going to protect you.
42:35What am I going to tell them?
42:36I mean, what am I going to tell them?
42:37That I didn't know anything about it?
42:38Is that what you mean?
42:39No, I mean, you almost have to say that you authorized it.
42:43I mean, that you knew about it.
42:45I'm going to say, I know we had a bucket to cover the gross profit,
42:49and we weren't covering it, and it got away from us.
42:51That's what I'm going to say, okay?
42:55Yeah, man, I just feel we're just cooked.
42:59The next day, Finn turned himself and the tape over to the authorities.
43:06For Mickey Monis, it also appeared to be over.
43:09Farmore fired him, and he was indicted on 129 criminal counts.
43:14The government accused him of directing the fraud.
43:17Their chief witness would be his protege,
43:19Pat Finn.
43:21I'm really not going to comment on the case.
43:23We aren't going to talk about the case.
43:25I appreciate that you have a job to do,
43:27but we're not going to talk about it.
43:29If convicted, Monis would face life in prison
43:32and fines of more than $36 million.
43:36Overnight, Farmore's image of success was snuffed out.
43:42I'd like to kill him.
43:44I really would.
43:45Thousands of employees were laid off when the company filed for bankruptcy,
43:52revealing that it needed half a billion dollars to erase the losses.
43:56In desperation, Farmore closed half the stores Monis had opened.
44:00And the shockwave spread quickly across the nation's business community as suppliers, banks, and investors learned that they'd been backing a loser all these years.
44:11Anthony Cafaro's company lost more than $9 million.
44:14Everybody gets hurt.
44:17I mean, all the employees, obviously the investors, the stock is worth virtually nothing.
44:24Many of the vendors actually lost money or will lose.
44:28They're not going to be paid dollar for dollar when the bankruptcy comes out.
44:32The banks, the lenders have lost.
44:39Who's made money on it?
44:41Nobody has, ultimately.
44:42The only people that come out are the attorneys at the end.
44:50A slew of legal suits followed as investors and lenders hurried to stake their claims.
44:57Farmore's last official act before it filed for bankruptcy was to sue Coopers and Librand,
45:03claiming their audits fell far short of accounting standards, were in fact incompetent.
45:08I have been around audits for almost 30 years, and I'm a professor of securities regulations,
45:17so I have read many cases involving auditors.
45:21A normal, careful audit by attentive managers and staff, in my opinion,
45:30should have and would have exposed some of the failures that occurred here.
45:38But Coopers and Librand has its excuse.
45:42It was royally snookered, just like everyone else.
45:46When you have the most senior management of the company, particularly its financial management,
45:51consciously setting out to fool the auditors, to hide information from them,
45:57as they've testified in the Monus trial,
45:58it's very hard to get around that kind of activity by the senior management.
46:04But, according to the SEC, auditors have a responsibility to do more.
46:12The auditors, at the end of the day, have no room to compromise.
46:16They have a responsibility to dig deeper, to be skeptical, to ask questions,
46:22and to impose a discipline on management and on the financial reporting process that may otherwise not be there.
46:29If found negligent, Coopers will be liable for hundreds of millions of dollars.
46:34But they're fighting back.
46:36We're suing David Shapira as the CEO,
46:40and our assertion is that he either knew or was recklessly indifferent
46:43in not knowing of what was going on around him.
46:47We believe that they are principally responsible for the fraud.
46:51But now answer me this.
46:52How can there be a crime involving half a billion dollars where everyone is a victim?
46:57The accountants, the board of directors, the chief executive,
47:00all failed to prevent it from happening,
47:03all claim it was the other guy's fault.
47:05They blame each other, and above all, Mickey Monus, the self-deluded gambler.
47:11But how far are self-delusion and gambling
47:14from the positive traits of optimism and daring
47:17which we expect from our entrepreneurs?
47:20Not that far, perhaps.
47:22Which is why we also expect those in oversight positions
47:25to keep an eye on those taking the risks.
47:28When they don't, we wind up in court.
47:31Because without controls,
47:33a system based on gambling and self-delusion
47:36will tend to run amok.
47:40Surprising to many,
47:42Mickey Monus' first trial ended in a hung jury.
47:45Oh, no.
47:46We had our minds made up.
47:48He was as guilty as I'm standing here.
47:50Really?
47:50There's more than enough facts to convict, I feel.
47:56But some people just refuse to see the facts.
47:59Who was undecided?
48:01One person hung the whole jury.
48:03Every single cop.
48:04I believe the person was paid off.
48:06Myself.
48:07Just, I mean...
48:08The FBI is taking these allegations seriously
48:10and is investigating for possible jury tampering.
48:14While Monus continues to maintain he did nothing wrong,
48:18Farmore is attempting to dig itself out of bankruptcy.
48:20By cutting expenses and closing their money-losing stores,
48:24they might yet stage a comeback.
48:26David Shapira never responded to repeated requests for an interview.
48:33He still sits on Farmore's board,
48:35across the table from corporate partners,
48:37which is suing him to recover their $200 million investment.
48:40It might be occurring to you.
48:44John Anderson, in return for his cooperation,
48:46was never prosecuted.
48:48Despite his role in hiding the fraud for four years,
48:51he still sees himself as a victim.
48:54You see him?
48:55I used to have this belief that all people were good
48:57and that all people had good intentions.
49:00And where I'm at right now
49:03is I really have a hard time trusting people.
49:05And that's something I have to learn to do again
49:08because I want to do that again.
49:09But having been to this particular experience,
49:13it really has made me look at people
49:17and situations in business in an unfavorable manner.
49:21And I have to learn to trust people again.
49:25Stan Charlstein was fired by Farmore
49:28but never charged with anything.
49:30He's named in several civil suits brought by investors
49:32and now works in Florida as an accountant.
49:36I really think that the situation at Farmore
49:38occurs at small companies
49:40and middle-sized companies all the time.
49:44And my recommendation
49:47to any accountants or chief financial officers
49:52would be don't let it happen.
49:56Don't let it start.
49:58Because once you start,
50:00it's very easy to let it happen a second time.
50:05And who knows where it will end.
50:09It ended in jail for Pat Finn.
50:12Last February, having admitted his responsibility
50:14for crafting the fraud,
50:16he reported to a federal prison
50:18to begin serving a 33-month sentence.
50:23It's okay to be loyal.
50:24It's okay to,
50:25as I did, try to build a company
50:31to nurture something from the beginning.
50:33But never lose sight of yourself,
50:37never compromise yourself for that.
50:39It's not worth it.
50:41It's not worth it.
50:44No matter how much of a team ball player you think you are,
50:48you're just destroying yourself
50:49and destroying things that are important to you.
50:52You can understand certain things.
50:58You can understand aggressive accounting.
51:00You can understand people who are executives,
51:03who are hard-charging,
51:04who are optimistic.
51:05That's how they get to be leaders.
51:06Those very things
51:09that made someone a superb executive,
51:13a superb accountant,
51:14a superb chief financial officer,
51:16sometimes also make them a superb criminal.
51:20Mickey Monis is still gambling,
51:26still denying everything,
51:27and now awaits the start of his second trial.
51:31The jury will have to decide
51:33whether Mickey Monis is a crook
51:35or just a hard-driving entrepreneur.
51:40What a sad day it is for Youngstown.
51:43What a black day it is for Youngstown.
51:45Like you say,
51:45he brought a lot of value and positive things to the valley.
51:48And all of us appreciated that.
51:50And it seems that we're,
51:52we seem to be so gullible
51:53that we want to leave.
51:54I compare Mickey Monis
51:56kind of like to Richard Nixon.
51:58He just got caught.
51:59Dear Frontline,
52:22I am so grateful for Frontline.
52:24And now it's time for your letters.
52:26Is this any way to run a government?
52:32Frontline's recent investigation
52:33of government waste and mismanagement
52:35inside the U.S. Department of Agriculture
52:37sparked this outcry.
52:40Dear Frontline,
52:41we are a small business
52:42trying to make an honest living.
52:43When we are in trouble financially,
52:45we cut down and cut out
52:47first personal luxuries
52:48and then company-wide excess.
52:50Why can't our government be forced
52:52to live by the same rules?
52:54Edward Howard, Greenville, South Carolina.
52:57But Hubertine Mogg,
52:59a retired school teacher
53:00from Wilson, Kansas, wrote,
53:01I felt the producers
53:03were in their usual agriculture-bashing mood.
53:06Most of these people
53:07have no idea or background in agriculture.
53:10You failed to point out
53:11how farmers have been cheated out
53:12of a just price at the marketplace,
53:15a price high enough
53:15so that they can meet their living
53:17and farming needs.
53:19She went on to say,
53:20Every one of you in the city
53:22profits from this unjust policy
53:25by paying less for your food
53:28while farmers are forced
53:30to give up their livelihood.
53:32Hubertine Mogg.
53:37And a long-time Forest Service employee
53:40had this personal reaction.
53:42Dear Frontline,
53:43I'm disappointed.
53:44You show malign Forest Service employees.
53:47Yet you never asked us.
53:49If you had,
53:50you would have learned
53:51how today we proudly take care
53:52of your forest ecosystems
53:53with prescribed fires
53:55and, yes,
53:57carefully cutting selected trees.
53:59These prevent catastrophes
54:00like the fires that ravage the West.
54:03If only you had asked.
54:05Sincerely, Gary Schiff.
54:06Interact with Frontline.
54:09Send your comments by fax
54:11to 617-254-0243
54:14by letter or home video
54:16to this address.
54:17She's the emblem for women
54:24who wanted it all.
54:25My world exploded
54:27when I got to Wellesley.
54:28We've been in doubt
54:29with the sense
54:29that we could do it all.
54:30They were not easy decisions.
54:31What if I hadn't gotten married?
54:32I would not have a husband.
54:34I would not have children.
54:35Could I still make a difference like that?
54:36The price tag.
54:37Still agonizing.
54:38I had to listen to myself.
54:39That's my life.
54:40Do I measure against Hillary?
54:41The Struggles of a Generation.
54:44Hillary's Class on Frontline.
54:46Mickey's personality is
54:52in essence he's a gambler.
54:55If he loses a bet
54:57he's going to double up on the bet
54:58to hope the next time
55:00he can recover his funds.
55:16The Struggles of a boca
55:29is D festival.
55:31The Struggles of a Generation
55:31諺.
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