Tonight on Frontline, they were just playing corporate hardball.
The company was growing, the cash was flowing, squeeze and leverage suppliers, but it got
out of hand.
Cabinets stuffed with hell checks, it kept sinking deeper and deeper and deeper.
Frontline correspondent Paul Solman investigates how one high rolling entrepreneur and his
loyal followers covered up one of the largest corporate frauds in United States history.
Fool the auditors, cook the books.
Tonight on Frontline, how to steal 500 million.
Funding for Frontline is provided by the Corporation for Public Broadcasting and by annual financial
support from viewers like you.
This is Frontline.
Five-Nineteen, Ron Verb with Great Talk Radio, 57, DeWitt UKBN, Youngstown, Ohio.
We get your opinions of Mickey Moniz on DeWitt UKBN.
First we go to Youngstown.
What do you think about Mickey Moniz?
The guy was a hero in this area.
Jim, you're on DeWitt UKBN.
Hello.
Yeah, Al Capone, Dillinger, Mickey Moniz, they're all the same.
I'll tell you what, he played Youngstown for a bunch of hicks from Mayberry.
That's what I think.
I thank you.
On DeWitt UKBN to the east side.
Sam, you're on Great Talk Radio.
Hello.
I would like to say that the Moniz family has done more good for this valley than any
harm to this valley.
And Mickey was trying to do the same.
I think the books were cooked and Mickey was not aware of the books being cooked.
What do you think of Mickey Moniz?
7-8-2-8-1-9-1 in Youngstown.
That's 7-8-2-8-1-9-1.
In Youngstown, Ohio, it's the fraud of the century, and they're still arguing as to
how hometown hero Mickey Moniz wound up losing $500 million of other people's money while
building what seemed to be a retail empire, a discount chain called Farmore.
I'd like to introduce at this time Michael Moniz, the president of Farmore, who brought
us to 33 states from zero to 300 stores.
Thank you, Carol.
For 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.
Mickey Moniz, crook or classic entrepreneur, depending on your point of view.
The story of Farmore 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
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 Leibrand.
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 Farmore?
Some people in this world have one thing on their mind, deals.
In 1982, Moniz opened his first Farmore, 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, Moniz'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 how Farmore did it.
Moniz 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, Moniz the gambling spirit.
Strong sales at the first store so impressed Moniz's bosses that a second store followed
within seven months.
Within a year, there were eight.
To help him build the new firm, Moniz hired young men.
Many of them lacked experience, but they made up for it in loyalty to the boss.
To run accounting, he chose Pat Finn.
You could see yourself going after problems, challenging yourself, solving problems.
In accounting, you worked through a problem, there was a right answer and a wrong answer.
Things are black and white.
And 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 Moniz, 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, everyone who worked for him to have that same
type of fire and that same type of dedication towards Farmore.
Moniz 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 he pushed, whether it was Farmore or a summer camp for local city
kids.
He became almost like a cult figure.
He really did.
He was bigger than life, he was bigger than life.
He could do no wrong, had the mightest touch, however you want to say it.
He was a very, very important person for the psyche of the Youngstown area.
Word of Moniz'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 Farmore as perhaps the greatest success story in the retail industry
ever.
I remember 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 Farmore.
As it grew, Farmore 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 hoped to
capture his customers.
So for the next two years, Moniz committed Farmore to underselling Walmart.
But the prices were so low, he began losing money in those stores.
Pat Finn watched nervously as year by year the profit margins of the entire company eroded.
By 1989 he realized Farmore now faced a loss of millions.
Finn went to Moniz with the bad news.
Mickey Moniz 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 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.
Moniz chose to buy time, according to his chief financial officer.
Pat Finn states that when he brought the disappointing results to his boss, Moniz 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.
Farmore was lying primarily to its owners.
According to Pat Finn, Moniz continued to change the weekly financial reports for four
months before entrusting the task to him.
Moniz refused to talk to us about this or any other issue, but Pat Finn gave us his
account.
He knew you were doing something wrong, but you never understood how wrong.
I think he helped me believe that, you know, starting it for him, 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 sub-ledger, and Farmore's
accounting manager, John Anderson, was brought into the plot to keep track of the temporarily
altered figures.
It was really a report that Pat Finn wanted done, wanted to keep track of so he can see
where everything was at and what, I guess, problems he needed to cover.
Finn had hired Anderson directly out of Youngstown State University, where this kind of accounting
presumably was not part of the curriculum.
Pat Finn always had an aggressive approach to accounting, and call it aggressive or call
it creative, that's the way it was done ever since I remembered.
Now 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 Farmore's
vendors.
The merchandise show, where retailers and vendors haggle over the price of, say, a year's
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 Farmore had gradually tilted the balance.
The chains were now big enough to muscle the suppliers.
They were certainly in a position to squeeze and leverage suppliers, no doubt about it.
Everyone is under pressure to make sales, here's a company that looked like it was going
to be another Walmart.
Monas' 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.
They may have said to one company, we'll keep your line if you'll give us $500,000 or $1
million fee.
If they said no, they would go to the other company and give them the business.
They'd give them the business all right.
Coca-Cola, for instance, paid Farmore $10 million to keep Pepsi out of Farmore for just
five years.
Vendors let themselves be strong-armed by a retail newcomer without ever wondering,
it seems, if the Farmore phenomenon was for real.
Meanwhile, Farmore'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.
Farmore wasn't Mickey Monas' only interest.
He had invested in over a dozen other businesses and even had the moxie to take on the National
Basketball Association.
Did you ever think you'd be a professional basketball player here when you came to mind?
Really?
Right.
Did you play ball?
Just in high school.
And how tall are you?
Five-nine.
You could have made this league sometime if it was 20 years ago.
I don't think I have the quickness.
Okay.
Let's go back to court-side in jail.
Monas' world basketball league had a hook.
No player was taller than six-foot-five, and the nine teams were located in smaller markets
in cities like Youngstown.
There's a lot of people who lose a lot of money in minor league sports.
So yeah, it was a challenge because he was going to, again, do something that nobody
had done.
He was going to be a success where others had failed.
As at Farmore, Monas concentrated on image.
He personally assembled the All-American Girls, a professional cheerleading squad which traveled
from game to game throughout the country.
He pushed to popularize the league by broadcasting games.
Using a TV production company, he bankrolled with borrowed money.
But how could Monas, whose Farmore was hemorrhaging money, think he could make a pro sports league
fly?
These were people, you know, who had extreme confidence in their ability.
And it was just kind of a foregone conclusion that if we're going to create a new basketball
league from scratch and we're going to make money on it when no one else has, well, hey,
we're the people who started Farmore.
We can do these kind of things.
But in reality, things at Farmore 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.
About $12 million divided by 129 stores comes out to $93,023.25 a store.
So you put that on the expense side of each store's ledger.
And to make it balance, you need to add $93,023.25 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 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.
Multiply that difference by thousands of six-packs of Coke in 129 stores, and you're on your
way to a $12 million cover-up.
It's a whole new world facing today's chief executive.
Competition is fierce.
But how could Farmore's respected auditors, Coopers and Leibrand, who sell themselves
on their know-how, 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 Farmore account with a very low bid, wanted to limit
its costs.
So Coopers checked only four stores out of 129.
And get this.
Farmore found out from Coopers which locations would be checked months in advance.
So when Coopers arrived to examine the stores, it's not too surprising that everything appeared
to be in order.
We went to Coopers and Leibrand to ask them why they were unable to uncover the fraud.
An accountant is a watchdog, but not a bloodhound.
An accountant cannot be expected to search out and find every piece of fraud.
There's really a big difference between being a bloodhound and a watchdog, and I think that's
an important distinction.
But perhaps a fair question is not whether Coopers was hired as a bloodhound, but whether
the watchdog was asleep.
With only a tiny sample to go by, Coopers accepted Farmore'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 Farmore's numbers, but declared that the company had
actually earned a record profit in 1989.
In the next two years, Farmore grew, and by all appearances, it continued to prosper.
To the folks back home, Mickey Monas had become a legend who breathed new life into their
old town.
He just produced jobs for everybody, you know, and not just the jobs around Youngstown, but
around the country, because every time they opened a store, they hired more people.
Kim's Cafe was where Farmore executives came to celebrate their victories.
Monas, the local boy made good, would occasionally stop by to serve as celebrity bartender.
All the girls from upstairs requested, I forget the title of the song, but it went, Mickey,
Mickey, you're so fine, you're so fine, you blow our mind, and they'd be singing it over
there and then they'd be all pointing over this way at the bar, and then it got the whole
dining room singing the song.
Despite monumental losses, Monas played on, as if nothing were wrong.
He'd apparently convinced himself that Farmore was destined for glory, and with salary and
bonus of half a million dollars, he lived accordingly.
In addition, he took another half million dollars to add a room to his house, to pay
off a rather generous visa balance, to pick up an engagement ring for his new fiancé.
Monas developed an attachment to posh West Palm Beach, where his second marriage took
place, poolside, at the Ritz-Carlton Hotel.
The bride wore gold, an 18-carat gold mesh gown donated for the day by a vendor, Absolute
Vodka.
It was worth more than half a million dollars and came complete with two armed guards.
Monas loved the high life, loved to be where the action was.
It would be three o'clock in the afternoon, and they'd say, let's go to Vegas, and we're
going now.
Just take your wallet and let's go.
And we would fly into Las Vegas, and there would be a limo from Caesar's Palace that
would meet the plane on the tarmac, and we would get taken to Caesar's Palace, and there
would be a suite for Mickey, 24 hours a day, seven days a week.
It did not matter when we came there, there was always a suite.
Monas was at home in the world of Big Bets and make-believe.
He even built three stores in Las Vegas.
And then there was the nightlife.
Life was a game.
Life was just this ride you're on.
You're working hard, you've got all this money coming through your hand, whether you own
it or not, that's for someone else to decide, but you have the power, the ability to do
anything.
The gambling was insane.
I mean, my coaches would come back and say, yeah, Mickey gave me $4,000 to gamble with
last night, and I lost it all.
Monas' activities would eventually be scrutinized by bankruptcy examiner Jay Alex.
The sense I have is like it was a boys' 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.
But at Farmore back in 1990, they were beginning to feel a different sort of heat.
Losses were now more than $45 million and growing, but Monas refused to raise prices
or retreat.
He just couldn't admit defeat.
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 fix it, and we got to go on.
To cover up the continuing losses, Pat Finn was now faxing falsified financial reports
to the board of directors and to David Shapira every week.
But in November of 1990, a secretary mistakenly faxed a report with the real numbers to Shapira.
Shapira in black and white was a report which no CEO could ignore.
While Shapira was ultimately responsible for Farmore, he'd long ago left day-to-day operations
to Mickey Monas.
When he saw these startling numbers, Shapira summoned Pat Finn to his Pittsburgh offices.
Pat Finn told David Shapira that, you know, everything, those are just preliminary numbers.
We have to make some adjustments to them.
And once we make the adjustments to them, then they'll be okay.
In the end, the CEO of Farmore failed to check the figures independently.
He seems to have bought Pat Finn's excuse.
Now remember, we're three years into the fraud.
Is CEO David Shapira really as gullible as he seems?
Well, a cynic might say that considering Shapira's huge personal stake as a major shareholder
in Farmore, he believed Finn because he wanted to.
After all, he'd put his money on Mickey Monas, just like Pat Finn, the people of Youngstown,
the banks, vendors, and investors.
But what none of them knew was just how bad a bet they'd made.
The deficits continued to grow, and knowledge of the fraud was now about to extend to another
member of the company.
Stan Cherilstein joined Farmore in 1990.
He quickly rose to the position of controller, a job that placed him in charge of all cash
disbursements.
Well, I learned about the fraud almost two years after my joining the company.
That's when John Anderson took me into his office and closed the door and told me that,
well, you're the controller for Farmore now, and you should be aware of this situation.
And he pulled out a subledger schedule and told me basically that the financial statements
at the end of June, 1991, were misstated by approximately $150 million.
If anybody was likely to blow the whistle, it would seem to have been the newcomer, Stan
Cherilstein.
But he didn't.
He too was persuaded to toe the line.
I felt that through exclusivity money, through perhaps raising the prices, I felt that there
were some options at that point that Pat and Mickey had available to them to correct the
situation.
And that's why I stayed on with the company, and that's why I never told another soul.
That coupled with a fear that I believe I had at the time that maybe if I did go over
their heads, maybe some harm could come to myself.
Physical harm?
Physical harm.
John Anderson had spent much of his four-year career inside the fraud.
Cherilstein was the closest thing he'd found to a moral compass.
He was able to make a lot of sense of things, and seemed to give opinions and seemed to
say that, no, this is not the way it should be.
We should be doing things this way, or no, that is absolutely wrong.
He was in there actually trying to fight and trying to change things, and was up against
a brick wall.
Then the fraud was becoming more and more of a problem.
The company was frequently strapped for day-to-day cash.
Bills went unpaid for months.
We had cabinets stuffed with held checks at the company that had been generated out of
the accounts payable system, but we couldn't mail them because if we mailed them the checks
would have bounced.
So they kept accumulating and accumulating.
By the spring of 1991, Farmore was holding back $155 million it owed to vendors.
They retaliated by halting shipments to some stores.
Shoppers began to notice an unusual sight, empty shelves, an image at odds with Farmore
TV ads, which promised customers everything.
Farmore continued to live in its dream world, even though CEO and board member David Shapira
knew about most of the held checks.
This is the kind of issue that would rise to a board level concern I would think in
most companies.
When a company needs hundreds of millions of dollars more than it planned on, the question
would have to be asked why.
So what was more important to Shapira and the directors than pressing for explanations?
Perhaps selling Farmore's stock.
The prestigious New York investment firm, Corporate Partners, makes large investments
on behalf of state and corporate pension funds.
Farmore had caught their eye because if it kept growing it would be a great candidate
for selling its shares on the New York Stock Exchange.
The company was growing and had hoped to go public at some point, and by having a reputable
investment firm make a sizable investment it would give a lot of credibility to the
company and its stock for a future public offering.
Mistakes were substantial.
Once Farmore went public, Monas, Shapira, Finn, and everyone else with a piece of the
company figured to realize the entrepreneurial dream, cashing in big time.
Corporate Partners wanted to invest $200 million, but first, quite naturally, they would send
in their own accountants to check the books.
Corporate Partners would also make its decision by evaluating Mickey Monas in action.
They picked an event that happened to show off his strengths as a showman, in one of
his favorite haunts.
Each May, Las Vegas hosts the biggest real estate convention of the year.
Every major retailer in the country attends, including Farmore, to make deals for new store
locations.
Monas were intent on impressing Farmore.
Monas was intent on impressing Corporate Partners.
What Monas didn't know was that someone else was also watching him.
Charity Embry, Farmore's legal counsel, had been asked to watch over Monas by Farmore's
CEO, David Shapira, afraid Monas might jeopardize the Corporate Partners deal.
But in the process, Embry picked up some alarming scuttlebutt.
A Farmore vice president told her that some vendors were refusing to supply stores because
bills were going unpaid.
Embry worried about the image of cheerleaders wearing hot pants employed as company hostesses.
She also heard about a senior VP of Coca-Cola, who said he hated doing business with Farmore
because he was always being pressured to support the World Basketball League.
Embry documented her concerns in a confidential memo to David Shapira, covering everything
from disgruntled vendors to cash flow problems.
David Shapira received the incriminating memo shortly after Embry returned from the convention.
So what did the CEO do?
He told her to rip it up.
Embry chose to keep one copy anyway, and at the bottom she noted what Shapira had said.
That quote, he was aware of most of the items listed in this memo, and that quote, it was
particularly important to rip it up now because of pending financing stock sale with CP, that
is Corporate Partners.
If they went ahead with their stock purchase, Corporate Partners would own 17 percent of
Farmore.
They understood to make more than $2 million on the deal, Mickey Monas an even million.
Shielded from the rumors, Corporate Partners saw only Farmore's commanding role at the
convention, and they were suitably impressed.
I think what they saw was what everybody else saw on the outside, this company with this
unique buying philosophy and buying ability and low prices and rapid growth coming from
nowhere to $3 billion in sales in record time and the mystique that it was taking over the
deep discount world and they were going to end up on top of the whole heap by the time
it was done.
Four weeks later, Corporate Partners announced their $200 million investment in Farmore.
The official story was that this would give Farmore the much needed cash to continue its
aggressive growth plans.
But there were more pressing needs for the money than growth or even covering the fraud.
Much of it had to go first towards paying off angry vendors.
Had Corporate Partners known that their money was going to be used to pay Revlon and Procter
and Gamble and Helene Curtis invoices from three, four months ago, I don't think they
ever would have invested in the company.
But they didn't know, nor did anyone else.
As summer spread across the Mahoning Valley, Mickey Monas presided over the annual Farmore
Open, an LPGA tournament sponsored by Farmore.
Farmore was now in the hole by $145 million, but Monas appeared as upbeat as ever at the
tournament, where he would dole out half a million dollars in prize money.
Much of it was raised from Farmore vendors.
But Pat Finn was becoming more and more anxious.
According to Finn, Monas had now distanced himself from managing the fraud, which required
more attention than ever, and Finn was stuck with the responsibility of designing new ways
to cover it up.
My energy and people who work for me was going to cover up a situation, and it really wasn't
going towards making Farmore a better company.
And that really hurt.
And I think we all long for the day that we could just kiss this goodbye and just dedicate
ourselves to making the company better.
But if Finn still harbored some hope, Cherylstein and Anderson had lost the last shred of faith.
John and I continually talked about the fraud and what we were going to do to resolve it.
We had these discussions probably every day for lunch, and Pat was aware that we were
talking about it all the time, and he knew that we were nervous, and it was those concerns
that we brought to Pat's attention that really forced the April meeting.
Finn now went to Monas and told him that junior executives were threatening to quit if something
wasn't done to address the problem.
A meeting was set for a Saturday morning in April of 92.
Cherylstein was especially worried that if the fraud were discovered, Monas could lay
blame on the accounting department.
So I went into the April meeting knowing that I didn't want the situation blamed on me because
I had just arrived six months earlier.
So I decided to tape it.
We're getting real close to audit time here.
Right.
And we've got some major problems out there.
Right.
And, you know, we're talking about how to cover it next year.
Yep.
That's as soon as we get through an audit.
And, you know, I'm on the front line out there.
Yeah, I know that.
With these auditors.
And if something comes out the light, I'm there first.
Yeah.
But I've got to sit down and try and cover this stuff.
If something comes out, you're going to have to get the tap.
But the numbers are just...
Well, the problems are multiplying and the numbers are multiplying.
Yeah.
How do you get through the audit?
Well, we don't know what else to tell you.
And that's what we've got to do.
I mean, it's really a good fire out here.
Keep our fingers crossed.
And get through it and get the numbers done.
Leaving that meeting, you know, there was a very discouraging feeling, a sense of almost
that, you know, whatever the guy's saying probably is not going to happen.
I think he's personality is, in essence, he's a gambler.
If he loses a bet, he's going to double up on the bet, hopefully the next time he can
recover his funds.
It is very testy in Youngstown.
Monas's penchant for doubling up his bets was about to prove his undoing.
The WBL was a disaster, soaking up money.
In the first year alone, Monas personally had to put up over a million dollars for the
league, and still it wasn't enough.
But where would he get more money to prop up the league?
From a familiar source of funding as it happens, Farmore Vendors.
Tom Zawastowski says Farmore's executive in charge of buying simply ordered vendors to
become sponsors.
We'd go to his office and he'd say, all right, you know, here's who I think will buy, you
know, Frito-Lay, Fucci Film, you know, people like that.
And then basically he'd get them on the speaker phone and he'd say, listen, you know, this
is important to us, you're going to buy a $50,000 sponsorship, period.
But when fans lost interest in Monas's basketball league, so did the sponsors.
Remarkably, Monas directed that Farmore funds be used to keep the league going.
Monas's signature had been printed on dozens of Farmore checks to prop up the basketball
league.
By 1991, millions of dollars had been embezzled.
But then, a check to this travel agency for WBL expenses would cause the entire scheme
to unravel.
The travel agent showed the check to her landlord, who happened to be a Farmore investor.
He brought it to the attention of David Shapira.
David Shapira called in Pat Finn for an explanation.
Now, try to put yourself in Pat Finn's shoes for a moment.
What would you have done?
Well, true to form, Finn stonewalled, then admitted that a million dollars of Farmore
money had gone to support Monas's basketball league, when in fact, more than 10 million
had already been embezzled for this purpose.
Shapira said he wanted to see the check registers himself.
So Finn raced back to Monas, afraid the entire fraud might now be exposed.
Monas suggested one last desperate gamble.
According to Finn, he said there was still time to paper over the WBL fraud, as long
as they didn't lose their nerve.
I felt like I was almost like in quicksand.
I kept sinking deeper and deeper and deeper, but I always had a belief that we could fix
it.
I never wanted to tell myself that we couldn't fix it, because if we couldn't fix it, there
was nothing but bad.
I remember it really distinctly, he called Stan and myself in his office, and he said
that, well, we have to get these checks and type over who they were paid out to, or white
out who they were paid to.
I flat out refused.
As soon as I heard that, I said, there's no way that I'm going to do that.
Finally, someone had drawn the line.
But there was still Stan Cherilstein.
Finn asked his controller to come to his home the next morning.
I arrived at Pat's house early Saturday morning.
We looked through the journals very briefly before we looked at each other and knew that
there was no way that we could cover up $10 million in advances to the World Basketball
League.
And I think at that point in time, he and I both knew that it was over.
Stan and Finn decided it was time to get a lawyer.
They went to Cleveland attorney Jerry Gold with their story.
They thought the worst would happen, they'd get fired.
As soon as I learned the amount of money involved, nobody walks away from those kind of situations.
When you sign your name and somebody loses $100 million, you can't walk away.
Early the next week, the first public sign that something might be amiss was a broadcast
to Farmoor's employees.
Good afternoon, everybody.
Mickey Montes and David Shapira announced a corporate readjustment.
The board of directors of Farmoor, in conjunction with David and myself, have come up with a
restructuring plan.
I will relinquish my roles as president and chief operating officer and become a vice
chairman of the office of the chairman.
In fact, Shapira had wanted to fire Montes, but was convinced by board members to keep
him on until investigations were complete in a position of no real power.
I will be the new chief operating officer.
The senior vice presidents will report to me.
I'm going to be running the business on a day-to-day basis.
His bet on Montes gone bad, Shapira needed to find out how much money was missing.
Who did he turn to?
The auditors, Coopers and Leibrand.
When we first heard that these checks had been found, we pulled together the audit team
who simply went out to start digging into areas that had not been dug into prior to
this discovery.
Coopers began interviewing employees who could tell them what they'd missed.
John Anderson was anxious to talk.
They needed my help.
I knew that I wanted divorced from the Pat Finn situation, and I must admit I was overwhelmed,
but at the same time I was not hesitant or reluctant at all to kind of show them everything
that I knew was going on.
Anderson told them the WBL payments were just the beginning of a huge fraud.
With Anderson leading them by the hand, Coopers now discovered the full extent of what it
had missed during four years of audits.
And Farmore's board now discovered the awful truth.
Charles Cohen, a Farmore director, says the board was shocked.
It was at that point that we realized that we were talking about a massive accounting
fraud in which the accounting department, apparently under the direction of Mickey Monas,
had cooked the books in a world-class way.
The board had to do something.
It fired the auditors, blaming them for not finding the fraud.
The game was over.
In fact, the company that even Walmart feared hadn't earned a dime in five years.
A tip about a check for travel arrangements had led to the discovery of one of the biggest
corporate frauds in U.S. history.
Pat Finn had decided to come clean and confess everything.
But there was one great danger, that he would be blamed for the whole thing if Monas were
to claim ignorance of the fraud.
So on Tuesday, July 28, Finn called Monas at home.
Finn wanted tape proof of Monas' involvement to take with him when he went to the authorities.
He wanted to be 100% sure that no one was asking for anything, half the people said
The next day, Finn turned himself and the tape over to the authorities.
For Mickey Monas, it also appeared to be over.
Farmore fired him, and he was indicted on 129 criminal counts.
The government accused him of directing the fraud.
Their chief witness would be his protege, Pat Finn.
If convicted, Monas would face life in prison and fines of more than $36 million.
Overnight, Farmore's image of success was snuffed out.
Thousands of employees were laid off when the company filed for bankruptcy, revealing
that it needed half a billion dollars to erase the losses.
In desperation, Farmore closed half the stores Monas had opened.
And 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.
Anthony Caffaro's company lost more than $9 million.
Everybody gets hurt.
I mean, all the employees, obviously the investors, their stock is worth virtually nothing.
Many of the vendors actually lost money or will lose.
They're not going to be paid dollar for dollar when the bankruptcy comes out.
The banks, the lenders have lost.
Who's made money on it?
Nobody has ultimately.
The only people that come out are the attorneys at the end.
A slew of legal suits followed as investors and lenders hurried to stake their claims.
Farmore's last official act before it filed for bankruptcy was to sue Coopers and Liebrand,
claiming their audits fell far short of accounting standards, were in fact incompetent.
I have been around audits for almost 30 years, and I'm a professor of securities regulation,
so I have read many cases involving auditors.
A normal, careful audit by attentive managers and staff, in my opinion, should have and
would have exposed some of the failures that occurred here.
But Coopers and Liebrand has its excuse.
It was royally snookered, just like everyone else.
When you have the most senior management of the company, particularly its financial management,
consciously setting out to fool the auditors, to hide information from them as they've
testified in the Monas trial.
It's very hard to get around that kind of activity by the senior management.
But according to the SEC, auditors have a responsibility to do more.
The auditors at the end of the day have no room to compromise.
They have a responsibility to dig deeper, to be skeptical, to ask questions, and to
impose a discipline on management and on the financial reporting process that may otherwise
not be there.
If found negligent, Coopers will be liable for hundreds of millions of dollars.
But they're fighting back.
We're suing David Shapira as the CEO, and our assertion is that he either knew or was
recklessly indifferent in not knowing of what was going on around him.
We believe that they are principally responsible for the fraud.
But now answer me this.
How can there be a crime involving half a billion dollars where everyone is a victim?
The accountants, the board of directors, the chief executive, all failed to prevent it
from happening, all claim it was the other guy's fault.
They blame each other, and above all, Mickey Monas, the self-deluded gambler.
But how far are self-delusion and gambling from the positive traits of optimism and daring
which we expect from our entrepreneurs?
Not that far, perhaps, which is why we also expect those in oversight positions to keep
an eye on those taking the risks.
When they don't, we wind up in court.
Because without controls, a system based on gambling and self-delusion will tend to run
amok.
Surprising to many, Mickey Monas' first trial ended in a hung jury.
Oh no.
We had our minds made up.
He was as guilty as I'm standing here.
Really?
There's more than enough facts to convict.
I feel, but some people just refuse to see the facts.
Who was undecided?
One person hung the whole jury.
Every single kind.
I believe the person was paid off, myself.
The FBI is taking these allegations seriously and is investigating for possible jury tampering.
While Monas continues to maintain he did nothing wrong, far more is attempting to dig itself
out of bankruptcy.
By cutting expenses and closing their money-losing stores, they might yet stage a comeback.
David Shapira never responded to repeated requests for an interview.
He still sits on Farmore's board, across the table from corporate partners, which is suing
him to recover their $200 million investment.
John Anderson, in return for his cooperation, was never prosecuted.
Despite his role in hiding the fraud for four years, he still sees himself as a victim.
I used to have this belief that all people were good, and that all people had good intentions.
And where I'm at right now is I really have a hard time trusting people.
And that's something I have to learn to do again, because I want to do that again.
But having been to this particular experience that's really, has made me look at people
in situations in business in an unfavorable manner, and I have to learn to trust people
again.
Stan Cherilstein was fired by Farmore, but never charged with anything.
He's named in several civil suits brought by investors, and now works in Florida as
an accountant.
I really think that the situation at Farmore occurs at small companies and middle-sized
companies all the time.
And my recommendation to any accountants or chief financial officers would be don't let
it happen.
Don't let it start.
Because once you start, it's very easy to let it happen a second time.
And who knows where it will end.
It ended in jail for Pat Finn.
Since February, having admitted his responsibility for crafting the fraud, he reported to a federal
prison to begin serving a 33-month sentence.
It's okay to be loyal.
It's okay to, as I did, try to build a company, to nurture something from the beginning.
But never lose sight of yourself.
Never compromise yourself for that.
It's not worth it.
No matter how much of a team ball player you think you are, you're just destroying yourself
and destroying things that are important to you.
You can understand certain things.
You can understand aggressive accounting.
You can understand people who are executives, who are hard-charging, who are optimistic.
That's how they get to be leaders.
Those very things that made someone a superb executive, a superb accountant, a superb chief
financial officer, sometimes also make them a superb criminal.
Mickey Monas is still gambling, still denying everything, and now awaits the start of his
second trial.
The jury will have to decide whether Mickey Monas is a crook or just a hard-driving entrepreneur.
What a sad day it is for Youngstown.
What a black day it is for Youngstown.
Like you say, he brought a lot of value and positive things to the valley, and all of
us appreciated that.
I felt bad because it was a black blood against our town, and it seems that we seem to be
so gullible that we want to...
I compare Mickey Monas kind of like to Richard Nixon.
He just got caught.
Dear Frontline, I am so grateful for Frontline.
And now it's time for your letters.
Is this any way to run a government?
Frontline's recent investigation of government waste and mismanagement inside the U.S. Department
of Agriculture sparked this outcry.
Dear Frontline, we are a small business trying to make an honest living.
When we are in trouble financially, we cut down and cut out first personal luxuries and
then company-wide excess.
Why can't our government be forced to live by the same rules?
Edward Howard, Greenville, South Carolina.
But Hubertine Mogg, a retired school teacher from Wilson, Kansas wrote, I felt the producers
were in their usual agriculture bashing mood.
Most of these people have no idea or background in agriculture.
You failed to point out how farmers have been cheated out of a just price at the marketplace,
a price high enough so that they can meet their living and farming needs.
She went on to say, every one of you in the city profits from this unjust policy by paying
less for your food while farmers are forced to give up their livelihood.
Hubertine Mogg.
And a long-time Forest Service employee had this personal reaction.
Dear Frontline, I'm disappointed.
You show malign Forest Service employees, yet you never asked us.
If you had, you would have learned how today we proudly take care of your forest ecosystems
with prescribed fires and, yes, carefully cutting selected trees.
These prevent catastrophes like the fires that ravage the West.
If only you had asked.
Sincerely, Gary Schiff.
Interact with Frontline.
Send your comments by fax to 617-254-0243 by letter or home video to this address.
She is the emblem for women who wanted it all.
My world exploded when I got to Wellesley.
We've been endowed with a sense that we could do it all.
They were not easy decisions.
What if I hadn't gotten married?
I would not have a husband.
I would not have children.
Could I still make a difference like that?
The price tag.
Still agonizing.
I have to listen to myself.
It's my life.
Do I measure against Hillary?
The struggles of a generation.
Hillary's class on Frontline.
Mickey's personality is, in essence, he's a gambler.
If he loses a bet, he's going to double up on the bet to hope the next time he can recover
his funds.
funding for Frontline is provided by the Corporation for Public Broadcasting and by
annual financial support from viewers like you.
Frontline is produced for the Documentary Consortium by WGBH Boston, which is solely
responsible for its content.
For videocassette information about this program, please call this toll-free number, 1-800-328-PBS-1.