Bankruptcy
In 1992, when the company had grown to over 300 stores and 25,000 employees, Monus and his CFO Patrick Finn were accused of embezzlement: they had allegedly hidden losses and moved about $10 million from Phar-Mor to the World Basketball League that Monus had founded. Based on deceptive data and inventory, Phar-Mor borrowed millions, ostensibly to finance its unusually rapid growth. In actuality, this infusion of cash was necessary to pay off suppliers. As a result, Phar-Mor had to file for bankruptcy protection, closed 55 stores and laid off 5,000 employees. Finn testified against Monus and received 33 months in prison. Monus' first trial ended in a hung jury in 1994; he was convicted at the second trial on 107 federal counts, mostly related to fraud, and sentenced to 17 years and 7 months in federal prison. Prosecutors estimated that the total loss to all investors exceeded $1 billion. The sentence was appealed and later reduced to 9 years.
One friend of Monus later admitted to having offered a bribe to an acquaintance of his on the first trial's jury; the juror had not taken the money but confirmed the scheme. Monus was tried for jury tampering and acquitted.
Several investors in Phar-Mor filed a civil suit against the company's auditors, Coopers & Lybrand. A jury decided in 1996 that the accountants committed common law and federal securities law fraud by falsely representing they had performed GAAP audits when in fact they had failed to do so.
Phar-Mor emerged from bankruptcy protection in January 1995 with 143 stores remaining, only to be hit hard once again by competition from other large retailers, such as Wal-Mart and Target, which began opening new stores with pharmacies. Phar-Mor, unable to compete, was forced into bankruptcy for the second time in September 2001 after it had emerged from its three-year long bankruptcy. The company was delisted from the NASDAQ Stock Market on October 10, 2001. The company went out of business in 2002. Its Youngstown-area assets were purchased by Giant Eagle in bankruptcy court.
The case was featured in an episode of the PBS show Frontline, entitled "How to Steal $500 Million".
Read more about this topic: Phar-Mor
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