Samples Fraud PharMor Fraud

PharMor Fraud

655 words 3 page(s)

Phar-Mor Inc. was a retail drugstore chain based in the United States.. According to the International Directory of Company Histories (as cited in Funding Universe, 2017, para. 1). Phar-mor was started in 1982 by David S. Shapira and Michael J. Monus. At the Phar-Mor’s height in 1992 the company had around 300 stores and their growth showed no signs of slowing. The company was very successful using had aggressive purchasing strategies that allowed it to offer its customers deep discounts on merchandise and is rumored to have even threatened the likes of Sam Walton’s retail giant Wal-mart with its aggressive tactics and flurried success. According to the International Directory of Company Histories (as cited in Funding Universe, n.d.), Monus was Phar-Mor’s President while Shapira served as CEO and, “[t]he charismatic Monus developed a reputation for flamboyancy in the otherwise stuffy drug store industry…Shapira, on the other hand, was described as “a member of Pittsburgh’s establishment” (para.3).

A scandal erupted for Phar-Mor in the early 90’s that accused Monus and the company’s chief financial officer Patrick Finn of embezzling money and overstating inventories in order to exaggerate the financial standing of the company and enrich themselves (Collins, 1995). According to prosecutors, over a period of several years beginning in the late 80’s, Monus stole $10.5 million from the company and its investors in order to support himself and his failing World Basketball League venture (Collins, 1995). The scam started when Monus and Finn conspired to hid the company’s losses by overstating the value of their inventories at the time.

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Monus and Finn were both convicted and punished for crimes that ultimately dismantled the business and forced it into liquidation. According to Collins (1995), Finn testified against Monus in order to cooperate with prosecutors and resolve the case (para. 12). In 1993, Finn was sentenced to nearly three years in prison for his embezzlement and fraud (Collins, 1995). In 1995, after a hung jury in his first U.S. District Court trial, Monus was convicted of 109 charges of fraud, embezzlement of around $1,000,000,000 billion from the company and creating false financial statements (“Phar-Mor Founder,” 1995). Most of the charges against Monus constituted some sort of fraud under the SEC and other federal laws and guidelines. According to The New York Times, the minimum sentence for Monus’ crimes were, “235 months, a $1 million fine and five years of probation” (“Phar-Mor Founder,” 1995).

According to the International Directory of Company Histories (as cited in Funding Universe, n.d.), when the fraud of Phar-Mor’s president and executive was uncovered in 1992, its suppliers began freezing inventory shipments, ultimately forcing the company to seek Chapter 11 bankruptcy protection. By 1993, Phar-Mor “had closed or sold 167 of its 310 stores, slashed its employee rolls from over 25,000 to 9,800, and shed superfluous merchandise lines to concentrate on health and beauty aids, drugs, and food” (International Directory of Company Histories, as cited in Funding Universe, n.d.). According to The Times, following a string of reorganization strategies and buyback plans, the company sold off all of its assets and began liquidating them to a variety of different companies (“Phar-Mor Liquidation,” 2002).

Although the company ended up failing, there are several lessons to be learned here. Several investors in the company ended up suing Phar-Mor’s auditing firm. This shows that a company must be scrutinous of its accounting activities and the activities of its executive, in order to ensure that fraud such as this does not occur and that those responsible are held accountable for their actions.

  • Collins, G. (1995). Ousted Phar-Mor President Found Guilty in $1 Billion Fraud. The New York
  • Times. Retrieved from
  • Funding Universe. (n.d). Phar-Mor Inc. History. Retrieved from
  • “Phar-Mor Founder Gets Long Sentence.” (1995). The New York Times. Retrieved from
  • “Phar-Mor Liquidation Sales Start.” (2002). The Times. Retrieved from