Hard Pills to Swallow

As the scrappy co-founder and president of Phar-Mor, the largest U.S. deep- discount drugstore chain, Michael Monus was known for his love of sports and for expanding the firm at a breakneck pace. But most of the profits the Ohio-based company (sales: $3.14 billion) reported for the past three years were apparently phony.

Phar-Mor said Monus, 44, and chief financial officer Patrick Finn, 34, both fired two weeks ago, funneled about $10 million of company funds into the struggling World Basketball League, which folded Aug. 1. The firm says the two men participated in a scheme to cook the company’s books, forcing it to write off $350 million — including the allegedly stolen funds and $340 million in overstated profits. The privately held concern has dismissed auditor Coopers & Lybrand, which it blamed for failing to spot the fraud. The accounting firm says Phar-Mor’s move was “apparently designed to posture, bluster and transfer blame.”

The disclosures led Phar-Mor to lay off 100 of its 800 headquarters employees and could brake the chain’s headlong expansion. Beginning with a single store a decade ago, Phar-Mor grew to 305 outlets in 33 states and employs 23,000 workers.