YOUNGSTOWN, OHIO, AUG. 6 -- Only a few weeks ago, thousands of boisterous fans packed the gymnasium at Youngstown State University for the all-star game of the World Basketball League. For Mickey Monus, the portly business maverick who founded the WBL, it was the showcase event for an exciting brand of basketball that featured only players no taller than 6 feet 7.
But the real action wasn't on the court that day. In a closed-door meeting before the game, angry team owners confronted Monus about his failure to pay hundreds of thousands of dollars of league expenses; Monus promised that he would make good on his commitments, at least through the end of the season, according to one official present.
Little did Monus know, however, that his seemingly inexhaustible store of funds was about to run dry. Phar-Mor Inc., the drugstore chain co-founded by the sports impresario, this week fired Monus from his senior position after uncovering what it described as an incredible swindle: Monus, it alleged, had stolen about $10 million of corporate funds to prop up his struggling basketball league and had altered Phar-Mor's books and records to make the company appear far more profitable than it was.
The disclosure has jolted the world of retailing, where Phar-Mor and Monus became celebrated in the 1980s for their phenomenal growth and willingness to offer deep discounts on everything from toothpaste and car wax to wicker baskets.
More poignantly, the news has roiled Youngstown, this rough-hewn northeastern Ohio city that Monus, 44, made his home and passion, and where the talk this week has been of little else but Monus's debacle. Scion of one of Youngstown's wealthiest and most socially prominent families, Monus has been one of the principal actors in a Youngstown renaissance that followed the battering of its steel industry in the early 1980s.
"It's got the whole town turned upside down," said Dan Lewis, a local real estate broker who's known Monus since his youth.
"I'm overwhelmed by this," said Youngstown Mayor Patrick Ungaro. "He's done a lot for Youngstown. He could have gone out to the suburbs -- he went to the inner city. Cities around the country are suffering from disinvestment -- he brought investment."
Little has been heard from Monus's side since Phar-Mor's troubles became public. Monus has retained attorneys at Williams and Connolly. "He fully expects to defend himself against the charges," said David Aufhauser, Monus's lawyer. "He is going to clear his name and his reputation."
Monus established Phar-Mor's corporate headquarters in the middle of the city's decaying central business district. He has contributed to numerous Youngstown philanthropies and was recently elected chairman of Youngstown State's board of trustees.
A sports fanatic who has 50-yard-line seats at the Cleveland Browns' stadium, Monus also tried hard to put Youngstown on the sports map. Aside from founding the World Basketball League, he lured the Ladies Professional Golf Association for an annual tournament here. He was part of a group of Youngstown business executives who put together a successful bid for the new Colorado Rockies franchise in baseball's National League.
This week, however, Monus and his father Nathan withdrew from the ownership partnership, as his business world crumbled, liens piled up and Youngstown reacted with shock.
Given the already precarious state of the economy, there's a widespread sense of apprehension here. With close to 3,000 workers at its headquarters and other facilities in the Youngstown area, Phar-Mor is one of the region's biggest employers. (Among its 300 stores, Phar Mor has one outlet in Western Maryland and had plans to open another in Virginia's Prince William County.) It has already fired 130 workers -- and more could lose their jobs -- as Phar-Mor seeks to assure suppliers and creditors that it remains a viable company. Dozens of banks and small businesses that made loans to Monus and his endeavors are waiting to see if they will be repaid.
Locally, people fear a loss of confidence in Phar-Mor, which said it would wipe out more than half of its net worth by taking a one-time $350 million charge against earnings to correct its misleading financial statements.
Ungaro and other civic leaders express concern that they have lost a true Youngstown champion in the corporate reshuffling this week that saw the head of Giant Eagle Inc., a Pittsburgh-based grocery store chain, push Monus out after discovering the alleged fraud.
Giant Eagle principal David S. Shapira met Monus when his family bought out the Monus family grocery business years ago. They went into business together with Phar-Mor in 1982 after visiting a Cleveland deep-discount outlet and copying its model of providing "far more" bargains to customers. Monus drew industry complaints for driving tough bargains with his suppliers, but the approach seemed to pay off: In less than nine years of operation, Phar-Mor has opened 300 stores and reportedly built up annual sales to more than $3 billion.
Even while Monus ran Phar-Mor's day-to-day operations, Shapira served as chief executive, prompting some skepticism among Monus's friends about Shapira's motives in the shake-up and whether he knew more about Phar-Mor's problems than he is letting on. "Here's a guy who had his pulse on the situation," said Mark Lyden, a Youngstown convenience store executive. "I can't buy his being totally shocked."
A spokeswoman for Phar-Mor said Shapira ordered an investigation "as soon as he thought something might be amiss." But the privately held company has yet to offer many details on how the alleged fraud transpired. "This was a sophisticated scheme that appeared to involve several senior officers working together," the spokeswoman said. The FBI and U.S. attorney's office in Cleveland are investigating.
Phar-Mor said today that two more senior employees believed to be part of the alleged scheme were fired. The company would not identify the two men but said it found evidence indicating financial statements were falsified to conceal losses and to overstate income, adding that the two also had previously worked for Coopers & Lybrand, the accounting firm that was replaced as the firm's outside auditor this week.
Monus, a casual dresser with long, gray hair and a receding hairline, is part of a small circle of young, flashy entrepreneurs who have helped reshape the image of this once-thriving steel town. Another is Edward J. DeBartolo Jr., the son of the shopping mall developer and owner of the San Francisco 49ers, whom some speculate was a role model for Monus in his professional sports initiatives.
Although he is described by friends and associates as shy and reserved -- even standoffish -- Monus has lived a high-profile existence that went beyond sports and Phar-Mor. His bitter divorce with his first wife was the subject of the Youngstown gossip mill, as was his subsequent romance and marriage to another, younger woman. People here said Monus loved making big splashes: He's been building a million-dollar home, complete with swimming pool and indoor gymnasium, in an exclusive Youngstown neighborhood.
To some Youngstown residents, Monus was a brash upstart with warped values. Richard P. McLaughlin, a prominent attorney here and member of the university board, says he and Monus clashed frequently over Monus's efforts to increase the athletic department's budget. "It's been a constant battle," he said. "He still doesn't understand that Youngstown State is a public university."
Monus's business judgment and free-spending ways, outside of Phar-Mor, also have come in for criticism. Monus owned three of the World Basketball League franchises outright and was liable for 60 percent of the losses for the other franchises.
Still, given the good that Monus has done here, ambivalence seems to be the predominant feeling expressed by Youngstown residents.
"It just totally baffles you," said John Geletka, a Youngstown dentist who resigned this week as WBL commissioner. "It looks like he got more than a little overextended."
