By Alan Prendergast
By Michael Roberts
By Michael Roberts
By Amber Taufen
By Patricia Calhoun
By William Breathes
By Michael Roberts
By Melanie Asmar
Richard Iannacito sells nothing but tomatoes at his family business on Cook Street. After years in the trade, he still answers his own phone and scrambles to stay competitive in the volatile produce industry. So when he learned in the spring of 1989 that one of his largest customers was getting behind in its bills, he worried. As it turned out, he had reason to.
The customer was Sharoff Food Service, a virtual institution in the circle of merchants that supplies the Denver restaurant community. Iannacito, at the time busy opening another tomato-repack house in Arizona, had extended more than $15,000 in credit to Sharoff. "I'd ask the secretary, `Did we get a check?'" he recalls. "She'd say, `Yes, we did.' I neglected to ask for how much. It ended up they were just throwing us bones."
Iannacito never did see most of the money Sharoff owed him. Neither did Gary Giambrocco, whose Giambrocco Produce Company took a $3,000 hit. The day Sharoff closed down, says Giambrocco, bristling at the recollection, "they placed an order with me an hour and a half beforehand. In fact, the driver had barely left the dock."
Iannacito and Giambrocco were among hundreds of creditors--some very large, some very small--who got burned when Sharoff went down in flames. But only now, after more than five years of court hearings and legal detective work, are they getting a glimpse of what went on behind the scenes during the last days of one of Denver's most respected family businesses.
According to findings issued earlier this year by United States Bankruptcy Judge Charles E. Matheson, Sharoff's demise was hastened by a brilliant but ethically dubious scheme hatched by attorney Roger C. Cohen, who in addition to serving as the firm's general counsel sat on its board of directors. Under Cohen's plan, his law firm got $55,000 in legal fees. Sharoff's chief lender, an Omaha savings and loan, got back more than $2 million in loan debt. Sharoff president Garrison J. Fox, a high-flying entrepreneur in a Mercedes convertible who arrived just in time to preside over the company's downfall, received a cash kickback and first dibs on the most attractive segments of Sharoff's Denver business. An Arizona-based food-service company got Sharoff's valuable Colorado Springs customer lists.
The company's unsecured creditors--some of them merchants who'd been doing business with Sharoff on a handshake basis since the 1930s--got nothing. Neither did the roughly 150,000 members of the Kansas Public Employees Retirement System who, thanks to a questionable 1987 investment engineered by Fox with the help of attorney Cohen, saw more than $9 million of their pension money go up in smoke.
What convinced Cohen, a Harvard Law School graduate and corporate finance whiz who still runs marathons in his sixties, to craft such a plan for Sharoff has baffled the attorneys who've spent years unraveling it. Certainly he and his partners at the prominent downtown firm of Cohen, Brame and Smith, who organize tax shelters and leveraged buyouts from their plush offices atop the United Bank Center, didn't need the relatively paltry fees. Perhaps Cohen, whose firm's brochure touts his "tenacious determination to find a solution to every problem," was induced by nothing more than the challenge of a high-stakes legal chess match.
"Cohen and his law firm appeared to think that they were smarter than the trustee, the court and all the Sharoff creditors, so that they could get away with fraudulently transferring the assets," says D. Bruce Coles, the attorney for the bankruptcy court trustee. Cohen and Fox, adds Coles, "stripped the assets off this corporation like vultures taking the flesh off a skeleton." During his investigation, Coles discovered that Cohen's firm actually charged Sharoff for drafting the foreclosure notice used to shut the company down. For Sharoff, which had been hopelessly insolvent for nearly a year, the cost of not doing business was $472.
If Cohen was attracted to the idea of a legal battle of wits, he underestimated the mettle of his opponents. On March 31, 1994, as part of the ongoing bankruptcy case, he and his partners were slapped with a $1.5 million malpractice judgment by Judge Matheson. In his ruling, the judge took the dramatic step of assessing the firm $250,000 in punitive damages for its misconduct, accusing the lawyers of covering up what they had done and then lying about it in court. He also blasted Cohen for what he described as the attorney's egregious conflicts of interest.
After initially threatening to dissolve their firm, which could have prevented trustee H. Christopher Clark from collecting on behalf of the Sharoff creditors, Cohen and his partners settled with Coles this summer for just over $1 million. And Cohen, who by then had become known for brow-beating creditors' attorneys, got hit with some hardball tactics himself. To ensure prompt payment of the judgment, Coles--who earlier had vowed to garnishee Cohen, Brame and Smith's legal accounts by sending letters directly to the firm's clients--sent a law clerk to the Douglas County courthouse to slap a lien on Cohen's lavish Castle Rock home.
Cohen is unavailable for comment, according to a spokesman at Cohen, Brame and Smith. Partner Jeffrey Smith says the firm's decision not to appeal Matheson's ruling was merely a business decision. Cohen and the firm did nothing wrong, insists Smith. "We were all frankly shocked by Judge Matheson's findings," he adds. "We concluded that the simplest thing to do was pay and walk away."