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."
But the firm can't walk away from the Sharoff case quite yet. Cohen, Brame and Smith still faces legal action in Kansas, where attorneys for the state retirement system have filed suit claiming that Cohen and his firm fraudulently induced the fund's financial advisors to pump pension money down the Sharoff rat hole. The suit against Cohen is part of a larger scandal in Kansas, where state lawmakers have held a special session to investigate massive pension-fund losses.
Smith calls the Kansas suit "nonsense" and says he believes his firm will prevail should the matter go to trial. Adds Smith, "I think we're in that suit because we've got an insurance policy."
What came first for Sharoff Food Service, Inc.--known for most of its life as J.A. Sharoff and Company--was chicken and eggs. Founded in 1929 by its namesake, an immigrant from Eastern Europe who took his wife's name in an attempt to blend in, the company grew quickly and by the 1940s was the largest provider of eggs and poultry products along the Front Range. Following World War II, Sharoff again prospered after the Department of Defense asked it to distribute frozen goods to military commissaries and other government facilities.
In 1969 Sharoff constructed the area's largest frozen-food warehouse. Every November, recalls Gary Giambrocco, whose family firm did business with Sharoff for five decades, local merchants knew they could count on Sharoff's giant meat locker to have extra Thanksgiving turkeys on hand should anyone run short.
The market changes of the 1980s began to spell the end for Sharoff. But nobody at the company read the writing on the wall. As chain-store mega-warehouses were built to service the area's growing population, the chicken-and-egg business began to dry up. The money to be made was in dry goods, but Sharoff was a latecomer to that side of the business and found itself playing catch-up to competitors like SYSCO and Martin Brower. In 1984 the company posted an operating loss of $1 million. It changed its name to Sharoff Food Service. And late that year, Garry Fox arrived.
Fox, a gregarious sort who'd previously been associated with the Mr. Steak restaurant chain, acquired a 50 percent interest in the company with the consent of Harold L. Cohen, the son-in-law of Sharoff's founder. Fox took over as president and hired his wife, Susan, as a vice president. Why Fox wanted to buy into a losing company is unclear; Matt Skeen, the last of several Denver lawyers to represent Fox, says as far as he knows, his former client is now a truck driver making cross-country runs. Harold Cohen, a former executive director at Denver's Jewish Community Center, declines to comment, other than to stress that he is not related to his former attorney, Roger Cohen.
It didn't take long for Garry Fox to begin making changes at Sharoff, many of them with the active participation of Roger Cohen, who had been Sharoff's legal counsel for years.
At the time, Cohen, along with wife Sylvia, was a shareholder of Denver's National City Bank, a small lending institution later seized by the Federal Deposit Insurance Corporation. Cohen also sat on the bank's board of directors, and his firm represented National City as general counsel. Furthering the cozy relationsip was the fact that he and his law firm also had insider loans at the bank.
Garry Fox soon got tight with National City as well, taking out a large loan and then putting $100,000 of the money into bank stock, a buy-back arrangement that made him one of the institution's largest shareholders. And with Cohen's encouragement, Fox transferred Sharoff's $5 million line of credit to National City, making the bank--whose lending limits were so low it had to bring in a now-defunct Denver S&L to participate in the loan--the company's lead lender.
Those loan funds were personally guaranteed by Fox, who claimed a net worth of more than $4 million. Despite the convenient access to capital, though, Sharoff continued to lose money. And rather than cut back, Fox devised a plan to grow the company into the black. In November 1986, Michael E. Wadhams, vice president of a Kansas City bank that held the note on Sharoff's sprawling frozen-food warehouse on Lafayette Street, wrote Fox a letter tipping him off to a huge pot of potential investment dollars--in Kansas, of all places.
The state employees retirement system had $3 billion to invest, Wadhams noted, $300 million of it handled by the Kansas City investment firm of Reimer & Koger Associates. Added the banker, "You better get your share as soon as you can."
In 1987 Fox approached Reimer & Koger about investing in Sharoff, noting that fresh capital would allow the company to purchase W. T. Stevenson and Company, a wholesale food distributor in Colorado Springs. Fox, known for his easy smile and gift of gab, convinced Reimer & Koger to sink $6.38 million in pension money into Sharoff. The investment was made without personal guarantees or collateral from Sharoff and despite the fact that Sharoff was losing money. Cohen's firm wrote an opinion letter backing the deal.
Trustee's attorney Bruce Coles today describes the Reimer & Koger investment as "insane," and the State of Kansas has since filed suit against the investment firm, as well as against Garry Fox and Roger Cohen. But the pension funds flowed west nonetheless. Shortly afterward, Fox bought out Harold Cohen, and the final family tie was severed from the company J.A. Sharoff had built into a giant.
Roger Cohen wore many hats in the Sharoff case. "He had more conflicts than I've got fingers and toes," says Jeffrey A. Springer, an attorney hired to assist Coles in piecing together Sharoff's peculiar finances.
Just how many conflicts became apparent in early 1989, by which time Fox--later described by Judge Matheson as "one of those entrepreneurs notable for his ability to sell and notable for his lack of ability to run anything"--had turned Sharoff into an unqualified mess. The purchase of W.T. Stevenson had done nothing to improve the bottom line, and Sharoff was hemorrhaging badly, having lost nearly $5 million the previous year. Reimer & Koger, which was watching its pension money spin down the drain--and, incredibly, had forwarded a second $1.5 million loan to Sharoff in August 1988 based in part on Cohen's suggestion that Fox promise to loan the company $150,000 of his own money--was getting antsy. So was Commercial Federal, the Omaha-based S&L that had taken over as lead lender on the participation loan with National City and had been threatening to foreclose on the Sharoff loans since late 1988.
Cohen became a blur of activity. As counsel for National City, he helped convince Commercial Federal to back off on calling Sharoff's note. And, as members of Sharoff's board of directors, he and Fox worked feverishly to fend off Reimer & Koger, which was pushing to have "crisis managers" brought in to assess the company's bottom line. Tempers flared at a February 27, 1989, meeting of the board, which by then consisted only of Cohen, the two Foxes and representatives from Reimer & Koger. Ed Hart of Reimer & Koger noted caustically that when his company invested in Sharoff, it was with "the belief that management knew how to run the food-distribution business and had the ability to do so."
Fox and Cohen threatened to liquidate if Reimer & Koger didn't cough up yet another $700,000 to "save the company." Hart responded that his firm's fiduciary responsibility to Sharoff didn't include "funding a black hole." In an internal memo drafted the next day, Linda Faucett of Reimer & Koger noted that Cohen and Fox seemed particularly interested in making sure that Fox didn't get stuck with the bank loans he had personally guaranteed to Commercial Federal and National City. "As board members, are Roger and Garry thinking of common shareholders' best interests or only Garry Fox's?" Faucett wrote.
Cohen and Fox eventually agreed to the hiring of a crisis manager, and the firm of Glass & Associates began a crash-course assessment of Sharoff's finances. The Glass report, issued in April, concluded that Fox's stewardship of Sharoff had been a disaster. The analysts noted that they had found two different sets of the most recent financial statements. They pointed out that in the previous eleven months, the company, though insolvent, had spent $230,000 on travel and entertainment expenses, including $3,500 for Denver Nuggets playoff tickets and $4,100 for a membership in the Plum Creek Golf Club--ostensibly for "customer entertainment." And they raised questions about the $150,000 loan Fox had promised Reimer & Koger that he would make to Sharoff. According to company records, Fox had loaned Sharoff $90,000 in August 1988 and was repaid in the amount of $95,000 two months later.
Upon release of the Glass report, Reimer & Koger resigned its seat on the Sharoff board and announced it wouldn't dump another dime into the firm. By then, according to the complaint Bruce Coles filed on behalf of the bankruptcy trustee, Cohen and Fox were already planning how best to survive a Sharoff collapse with their personal interests intact. Among other things, Cohen wrote a May 4 letter reminding Fox that his law firm had outstanding legal fees of $16,650 and adding that "nice guys should not finish last." Sharoff was behind on payments to literally hundreds of creditors. But Cohen's bill was paid in full.
In a blizzard of letters to Fox in March and April, Cohen, who as a director of Sharoff had a fiduciary duty to its creditors, laid out a scenario by which Fox and his wife could emerge virtually unscathed while leaving local vendors and Reimer & Koger holding the bag. Cohen capped off his campaign with a letter to Fox dated May 10, 1989, in which he recommended that, rather than declare bankruptcy, Sharoff simply invite Commercial Federal to foreclose on it. That procedure, he noted, would allow Fox to bypass pesky legal requirements involving the notification of shareholders and creditors.
The scheme outlined by Cohen on May 10 was a freshwater spring in the middle of the desert. With a friendly foreclosure sale, Fox could sell off the Colorado Springs half of the company to Phoenix-based Shamrock Foods, representatives of which he and Cohen had met with the day before. Garry and Susan Fox, in addition to getting lucrative "personal consulting contracts" with Shamrock, could transfer Sharoff's commissary business and other salvageable Denver assets to a new series of companies (which Cohen later incorporated) and finance the whole deal with a promissory note from National City and Commercial Federal. The banks, in return, would get their money by having Shamrock collect Colorado Springs receivables and pass them through at no charge. Best of all, nobody would have to tell unsecured creditors a thing.
The May 10 letter was cited at length in Judge Matheson's opinion. The judge described the document as "damning" evidence that, while collecting legal fees from Sharoff, Cohen appeared to be doing everything he could to dismantle the company for Fox's personal benefit. The judge also was angered by Cohen's efforts to "cover up what was done." In a conversation with counsel for Reimer & Koger "right at the time of the foreclosure," Matheson noted, Cohen never disclosed that Reimer & Koger and its millions in retiree pension dollars were about to be sacrificed so Garry Fox could walk away free and clear.
According to the trustee's complaint, Cohen acted as legal counsel to at least nine different entities involved at one time or another in the Sharoff case, including Platte River Partners, a general partnership set up by Fox to lease equipment and warehouse space back to Sharoff at a profit. Fox used that same partnership to lease his drop-top Mercedes.
But Jeffrey Smith of Cohen, Brame and Smith denies that Cohen's numerous clients make him guilty of a conflict of interest. "This is wonderful hindsight," says the attorney, explaining that it can be difficult for an attorney representing a closely held corporation to tell the difference between the corporate entity and its prime shareholder. "It's real easy after the fact." That Cohen was on the board of National City--which paid more than $500,000 in legal fees to Cohen, Brame and Smith in 1988 alone--is "irrelevant," says Smith. So, he says, is Cohen's signature on the foreclosure documents as the attorney in fact for Commercial Federal. That only happened, he says, because a Commercial Federal official had to catch a plane and asked Cohen to do him a favor.
Smith also continues to defend the prearranged foreclosure sale, claiming the plan allowed the most value to be realized from Sharoff's remaining assets. Notes the attorney, "I don't know what set Judge Matheson off on this thing."
The foreclosure sale of Sharoff Food Service took place on May 26, 1989, at Cohen's law office. Few of Sharoff's numerous creditors along the Front Range even knew it was happening. The deal went down just as Cohen had planned it. But there was one thing he hadn't counted on.
Not all of the creditors stiffed by Sharoff were mom-and-pop operators. One of the biggest losers was Con-Agra, the Omaha-based Goliath that didn't appreciate being left more than $100,000 short on frozen-food shipments. Con-Agra officials were especially displeased that Sharoff had continued ordering goods on credit for at least two weeks in May after the foreclosure had already been arranged. Whether Sharoff had any intention of ever paying for the goods may never be established. "You suspect it, but you can't personally accuse them," says Richard Iannacito.
Con-Agra and nine other creditors initially hired Market Service Inc., a food industry clearinghouse, to play rough with Fox and Cohen. The company threatened to force Sharoff into an involuntary bankruptcy, a measure that would put Cohen's carefully orchestrated foreclosure mechanism and Sharoff's skewed finances under a microscope.
Cohen responded with what he described in an internal memo as a "massive retaliation response." His law firm threatened to sue Market Service under the RICO organized-crime statutes. The collection agency backed off. But Con-Agra kept on coming, in the form of Jim Hahn, a young Denver lawyer who soon got his own taste of what it was like to tangle with Roger Cohen.
"What I recall is sitting in a chair, in a very small chair that was in front of his very large desk, and basically him sort of looking down at me," recalls Hahn. "What sticks out in my mind was that he was trying to make it very clear to me that if I persisted in this action, there would be repercussions against me individually. I was not a name partner in a prestigious law firm as he was, and he pointed that out to me."
Cohen told Hahn a bankruptcy action was pointless since there was no money to be found in the Sharoff wreckage. Hahn, however, stood his ground. With the help of two other Sharoff creditors, Con-Agra filed an involuntary bankruptcy petition in July. The following month, the bankruptcy court appointed H. Christopher Clark the trustee on the Sharoff case, and the wheels of the justice system started turning.
In the meantime, Hahn was sifting through what was left of Sharoff's business records, trying to prepare financial statements that would help the court identify what was owed to whom. The task wasn't made any easier, he says, when Garry Fox led him and a colleague "back into a sort of loft area that clearly had not seen the light of day or human beings in some time. He said, `All the records are here somewhere,'" Hahn recalls. The lawyers spent days going through boxes of paperwork that turned out to be nothing more than old invoices.
By the end of 1989, though, most of the Sharoff creditors had been identified. And the following March, Clark hired Bruce Coles, known as an expert in following money trails, to sniff out any remaining corporate assets. Coles began seizing the records at the warehouse on Lafayette Street; when he found office furniture inside, he sold it at auction. Fox, represented personally by Cohen's firm, refused to show up for meetings with the trustee until Clark threatened to have federal marshals drag him in. Even then, Fox continued to deny that he had anything to do with the foreclosure, insisting it was forced on Sharoff by Commercial Federal. Coles later accused Fox of lying under oath.
Creditors forced Fox into his own involuntary bankruptcy in April 1991. Fox claimed he was left with only $250 in cash and had a negative net worth of nearly $6 million. According to Denver attorney Chris Jobin, who represented one of the creditors, Fox had transferred all his assets to his wife.
By the time Fox was pushed into bankruptcy, the front companies he had used to take over the Denver half of the Sharoff business had also drowned in debt. Their demise came despite a sweetheart deal arranged by Cohen whereby Fox Western, Inc., rented the Sharoff warehouse for $300 per month. Up until June 1987, Sharoff had been paying Fox's Platte River Partners $17,000 per month for the same space. Judge Matheson later ordered Cohen's law firm to pay $140,000 for its role in the bogus lease, although Jeffrey Smith complains that the trustee provided "no proof" that $300 per month was an abnormally low market rent. "That was a highly specialized warehouse with lots of refrigeration equipment," Smith contends. "It was a white elephant."
As Coles continued to investigate, he uncovered evidence that Garry Fox had paid his 1989 income taxes with Sharoff receipts funneled through Platte River Partners. Fox also had transferred a number of smaller Sharoff assets to himself, including the company's season tickets to the Denver Broncos and a membership to the Metropolitan Club. And Coles learned that Roger Cohen had been on Sharoff's board of directors, a fact that hadn't been apparent to investigators before then.
Coles began firing off letters to Cohen demanding that his firm provide documents, including its billing statements to Sharoff. The firm sent over stacks of paper--but the incendiary May 10, 1989, letter wasn't included. Coles found out about that smoking gun only after noticing that the firm had billed Sharoff for a document it hadn't yet produced to the trustee. The firm at first denied that the letter existed, then later provided it--along with an explanation that a "redacted" version had been turned over earlier with portions whited out. Judge Matheson described that explanation as "singularly lacking in credibility."
As Coles and Jeffrey Springer closed in on Cohen's firm, other participants in the Sharoff saga were also feeling the heat. National City folded in 1990, following a critical audit by federal bank examiners. Among the concerns raised by examiners: Cohen's dual role in the loans to Sharoff as a boardmember and attorney for both entities. The next year, Cohen agreed to pay $3,750 to the U.S. Comptroller of the Currency to settle that agency's claims against him. The stakes had grown higher by 1993, when the FDIC sued Cohen, his law firm and five bank officers for their role in National City's collapse. In June, Cohen and the other defendants settled with the government for $1,255,000. A large portion of that, says Jeffrey Smith, was paid by his firm's insurance carrier. "It was simply a practical settlement," Smith adds. "We denied liability and we still deny liability. It was cheaper to just settle and be done with it."
Coles sued Shamrock in 1993, winning a judgment of $470,000 with interest, which was upheld on appeal. Coles later agreed to let Shamrock settle for $312,000; the Arizona company denied any wrongdoing in its purchase of Sharoff's Colorado Springs assets. Coles also went after Commercial Federal, accusing the bank of conspiracy for its complicity in Cohen's plan. But before the case could go to trial, the bank, which also denied doing anything improper, settled for $400,000.
In his ruling against Shamrock, U.S. Bankruptcy Judge Donald E. Cordova happened to mention that he believed Roger Cohen had acted with intent to defraud Sharoff creditors. Two months after Judge Cordova issued that opinion, Cohen and the other members of Cohen, Brame and Smith filed a highly unusual financing statement with the Colorado Secretary of State. That document alleged that the attorneys were owed money by their own firm and thus had a security interest that would supersede any claims by creditors. Coles describes the move as a standard ploy used by sophisticated investors to try to avoid creditors.
Jeffrey Smith, however, denies that the filing was an attempt to protect firm assets from the circling Coles. The attorney says the filing had nothing to do with the legal actions against his firm.
In the last three years Garry Fox has had more than $2 million in judgments entered against him by personal and corporate creditors. Repeated attempts to locate Fox, whose wife filed her own bankruptcy in March 1993 after being sued by Coles, were unsuccessful. But Denver attorney H. Paul Cohen (no relation to Roger or Harold), who used to play racquetball with Fox in the 1980s, says his old friend had a good reputation in the local community. "I was surprised to see him in these kinds of financial straits and to see him on the receiving end of these kinds of claims," adds Cohen.
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And the shock waves from the Sharoff case extended far beyond the corporate boardroom. As part of bankruptcy procedures, Coles has been forced to sue innocent creditors and even Sharoff employees in an attempt to see that the company's remaining assets are distributed fairly. At least ten employees were sued for receiving accrued sick pay and vacation pay owed them by Sharoff. Those suits have all been settled, and Coles say he expects creditors to receive an average of 20 cents on the dollar.
Roger Cohen, meanwhile, is still practicing law in his eighteenth-floor suite in the United Bank Center. In July, Cohen and new wife Rebecca, his former personal secretary whom he married after divorcing Sylvia Cohen, appeared on the society page of the Denver Post in a photo taken at the Central City Opera. Jeffrey Smith says that though Judge Matheson's ruling was a disappointment, "it's behind us and we're doing fine. It hasn't affected us at all." Most of the $1,050,000 judgment paid by the firm, Smith adds, was covered by insurance.
Down at Sam's Produce on Cook Street, Richard Iannacito says he long ago wrote off the $15,000 he lost to Sharoff and doesn't expect "to see a dime." His loss was uninsured.