Farm Fresh actions called play for time Alleged bad checks went to creditors, payrolls, sources say

November 22, 1995|By Alec Matthew Klein | Alec Matthew Klein,SUN STAFF

Poor judgment, not personal greed, was the driving force behind an alleged check-kiting scheme involving more than $1 million at Farm Fresh Supermarkets of Maryland Inc., sources said yesterday.

Preliminary inquiries show that all Farm Fresh checks were sent out in the ordinary course of business, to creditors and for payroll purposes, and did not appear to be distributed to the two executives who resigned immediately after the irregularities were discovered, the sources said.

The alleged scheme appeared to be arranged hastily to buy time, with bad checks paid out without the funds to cover them. But a source familiar with the situation said, "To have a kite of this magnitude going on, you don't do that unintentionally."

The two Farm Fresh executives who resigned last week -- identified by sources as Bill Carter and Steve Cohen, both sons-in-law of majority owner Jack Millman -- could not be reached for comment yesterday. Mr. Cohen on Monday referred questions to his attorney, Aron U. Raskas, who also could not be reached for comment.

In the rapidly unfolding controversy surrounding Farm Fresh, some semblance of order has returned since the 10-store chain was forced by creditors into bankruptcy proceedings and turned over to a court-appointed trustee last week.

The supermarkets, in Baltimore and Baltimore County, are being resupplied, shipments of merchandise have resumed and the panic and shock for many of the chain's more than 600 employees has begun to subside.

"Our No. 1 priority is to stabilize the business to ensure continuity of jobs and to protect the business for creditors," said Joel Sher, attorney for the court-appointed trustee, Terry L. Musika.

Once that is accomplished, Mr. Sher said, the trustee "can start concentrating on other areas," potentially including the alleged check-kiting scheme.

Already, events leading up to Farm Fresh's disastrous situation began to crystallize yesterday.

Over the weekend, sources said, B. Green & Co., a local food wholesaler and retailer with a 49 percent stake in Farm Fresh, handed the grocery chain tens of thousands of dollars to cover its payroll.

The gravity of the financial situation was evident even earlier, sources said. But B. Green, along with an undisclosed third party with a 1 percent interest in Farm Fresh, were deadlocked with Mr. Millman, who controls 50 percent of the company, the sources said.

The three parties could not agree on several matters, including whether to file for Chapter 11 bankruptcy reorganization.

Ultimately, B. Green pushed the issue, filing a petition with two other creditors to force Farm Fresh into involuntary bankruptcy.

When Richfood Inc., the giant Richmond, Va.-based wholesaler, came forward Monday to bail out Farm Fresh with a $1.25 million loan, it was a matter of Richfood protecting its own interests, sources said. Farm Fresh owes Richfood $3.5 million and gets 80 percent of its merchandise from the Virginia wholesaler.

Meanwhile, other parties have begun jockeying for position.

Other chains watching

Supermarket chains are reportedly circling Farm Fresh properties, looking to buy stores at a discount. Moreover, at least two of Farm Fresh's business partners are considering a move that would give them more control over the company.

B. Green is exploring the possibility of buying Signet Bank's nearly $1 million in secured Farm Fresh debt, sources said. Also interested is Richfood.

Signet Bank, which cut off Farm Fresh's line-of-credit last week after the alleged check-kiting scheme was discovered, is expected to sell its debt, sources said.

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