Great frauds in history: Philip Musica AKA "Dr Coster"

On the surface “Dr Coster” appeared to be a successful businessman, but in reality he was skimming money from his medical supplies company.

Philip Musica was born in New York City in 1884 and dropped out of school at the age of 14 to help out at his father’s grocery store. Within two years he was in charge, handing everyday operations to his younger brother while he set about undercutting competitors by dodging tariffs on imports. Thus began a three decade career as a swindler. He had two spells in jail for bribery and forgery in 1909 and 1913, getting his second sentenced commuted by volunteering to work as a government agent during World War I. In this period he changed his identity several times, eventually settling on Dr F. Donald Coster, and founding the Adelphi Pharmaceutical Manufacturing Company, as a front for bootlegging. By 1926 he had made enough money to buy McKesson & Robbins, a struggling consumer-medicine firm.

What was the scam?

On the surface “Dr Coster” appeared to be a successful businessman, overcoming the Great Depression to turn McKesson & Robbins into a company with sales of $174m by 1937 (around $3bn in today’s money). However, at least $19m ($332m today) of this was fictitious – one of Musica’s brothers forged sales documents between McKesson’s Canadian subsidiary and a shell company created to enable Musica to skim money from the parent company .

What happened next?

McKesson’s treasurer, Julian Thompson, noticed that the Canadian subsidiary had never returned any of its large paper profits to the main company and so tried to persuade the board to liquidate part of the Canadian firm’s inventory to raise some cash. He found that, instead of the subsidiary making money for McKesson, McKesson was paying money to support the Canadian branch. After reporting the matter to the board of directors, they fired Coster and brought in the authorities, who discovered his real identity, which prompted Musica to commit suicide.

Lessons for investors

Receivers appointed to look into McKesson’s books found that the company was still solvent, but the shares still plunged by more than 90% when trading in them, which had been suspended when the fraud was revealed, was resumed. The firm managed to survive and today McKesson Corporation is one of the largest medical-supply companies in the US, with a market capitalisation of more than $22bn. Sometimes, markets overreact to news of fraud.

Recommended

The FTSE 100 has clawed back above 7,000 – how much higher can it go?
UK stockmarkets

The FTSE 100 has clawed back above 7,000 – how much higher can it go?

The FTSE 100 index has risen to over 7,000 for the first time in over a year – it now sits just above where it was in 1999. But its era of neglect cou…
19 Apr 2021
The MoneyWeek Podcast: how to not lose money to inflation and financial repression
Investment strategy

The MoneyWeek Podcast: how to not lose money to inflation and financial repression

Merryn talks to Peter Spiller of the Capital Gearing Trust about how he navigated the last extraordinary year; what he's buying now; and how he plans …
16 Apr 2021
Why you should expect another stockmarket crash
Stockmarkets

Why you should expect another stockmarket crash

Many fear inflation, but a deflationary debt collapse is a more likely scenario in the near term, says Tim Lee
16 Apr 2021
World's biggest fraudster Bernie Madoff has died – what was his scam?
Investment strategy

World's biggest fraudster Bernie Madoff has died – what was his scam?

Bernie Madoff, perpetrator of the world's biggest Ponzi scheme, has died in prison at the age of 82. Matthew Partridge looks at his massive fraud sche…
14 Apr 2021

Most Popular

Lab-grown meat: how “moo’s law” will drive innovation
Soft commodities

Lab-grown meat: how “moo’s law” will drive innovation

Jim Mellon and Anthony Chow, co-founders of Aim-listed Agronomics, explain why they believe that “cellular agriculture” will benefit from massive long…
16 Apr 2021
The bitcoin bubble will burst: here’s how to play it
Bitcoin

The bitcoin bubble will burst: here’s how to play it

The cryptocurrency’s price has soared far beyond its fundamentals, says Matthew Partridge. Here, he looks at how to short bitcoin.
12 Apr 2021
Lab-grown meat: the new agricultural revolution
Soft commodities

Lab-grown meat: the new agricultural revolution

Vegan alternatives are taking off, but the future of food technology lies in lab-grown meat – cultivating steaks and burgers from animal cells, says A…
16 Apr 2021