THE CON: First, Philip Musica buried his identity and criminal history to become F. Donald Coster. Then he bought a major drug firm and wildly inflated its earnings to create a market for its bonds and a fortune for himself.
THE DAMAGE: $18 million, or about $279 million today.
THE OUTCOME: The marshals who came to arrest “F. Donald Coster” heard the gunshot. He committed suicide moments before he would have been handcuffed.
As it turned out, there were many things that those who worked closely with Frank Donald Coster didn’t know about him. They didn’t know that he used his position as head of a major drug company to inflate earnings and turn an unearned profit. They didn’t know that McKesson and Robbins appeared to have millions more in assets then it actually did. And they didn’t know that Coster was not at all who he said he was.
SEC investigators said he might have gotten away with his con if it weren’t for one of the company’s directors asking a simple question: how come there’s no insurance for the drug warehouse? It didn’t take much digging to discover that warehouse didn’t exist – and thus didn’t need to be insured.
Likewise, the “crude drug department,” which Coster created after he bought McKesson and Robbins, had virtually no assets. In fact, the department didn’t buy or sell anything; the company’s books listed a purchasing agent, W.W. Smith & Co., that didn’t exist. Respected firms were listed as clients that owed payment. When asked, those firms said they had never done business with McKesson and Robbins. Between the $9.5 million of non-existent inventory and the $8.4 million in phony accounts receivable, the fraud totaled about $18 million – or about $279 million today.
The surprises didn’t end there. F. Donald Coster was not born and raised in Washington, DC with a medical degree from Germany. His real name was Philip Musica and he was born in Italy. Musica came to this country as a child and, as soon as he came of age, got in trouble with the law.
Musica ran his first scam with an importing business, bribing customs officials to mark down the weight of imported cheese. In 1909, he was fined and sentenced one year.
From cheese, Musica moved into the human hair business. The United States Hair Company collapsed in 1913 when Musica tried (and failed) to sell $370,000 worth of human hair in cases, which turned out to be worth just $250. Convicted of grand larceny, Musica’s sentence was suspended in 1916.
Ready for a fresh start, and eager to wipe out the stain of his criminal past, Musica created a new name and persona for himself. In 1920, he became F. Donald Coster. Two years later, he established Girard & Co., a hair tonic company. As a dealer in “barber’s supplies,” he had access to government alcohol. Prohibition agents may have suspected the tonic company didn’t need such huge quantities of alcohol, but they weren’t able to prove that Musica was a bootlegger.
With a bit of money saved up, “Coster” bought McKesson and Robbins in 1926. He was careful to protect his true identity, skipping board meetings and public functions and refusing to be photographed.
The con unraveled quickly for Coster/Musica, with his directors calling on him to resign as the SEC poked around in the books. He was ready for the arresting marshals. They heard the gunshot with which he ended his own life while they were still at the front door of his home. According to a Time magazine article from 1938, there was humor to be found in story of the cheese importer turned human hair salesman turned crooked CEO:
“In Wall Street, which remembered ((Richard Whitney)) and ((Ivar Kreuger)), savage wit ran riot. F. Donald Coster's epitaph became: ‘He couldn't face the Musica.’”