He had become a legendary figure in the annals of Philadelphia
journalism ...
The Reporter
By Gaeton Fonzi and Greg Walter
EDITOR’S NOTE: During the preparation of this article, suit
was filed in Common Pleas Court by reporter Harry Karafin against the publisher
of Philadelphia Magazine and the authors of this article. Through his attorney
Albert Gerber, Karafin charged, among other things, that the defendants
illegally obtained copies of his Federal income tax returns and were preparing
an article that would include information "illegally obtained" from
his tax returns. He asked that the defendants be enjoined from printing the
article. The defendants opposed the suit. Shortly after the filing of the suit,
Karafin was questioned by his superiors at the Philadelphia Inquirer. The next
day, the Newspaper Guild of Philadelphia, of which he was not a member but
under which he worked through a contract arrangement, was notified that his
employment had been terminated. It was not the purpose of this article to bring
about Karafin’s disassociation with the Inquirer, but merely to reveal some
aspects of his career that might have a bearing on a major newspaper’s
responsibility as a dynamic force within an open society. Philadelphia Magazine
will stand by its right to reveal such information to the public.
A FEW YEARS ago an organized ring of local racketeers
was raking millions of dollars from a series of fraudulent business
bankruptcies. The fantastic complexity of the ring’s operations — controlled by
top underworld kingpins thorough several echelons of fast-moving con men — had
long kept it immune from criminal prosecution.
In fact, When PHILADELPHIA MAGAZINE began its own
investigation in April of 1964, the ring’s existence was still considered
classified information and very few people, outside of certain Federal and
local law enforcement officials, the details of its illegal manipulations.
Among those who did know was the Philadelphia
Inquirer’s award-winning veteran reporter, Harry J. Karafin.
Karafin had been a regular visitor to the bankruptcy courts
during hearings for the firms involved in the frauds. Federal officials recall
that he questioned them frequently and appeared anxious to keep abreast of any
new developments in their frustrating efforts to pin down the ring’s illicit
operations. In fact, one insider even suggested, innocently enough, that
PHILADELPHIA MAGAZINE abandon its investigation because, he said, he knew that
Karafin had been working on the story for some time and was probably going to
scoop the magazine with an expose in his daily newspaper.
But PHILADELPHIA MAGAZINE continued digging and rushed the
article on the fraudulent bankruptcy schemers into the May, 1964 issue. That
prodded the U.S. Attorney’s office into stepping up its own investigation and
subsequently prosecuting the ring’s key operators, including the brainy
organizer, a 600-pound hillock of a man named Sylvan Scolnick.
Although they did not know it at the time, the editors of
PHILADELPHIA MAGAZINE need not have worried about being scooped by
the Philadelphia Inquirer. Its ace reporter Harry Karafin never did
write an expose about the bankruptcy fraud ring.
Perhaps it had something to do with his journalistic
integrity. Perhaps he thought he was much too close to it to be objective.
Last month Sylvan Scolnick was talking about just how
close Harry Karafin was. Serving a five-year sentence for his part in the
frauds, Scolnick is being kept at the detention center of Philadelphia
General Hospital
while being treated for his obesity. Almost daily, however, he is being taken
to the United States Courthouse
Building and questioned extensively
by Federal officials. The U.S. Attorney General has even sent from Washington
one of the Justice Department’s specialists on organized crime to take part in
the interrogations. Scolnick’s connections went high into the upper echelons of
organized racketeering. He has admitted an acquaintance with the reputed head
of the local Cosa Nostra, South Philadelphia ’s Angelo
Bruno. And his testimony has already convicted burglar-arsonist Sidney Brooks
in the $100,000 robbery of his own Federally-impounded safe deposit box. That
caper, involving stolen money from previous jobs, was masterminded by Scolnick.
Sylvan Scolnick says he was a very close friend of Harry
Karafin. He says they would even vacation together at the President in Atlantic
City . In fact, he says he was sort of an associate of
his. He recalls the days when Karafin would frequently drop by M. Stein &
Co. on Bustleton Avenue
near the Boulevard. That was one of Scolnick’s first bankruptcy frauds. He used
his own father-in-law, a gray-haired former upholsterer named Morris Stein, as
a front man. The business was opened in March of 1959. By December Morris Stein
said he was bankrupt. He owed his creditors $624,000. His assets were nil. The
tons of merchandise he had ordered, from television sets to cough drops, had
been sold at a fraction of their retail value to discount houses and hot-goods
outlets. Stein said he lost the money to loansharks and bookies. Actually it
went into the coffers of his son-in-law and his racket cronies.
There were many more fraudulent bankruptcies after that. So
many, in fact, that a sort of headquarters had to be set up as a clearing house
and control point for the millions of dollars worth of merchandise being
funneled through the intricate network of the ring’s operations. A small
respectable-looking office with a white Colonial facade and bay window at 412
Fairmount Avenue became such a headquarters. It
was called Twin State Distributing Co. and it was, ostensibly, a home
remodeling and heating firm.
At one point, Philadelphia Police kept a photographic
surveillance of Twin State .
Observed frequenting the place, besides Scolnick and the front men of his various
running bankruptcies, were a variety of racket-connected loan sharks, gamblers,
dope pushers, bookies, strong-arm men and even a paroled murderer. Two other
regular visitors to Twin State
were Samuel ("Cappie") Hoffman and William ("Willie")
Weisberg. Both are top racket figures — in fact, the U.S. Justice Department
recently named Weisberg, Angelo Bruno and numbers boss Frank Jaskiewicz as the
three men who control all of Philadelphia ’s
organized crime. Both Hoffman and Weisberg were on the payroll of Twin
State .
WHEN IT BECAME obvious that the bankruptcy racket was
going to blow, Karafin frantically tried to erase all traces of his connection
with Twin State .
He had one of his attorneys, Joseph Savitz, write letters to the director of Twin
State saying that his client had
never given them his permission to be listed as president. He asked another
lawyer, Irwin Paul, who had incorporated Twin
State to write a letter testifying
that he, Karafin, was not connected with the firm. He began telling investigators
that he had not even known he had been made head of the firm.
But Dun & Bradstreet, an agency not inclined to
fictionalizing reports, maintains that Harry Karafin was listed as the first
president of Twin State .
(Later he was replaced in the post by Beryl Hoffman, Cappie’s nephew,) In
addition, both Scolnick and a former officer of the firm have testified that
they were present when Harry Karafin signed the papers.
Perhaps, at the time, Karafin thought he was just doing his
old pal Scolnick another favor.
Like he did when he got him a gun permit.
As the bankruptcy business flourished and the
wheeling-dealing became more intense, Scolnick, despite his awesome size,
decided he ought to carry a gun. Karafin not only helped him obtain a permit to
do so, but actually signed his application and testified to his "good
moral character."
THE MAJOR QUESTION, of course, is this: To what extent can a
reporter claim that involvement with his sources, however corrupt, is a vital
requisite in the performance of his duties?
The answer, obviously, is to the extent that such
involvement does not corrupt the reporter himself, either in the performance of
his professional duties or otherwise.
There is no doubt that a reporter who uses his sources for
personal gain in detriment to his professional obligation is not only demeaning
a journalistic code but is also violating a certain community trust.
The Philadelphia Inquirer calls itself "An
Independent Newspaper for All the People." As such, it has a
responsibility to present the news not only "accurately and
fearlessly" (as it daily proclaims it does), but also objectively and
comprehensively as an essential force in shaping the decisions of an open
society. The absence of reliable reporting is the first step towards failure to
meet that responsibility.
That is why the story of Harry Karafin, the reporter, is of
very special interest.
For years Harry Karafin has been the Inquirer‘s top
muckraking reporter. In the power circles of the city, on both sides of the
law, he was undoubtedly the best known — and the most feared — newspaperman in
the business. Last month, when word of his severance from
the Inquirer got around, the Philadelphia Dispatch, the
insiders’ favorite weekly gossip sheet, carried the story on its front page:
"For years, lawyers cringed, city officials winced and politicians prayed
when Harry Karafin walked into their offices," it wrote. "He broke
more exclusives, triggered more 72-point streamers and spearheaded more
journalistic crusades than any other newsman in the long history of the
Philadelphia Inquirer."
That he did.
Starting with the paper as an $18~a-week, 24-year-old copy
boy in 1939, he climbed to editorial clerk and then district reporter before he
became a regular byliner in the early ’50s. Karafin was a digger. A cocky
little guy with a flip way about him, he could con his way into places his more
conservative colleagues wouldn’t think of going. He always played it by ear. He
could be garrulous and charming or tough and bullheaded, and many a City
official found out that the best way to deal with him was to give him what he
wanted or sure as hell he would blast the daylights out of you in the next
edition. Karafin played the game rough and it became known that he was a guy
you didn’t mess with.
He was also a guy you didn’t trust, not with anything you
wanted kept out of the newspaper. Word was around that if you ever saw Harry
scratching under his armpit or at his crotch, watch out: He was adjusting his
hidden tape recorder.
City officials, politicians, constables, ward leaders, cops,
racketeers, criminal lawyers, bail bondsmen — all figured out that the one way
to keep Karafin on their side was to keep feeding him information for possible
stories. After all, here was a guy who could make you or break you. Here was a
guy who could write something about you and the whole damn city would know it
by tomorrow morning. You had to treat a guy like that right.
As a result, Karafin developed a network of contacts and
sources comparable to those of the legendary cop, his good friend Captain
Clarence Ferguson. In fact, they aren’t really out of the same class: Both use
the old you-do-me-or-I’ll-do-you technique. Of course, Karafin could do — or
not do — a lot more people and his reach went into areas where even Ferguson ’s
couldn’t go. "I seen him call up a deputy police commissioner once,"
says a friend, "and tell the guy that he wanted something done and he
wanted it done right away! And the guy did it right away!"
With the power of a big city daily behind him, Karafin
pounded his way through expose after expose — poor nursing homes, the
magistrate system, the auto accident racket, the baby photo racket — and came
up with not only a few fat bonuses for himself — what would be welcome manna
for many newspapermen on a 10 grand salary — but also a couple of press
association awards from his colleagues.
Not that he was the most beloved brother in the local
journalistic fraternity. He was too ruthless a digger to be that. Friendly
enough — a little guy with a graying crew cut, beefy face, sharp narrow eyes
and a quick toothy smile — most of his associates thought of him as a hungry
loner. But he had access to more than any other reporter in City Hall. He could
casually stroll into many an office, check through its files, riffle through
papers on a desk, sit down with a department head, check out leads, drop hints
about what might be done here or not be done there to give him a good story.
He was a mouthy guy. As many contacts as he had and as many
big ears as he had access to and as many strings as he could pull, they weren’t
as many as he said they were. No one ever accused him of being modest. But
that’s the way he operated. He constantly made more use of his contacts than
they thought he was making of them through the informational technique of,
well, call it cross-fertilization, in lieu of a blunter expression.
Karafin’s career reached a point where his fellow
journalists stopped being surprised at what he could come up with. When accused
wife-murderer Jack Lopinson was being held under tight security in a prison
cell surrounded by guards, Karafin got an exclusive interview. When
bail-jumping Sidney Brooks was being brought back from Rhodesia ,
Karafin got off the plane with him. While the F.B.I. was scouring the country
for Angelo Bruno to arrest him for conspiracy and extortion, Karafin met him in
Boston as his plane came in from Rome .
Such enterprising reporting naturally endeared him to the
top men who are responsible for putting out the Philadelphia Inquirer. In
fact, Karafin had proved himself to be one of the most loyal of company men.
When the Inquirer was besieged by a long, bitter strike by the
Newspaper Guild in 1958, only Karafin and two other reporters — Saul Kohler and
Joe Trachtman — broke the picket lines and returned to work before a
union-management agreement was reached.
It was no wonder that word got around — undoubtedly
perpetuated if not originated by the reporter himself — that Karafin had a
special relationship not only with his immediate superiors but also
with Inquirer publisher Walter Annenberg. In fact, because of his
reputation as a hard-hitting expose writer, Karafin, it was whispered, was
"Annenberg’s hatchet man." Karafin not only reveled in the description
but, indeed, more than once introduced himself as such. He even told a few
people that he was in Annenberg’s will.
IT IS DIFFICULT to determine just when Harry Karafin
came to the realization that in the extensive conglomeration of contacts and
sources he had cultivated over the years there were innumerable opportunities
to enhance his personal position far beyond the rewards possible within the
limitations of his journalistic chores.
In other words, we don’t know exactly when Karafin got into
the public relations business. Something like that is hard to determine. A few
reporters will do occasional freelance work on the side, banging out a press
release or advertising copy for some agency or other. And if some friend
happens to work for a firm that is opening a branch office somewhere, it is not
difficult for a reporter to get a brief item into his paper about it. It is
ridiculous to think that there isn’t a little bit of whoring going on in the
journalistic profession. The kids always seem to need another pair of shoes. After
all, there’s nothing illegal about public relations work, for the most part.
It’s just that its principles are contrary to the basic
tenets of good newspapering. A public relations man’s first concern is
controlling the public image of the client who is paying him. Often he is as
much occupied with keeping information out of the newspapers as he is with
getting it in. To a legitimate reporter, on the other hand, news is news, and
as long as it is presented with objectivity and comprehensive fairness, the
hell with image.
Keep news out of a newspaper? A repugnant
concept. You’d have to look pretty hard to find a newspaperman in the business
today who would turn his back on a good story because someone was paying him to
do so.
SYLVAN SCOLNICK CLAIMS it was he who first awakened
Harry Karafin to the potential in his position as a "public
relations" consultant. Whether he did or not, Karafin eventually got into
the business in a big way. Within a few years after he started seeing Scolnick
regularly at the time of the M. Stein & Co. bankruptcy, Karafin’s income
jumped to several times the relatively small salary the Inquirer was
paying him as its top expose reporter. He even reached a point where he started
his own firm — Kaye Communications — and had business cards printed, "When
Harry first started coming to Sylvan," says a close associate of
Scolnick’s, "his shoes were raggedy, his teeth needed fixing and he was
paying off a second hand car. Now look at him."
Harry Karafin did well in the public relations business.
Sylvan Scolnick played an important role in some of his
business associations. Any reporter would have loved to have access to the
circles, in which Scolnick traveled. Yet Harry Karafin seemed to have muzzled
his usually fine reporter’s nose for news whenever he wheeled with Scolnick.
An operation called Young Development Company is a case in
point. One Federal official called it "a cesspool of high-finance wheeling
and dealing." It was basically a holding company and a lot of very big
money men got into it to make a quick buck. Capitalized through a series of
high-promise stock offerings, its principal holdings were the rights to
"The Big Idea" television show. A former major network flop which
featured a procession of bright-eyed inventors who displayed their gadgets in
search of backer, and a kiddie series called "Diver Dan."
Scolnick heard about the money around in the Young coffers
and decided to try to get in on it. He went before Young’s board of directors,
which included some very respectable local businessmen blinded the idea of fat
returns on their investment, and, waving a piece in his hand, sold them the
"exclusive" right to import a high-mark-up terrazzo tile from Puerto
Rico. The deal went for close to $165,000, including a block of Young which
Scolnick, against the stipulations of the sale, immediately began selling under
the table for a fraction of its market value. A firm call Terra Cor was
established as a subsidiary to handle the tile and Scolnick was put on its
payroll. Young never made a cent on the deal. Scolnick never delivered the
tile.
What happened was that too many greedy hands started dipping
into Young Development’s assets. As money began to be manipulated all over the
place and the handwriting appeared on the wall, a frantic effort to squeeze as
much out of the company as possible began. A series of phony stock deals
through various fronts was one of the last gasping attempts at survival. It
failed, Young folded and a brokerage firm lost its license for the fraudulent
sale of its stock.
Where was reporter Harry Karafin when all this was going on?
Right with it. Scolnick had slipped him in a side door and got him on Young
Development’s payroll. As a public relations man, of course.
WHEN A PUBLIC relations man starts looking around
for new business, he has a number of sources which may provide him leads for
potential clients. He checks the trade papers, business briefs, new company
listings, telephone installations. He talks to old clients, golfing buddies,
drinking pals, family friends. As a public relations man, Harry Karafin could
have gotten leads for new business from the very same sources. As a reporter,
however, Karafin had access to leads unavailable to other public relations men.
It is a question just how much of coincidence it is that the
names of a good many of Harry Karafin’s public relations clients could also be
found in the complaints files of the business frauds division of the District
Attorney’s office. There is no question that Karafin had access to those files.
He could walk in and open drawers whenever he wanted and he was regularly seen
doing so. At the time when Karafin’s public relations business began to boom,
the chief of the division was an eager young assistant D.A. named Jack Myers.
It so happens that some of Myers’ principal areas of
interest became the most lucrative areas for Harry Karafin’s public relations
operations.
These areas included a segment of the local business
community inhabited by a coterie of what are known colloquially as "suede-shoe
operators" and "fast-buck boys."
It is amazing how tight and interrelated this group is.
Newcomers arrive and familiar names fade now and then, but the coterie is a
definite entity. Their businesses and firm names change with the times and the tastes
of the community, but if one of them comes up with a new gimmick or
money-making device or piece of merchandise, the whole group, almost to a man,
moves into the field.
Home remodeling, aluminum siding, debt consolidation, rugs,
heating repairs, encyclopedias, record clubs, appliances, freezer-food plans —
all are areas these sleazy characters have moved into at one time or other.
(This year they are moving into wigs and swimming pools.) They always offer the
cheapest and shoddiest service or product at the highest possible prices. They
promise the most and deliver the least. They work the middle and lower class
segments of the community, among the least financially sophisticated, those who
least know how to handle their meager incomes, those who can be fast-talked
while papers are shoved in front of them and their signatures obtained, those
to whom credit means a dream of luxury uncluttered by a
$69.50-a-month-for-five-years nightmare.
The basic way these con men operate — the cheap products
they offer, the shoddy service they provide — stems from one reason. They make
their money not from satisfied customers or repeat orders or profit margins,
but from padded credit applications and inflated interest charges. They are
interested in only one thing: "Paper."
"Paper" is the note of credit, sometimes grounded
on the equity of a second mortgage on a home. Whatever the business — home
remodeling, debt consolidation, aluminum siding — the aim is primarily credit
paper. Although this paper is usually of very poor quality — most of the
debtors are paying off other loans and those that are homeowners are struggling
to meet their first mortgage payments — once one of these fast-buck
operators can get enough of it he can peddle the package at a discount to a broker
or a commercial finance or even a bank.
The rub is that a lot this paper contains legal defects, and
if this were publicized and the debtors found out about it and got lawyers and
tied the cases up in courts for any amount of time, these finance companies and
banks would immediately lose huge sums of money. Then, with their credit cut
off, both the brokers and the fast-buck boys would be out of business.
The legal defects may be based on the manner in which the
paper was generated. The field is infested with the most unethical and
dishonest salesmen. Fraudulent claims are commonplace. Applicants are usually
never told what the total amount of their payments will be. Huge commissions
and service fees are sometimes padded into the note and total interest
sometimes winds up as high as 80% or 90%. And if there is a service or product
involved, it rarely lives up to the promises made for it in the advertising and
promotion. In addition, banking regulations are sometimes violated by assuming
and charging inflated interest on a debtor’s previous loans.
But as long as the public remains ignorant of such
technicalities, as well as unaware of the areas in which the fast-buck artists
are operating and the ploys which they are using, this credit house of cards is
it very profitable structure.
That is why publicity is the last thing those involved in
the business need.
The respected civic leaders and so-called pillars of the
community who sit on the boards of some of these finance companies and banks
which are involved, would especially not like it known that their institutions
are profiting from credit paper generated by the suede-shoe coterie.
SYLVAN SCOLNICK SAYS that he pointed out to reporter
Harry Karafin the tremendous opportunities in this situation for public
relations man Harry Karafin.
And that is what brought both of them one day to a one-story
brick office building at 4711 Rising Sun Avenue. The sign on the front window
says: ALBERT KAYTES — REAL ESTATE. At the
time, however, it was also the home of a firm called Taylor-Wallace, which was
in the business of buying and selling credit paper. In fact, millions of
dollars worth of the stuff passed through its hands annually. Most of it was
bought, at a discount, from schlocky home repair and aluminum siding companies,
and it was sold through Al Kaytes, who had lines of credit at regular
commercial banks.
One of the principals of the Taylor-Wallace firm was a
dapper, balding businessman named Joe Py. Py also happened to be the president
of Clover Installation, one of the schocky home repair outfits from which
Taylor-Wallace was buying paper.
Scolnick and Karafin told Py that he was in a very
vulnerable business. Both the State Banking Department and the District
Attorney’s office were looking into certain aspects of the credit paper and
home repair fields they said. Harry Karafin, the public relations man, could be
a big help. He had a lot of contacts and he could provide valuable advice.
Karafin did not say that as part of his public relations effort he would
provide newspaper publicity for Joe Py’s operations. The kind of publicity that
expose reporter Harry Karafin could give him was the last thing Py needed.
Scolnick and Karafin asked Py for $5000, as an initial
retainer.
Py said he would think it over.
Shortly afterwards there appeared in the Inquirer,
under an eight-column headline across the top of its split-page, an article
concerning the proliferation of house repair frauds. It said that
"high-pressure salesmen" were preying on "unwary home
owners" and quoted ‘William A. Peterson, executive vice president of the
Better Business Bureau, who explained the details of their methods. And this
was the last paragraph: "Said Peterson: ‘The Better Business Bureau
believes the only way to stop this racket is to expose it.’”
Scolnick and Karafin returned to Joe Py. Py, whose Clover
Installation had a few dozen salesmen out on the street selling home repairs,
told them that he suddenly realized the benefits of a public relations
consultant like Harry Karafin. He wrote two checks, one for $3000 and one for
$2000, sent them to the bank to be cashed, and handed the money to Sylvan
Scolnick. Harry Karafin stood by smiling his toothy smile.
But that was only the beginning. Thereafter Karafin himself
stopped by every Monday morning for a regular retainer check. Over the next
four years, Joe Py paid him close to $12,000.
New vistas opened. Times were booming and the home
repair-credit paper business was going strong. Scolnick and Karafin began to go
after the others, and it may be only a coincidence that the thickness of a
firm’s file at the Better Business Bureau bears some relationship to Karafin’s
fees. Soon, however, public relations man Karafin came to realize that his
association with the Fat Man wasn’t doing him any good, image-wise. He began
cutting him out of deals. It didn’t seem to hurt Karafin’s quest for new
clients. But, then, they were the types of firms which needed his public
relations services badly.
Aluminum Associates, for instance, found its salesmen
arrested in Montgomery County .
And a Philadelphia firm called Arrow Products used techniques that were so
blatant the State Banking Department finally issued a cease-and-desist order,
despite Karafin’s four months of public relations for it — at a fee of $4000.
("You might say we wanted to curry favor," admits a former Arrow
executive.)
Then Karafin got a bright idea. Why go at this in a
piecemeal fashion? There were just too many firms in the home repair business
to efficiently handle their public relations that way. What was needed was some
organization.
So one morning there appeared across the top of the
split-page in the Inquirer this headline: BUSINESS GROUP TO FIGHT
HOME REPAIR RACKETEERS. "An association of home improvement companies has
been created to crack down on unscrupulous, high pressure siding and house
renovation firms that have been preying on unwary home owners," said the
article. It pointed out that both the District Attorney’s office and the Better
Business Bureau gave the new National Home Remodeling Association their
endorsement. It added that the Bureau’s vice president Peterson said he would
invite association members to meet with him "to work out a code of
ethics." The article mentioned the name of the president of the new association
a number of times and quoted him extensively.
His name was Joseph Py.
The National Home Remodeling Association never got off the
ground. Perhaps most of the firms in the business were wary of such an approach
or — more likely — they didn’t want to pay the membership fees that were
supposed to go toward brightening their public relations image. And maybe they
didn’t care for the fact that the association had acquired a president even
before it was formed, a president who was a client of Harry Karafin’s.
The failure of the National Home Remodeling Association
didn’t stunt the growth of Karafin’s budding public relations business. Far
from it. There were other areas of the credit paper business in which his
services could be even more valuable than they could to those who were on the
front lines generating the stuff. And it is in his initial dealings with the
commercial finance companies and banks — where the paper eventually wound up —
that three people who seemed to have played an important part in Harry
Karafin’s success come into the picture. They are: Joe Ball, a young public
relations and advertising executive who has his own firm; attorney Albert
Gerber of the firm Gerber, Galfand and Berger; and State Senator Benjamin
Donolow.
According to one member of the Association, at the time of
the Warwick meeting it was rumored
that Harry Karafin was researching an article for his newspaper on the home
improvement financing business. That is why some of the members were a little
taken aback when Karafin showed up at the meeting. But he had come with Joe
Ball of Ball Associates and they were introduced together.
Joe Ball told the Association that the image of the business
greatly needed improvement. Unfavorable stories had already appeared in the
newspaper and there were rumblings that a State Senate investigating committee,
headed by Benjamin Donolow, was going to look into sales finance paper. He
suggested that he and Harry Karafin be hired as special consultants. The fee would
be $25,000 a year.
One Association member says that they sounded sincere in
their desire to help, but his fellow members felt that the price was too steep.
However, when the fee was cut in half the membership was practically unanimous
in deciding to take advantage of the services that Ball and Karafin could
provide.
Ball and Karafin worked for the Association for about a
year, Ball handling some press releases and turning out an Association
newsletter, among other things. At the end of that time, however, the
Association decided to drop Ball and retain only Karafin. Ball later claimed
that the Association owed him $6000 under the arrangement and went as far as to
begin collection proceedings, but dropped the matter after agreeing to a lower
settlement. Karafin, meanwhile continued to receive between $250 and $300 a
month as the Association’s public relations consultant.
He is still receiving payment. Last month, following
Karafin’s parting with the Inquirer and the spreading rumors of a
forthcoming article about him in PHILADELPHIA MAGAZINE, the members of the
Association met to decide whether or not to retain him as consultant. Karafin
reassured the members that his departure from the newspaper was only temporary
and that the whole thing would blow over. Aaron Gold, president of the
Association, assured Karafin that the members had faith in him, were grateful
for the work that he had done for them and would continue him in his public
relations capacity.
Aaron Gold happens to be president of Oxford Finance. For
some reason, Oxford Finance was one of the firms which felt it was necessary to
make use of Karafin’s services over and above what he could do for it as a
member of the Pennsylvania Association of Sales and Finance. It has paid
Karafin extra for this. But Oxford
is one of the biggest members of the Association. It was, in fact, among the
largest buyers of debt consolidation second mortgage paper in the country.
ARBITRARY THOUGH IT may be, it might be concluded that
the members of the Pennsylvania Association of Sales and Finance were more
appreciative of the type of public relations Harry Karafin could provide for
them than any of his other clients. After all, the executives of these
commercial finance firms weren’t the suede-shoe, door-to-door salesmen type.
They were respected community members and civic leaders, philanthropists and
charity directors, men for whom unfavorable publicity meant more than just a
loss of money or reduced profits. They were men truly concerned with public
image.
Much as the First Pennsylvania Banking and Trust Company
might be.
As Harry Karafin expanded his interest in the sales finance
field and his circle of contacts grew larger, he obviously came across the
somewhat surprising information that First Pennsylvania bank was holding
millions of dollars worth of familiar credit paper. One of the firms it had
bought paper from was a home repair outfit in Pennsauken
called the Mutual Home Dealers Association, run by Sam Leonard, a high-finance
wheeler-dealer who had been kicked off the New York Stock Exchange. Harry
Karafin was on Mutual’s payroll as a public relations consultant.
According to a top official at First Pennsylvania, Sam
Leonard advised the bank that it would be a good idea for it to retain public
relations counsel for the upcoming hearings before State Senator Benjamin
Donolow’s special investigating committee looking into sales finance paper.
The man Leonard suggested the bank hire was Harry Karafin.
The First Pennsy official says that Leonard was told the
bank saw no reason to hire Karafin.
Soon afterwards, the bank’s vice presidents Anthony Felix
Jr. and Rudolph Biborosch were called to testify before Donolow’s committee.
A late edition of the Evening Bulletin on the day
of their appearance before the committee carried what Felix says he thought was
an accurate report of the gist of their testimony. It said that they had urged
a state licensing system for credit and finance agencies. When he opened
his Inquirer the next morning, however, Felix says he was shocked.
There was a picture of him and Biborosch under the headline: BANK ADMITS PAYING
DEALERS FOR SALES-LOAN BUSINESS.
And the story said this: Bank kickbacks to dealers for
bringing in business were admitted Wednesday at a hearing here of a legislative
subcommittee investigating practices in home repairs, time sales and financing.
The admissions were made by Rudolph A. Biborosch, vice
president, and Anthony G. Felix Jr., vice president of the First Pennsylvania
Banking & Trust Co., during a vigorous cross-examination by the committee’s
co-counsel Joseph H. Savitz.
The part of the testimony that the story was referring to
concerned something called "dealers’ reserve funds," a perfectly
legitimate inducement offered by every bank in the country.
Following this article, says the top official at First
Pennsy, "Sam Leonard then renewed the overture that was made and this time
we accepted it."
An agreement was signed with Ball Associates for public
relations services at $12,000 a year.
Half the money went to Harry Karafin.
The agreement has been in effect for almost five years. Last
month it was discontinued.
It is known that as far back as 1956, the District Attorney’s
office was interested in Holland ’s
activities. Jack Myers, then head of the frauds division, arrested its sales
manager and 12 of its salesmen, charging them with conspiracy and obtaining
money under false pretenses.
But Holland
remained in operation in Philadelphia
for more than six years, and some of its salesmen continued to use the same
fraudulent techniques. This included entering a home under the guise of a City
inspector, tearing down furnaces claiming they needed extensive repair or
replacement, then refusing to put them together unless the homeowner agreed to
an expensive contract — paid on time, of course.
Then, in 1962, after complaints became too numerous, it
folded, turning its business over to franchised dealers. One of the franchises
went to a firm called Consumer Engineering in West Philadelphia .
It was run by a husky fast-talker named Bernard Bobst, former eastern division
manager for Holland . With him in
the firm was Holland ’s former
division comptroller, a rotund little guy named Ralph Anthony.
Despite the demise of Holland
— or maybe even because of it — the heating business in Philadelphia
remained a very competitive field. For that reason, and because a large part of
the business is done through profitable credit paper, sales techniques
sometimes get a little out of hand. The frauds division of the District
Attorney’s office has traditionally received a lot of complaints about firms in
the business
One day, armed with information from some of these
complaints, Harry Karafin dropped in on the then-chief of the Department of
Licenses and Inspections, Barnet Lieberman. Karafin suggested that Lieberman
really ought to do something about some heating firms who might be violating
fire laws. He said that the firms were advertising that they cleaned furnaces
but, he claimed, they didn’t have the proper equipment with which to do so.
Lieberman promptly wrote a letter to the firms, warning them
of this possible violation. Before it was delivered, an article written by
reporter Harry Karafin appeared in the Inquirer. It contained all the
details of the warning and named the firms the letter had been sent to.
One of the firms was also run by a former Holland
executive named Thomas Shea. When Shea saw the article in
the Inquirer he immediately went to his competitor, Bernard Bobst,
whose own firm had received a letter.
What Bobst told him, he says, is that the whole matter could
be “ironed out” for $8000.
Shea refused to pay, instead went to a lawyer, the late Tom
McBride, with the problem. He says McBride took care of the matter and he heard
nothing further about it.
But why had Shea gone to competitor Bobst when he read
the Inquirer article?
Because, he says, he knew of Bobst’s “friendship” with
Karafin.
It was more than a friendship. Bobst was actually paying
Karafin for “public relations” services.
Bobst, who has a nervous habit of yawning when he is lying,
last month denied he had ever paid Karafin. Currently he is running something
called Comfort Heating, on Lebanon Avenue near 63rd. Questioned there, he said
(in one cascading yawn) that he dissolved Consumer Engineering in the fall of
1962 and that he couldn’t have paid Karafin a cent in 1963. He may have just
forgotten.
Cancelled checks, signed by Bobst, indicate that Harry
Karafin was paid close to $4000 by Consumer Engineering.
Bobst’s former partner, Ralph Anthony, who is still in the
heating business with his own firm, admitted that even he has continued to pay
Karafin “$75 here and $100 there.”
“He has done a good job for me,” says Anthony.
IT’S AMAZING HOW good a job Harry Karafin has done for
so many people with such a variety of “public relations” problems. There just
doesn’t seem to be any limit to the types of businesses the veteran crime
reporter thought he could help, image wise.
In the fall of 1964, for instance, a sad little man named
Edward Williams decided to use part of his $25,000 inheritance to fight off the
loneliness he’d know most of his life. He saw an ad in the paper and called the
National Dance Club on South Broad Street .
There, over a period of less than three months, he signed
for nearly 1000 hours of dance lessons, costing more than half his inheritance.
There was, perhaps, nothing unusual in a 51-year-old
bachelor deciding to blow a pile of money on dance lessons. But Edward Williams
wasn’t a usual 51-year-old bachelor. He was a man who, through the in equities
of birth, had the emotional and mental outlook of a child. In addition, he was
severely crippled by arthritis and diabetes and could barely stand unaided for
more than a few minutes at a time.
Eventually, the cold brazen manner in which her boss was
milking the poor old guy, led a dance instructor at the Club to take Williams
to a lawyer and the District Attorney’s office.
And that is how Harry Karafin found out about Edward
Williams and the National Dance Club.
When Williams’ attorney, Norman Zarwin, filed a suit against
the Club to recover his client’s investment in "self-confidence, poise and
popularity," Karafin wrote a story that appeared on the split-page of
the Inquirer.
It was a good news story, sharp and well-reported, but it
lacked a few details. Among them was the fact that National Dance Club and its
immediate successor, Holiday Dance Club at 1522
Chestnut Street , were owned and operated by
something called National Creations. And National Creations was the brainchild
of James Frederick Schad, who was then — and still is — operating a wig parlor
called "Nu-Hair Creations by Jim Schad." It is at 1521
Sansom Street , the rear of 1522 Chestnut.
In Williams’ suit against National Dance Club, Schad was
represented by attorney Irwin Paul. There were a few hearings, arguments by
both sides, moves for further hearings, but no settlement.
Meanwhile Schad’s dance club went on its profitable way, luring
the old, the bored, the refugees from loneliness. But Harry Karafin wrote no
more stories about its continuing operations.
What had happened was that he had gone to see James Schad
and they had had a long talk. Shortly afterwards, Karafin notified a partner in
Zanvin’s law firm that he thought he could get Schad to agree to a settlement
for poor old Edward Williams. Then things began to happen: Schad suddenly
dropped Irwin Paul as his attorney, signed with the firm of Karafin’s close
friend, Albert Gerber, and agreed to repay Williams $2400 — a fraction of the
money he had charged him.
Despite the agreement, Schad has not settled completely with
Williams and still owes him some money. He had, of course, settled with Karafin
long ago. National Creations paid Karafin more than $2000 for "services
rendered."
PERHAPS THERE IS no significance at all in the
fact that settlement wasn’t reached until Albert Gerber’s law firm came into
the picture. But attorney Gerber and reporter Karafin are very close associates
and there is evidence that they have worked together in the past. Gerber, for
instance, has been very deeply involved with mutual insurance companies writing
fire and auto casualty policies.
"And Philadelphia ,"
as one State Insurance Department investigator wistfully observed not long ago,
"is the only city in the country where you can buy and sell mutual
insurance companies." This despite the fact that its policyholders are
supposed to be the legal owners of mutuals.
Nevertheless, dozens of companies have been "sold"
by quick-buck operators and the loss to Pennsylvania
policyholders has been fantastic. This has been done through the sale of a
mutual’s "management contract." Normally such a contract is assigned
to a team of top management experts who attempt to improve a company’s
financial picture. But, in the mutual insurance game, smart contract owners
have been able to turn many an investment into sizeable profits by such devices
as renting offices to the company, charging it a fee for law services, and
substituting its financial reserves with worthless stocks or de-bentures from
another one of their companies.
This has left millions of luckless policyholders holding the
bag, and if their defunct company was a so-called "assessable
mutual," they are being held liable for part of its losses.
All-in-all, a messy sort of business — though there are some
top quality small mutuals operating in the state.
Attorney Albert Gerber, along with banking executive Raymond
Freudberg, successfully operated Empire Mutual Insurance for a number of years.
Then suddenly in 1959 they decided to sell its management contract to a
financial wizard named Seymour Rosenfield.
Not too long afterwards the State Insurance Department
ordered Empire to close its doors and Rosenfield was charged with fraud and
embezzlement.
The Empire case stunk. And so did the cases of Wissahikon
Mutual and Lawn Mutual and Palmyra Mutual and Commonwealth Mutual and the
dozens of others involving small mutuals which were taken down the river.
By last summer the stink had gotten so bad — with losses to Pennsylvania
policyholders alone topping the $30 million mark — that a house investigating
committee in Harrisburg started
looking into the matter. One of the witnesses called was Leopold Weiner, the
operator of Safeguard Mutual, a firm that seemed to be having its troubles.
When Weiner testified he attempted to shift the blame for
the sinking mutuals on "crooked lawyers and crooked doctors" who
conspired to get huge settlements out of little companies like his.
He never mentioned management contracts.
Neither did Harry Karafin when, during the course of the
hearings, he began research and wrote a series of articles about such
"crooked lawyers." The effect of his research and the articles was to
help shift attention from the machinations within the mutual companies to the
activities of the negligence lawyers on the outside.
"The effect those articles had was fantastic,"
recalls one attorney. "Hundreds of negligence lawyers panicked because
they knew he could make them look guilty by association. The rumors and the
hassle before the articles came out was unbelievable."
What prompted Karafin to focus attention on the negligence
lawyers? That is not exactly known.
What is known is that a few small mutual companies met in
attorney Albert Gerber’s office, formed the Association of Fire & Casualty
Insurers and paid Harry Karafin to do its public relations work. Albert Gerber
also paid Harry Karafin for his services.
It’s possible.
However, if such a conflict should arise, the double dealer
has to make a decision between his two roles.
Harry Karafin was forced into such a decision in 1962.
It was the year of the great battle between then-City
Controller Alexander Hemphill and the Broadway Maintenance Corporation.
Despite the fact that a Pittsburgh
grand jury recommended indicting its top executives for payoffs to city
officials in 1951, Broadway Maintenance was awarded a quarter of a million
dollar contract to maintain Philadelphia ’s
street lights in 1957. A year later it was paid an additional $75,000 a year to
maintain 5000 of the city’s parking meters.
By the end of 1961, the company was getting $585,000 to take
care of he lights and $180,000 for maintaining the parking meters.
Hemphill issued a detailed report charging, among other
things, that Broadway was failing to replace burned out street lights,
neglecting parking meters, falsifying and destroying work records, padding its
bills and conspiring with City officials.
The charges were serious and Hemphill refused to clear
payments to the New York-based outfit.
But from the moment he made the charge, the Controller’s
Office began suffering amazing abuse both from City Hall and in the press.
Broadway Maintenance sued Hemphill and the City for its money; and even before
there could be any adjudication Mayor Tate was telling the press that he
thought Broadway was a great outfit and that he had no plans to drop its
services. What’s more, he said, he’d like to "blow the whistle" on
Hemphill’s investigation.
Says Gilbert Stein, then Hemphill’s deputy, "We couldn’t
figure it out at the time but Broadway seemed to have a very good press."
Harry Karafin, of course, had the inside story. He had sat
down many an evening with Broadway’s Philadelphia
vice president Arthur Pierce to discuss the matter. He wrote that the city
would be in "a chaotic condition if the dispute is not settled."
"Broadway," he reported, "has offered to
negotiate its differences with the city out of court in the wake of a year-long
investigation by City Controller Alexander Hemphill …"
A few days later he reported that revenue from parking
meters was up (during the time of Hemphill’s investigation and that Department
of Streets Deputy "Michael J. Gittens …attributed much of the boost in
collections to ‘a good maintenance program’ conducted by both the city and its
private contractor, Broadway Maintenance Corp." (Gittens later resigned
under pressure.)
An Inquirer editorial asked for: "Plain Words
from Hemphill," implying that the Controller had failed to substantiate
his charges.
Common Pleas Judge Leo Weinrott Hemphill to stop blocking
payment to Broadway. He was backed by the State Supreme Court. The city gave
the company a record $800 000 contract for another year.
Hemphill bitterly charged that he’d failed to get support
from anyone in City government, including City Solicitor David Berger.
During the time Harry Karafin was covering and writing
articles for the Philadelphia Inquirer about the dispute with
Broadway Maintenance, he was being paid by Broadway Maintenance more than
$10,000 a year. He is still on Broadway’s payroll.
Last month, Broadway’s vice president Pierce, who
acknowledged he is in charge of every aspect of the maintenance firm’s
operation in Philadelphia , said he
never paid Harry Karafin for anything and did not know of any payments to him
by Broadway. He said, however, he would check with his superiors in New
York . Shortly afterwards, Broadway’s local attorney,
Howard Gittis, called and admitted that Karafin was on Broadway’s payroll.
Karafin, he said, had been hired to work on an "investigative market
survey" in Pennsylvania and New
Jersey . He said he did not know precisely what that
consisted of. How much is Karafin currently being paid for his services? Gittis
said that he did not know and would not find out. He said he would provide no
further information because he had heard of Karafins’ suit against PHILADELPHIA
MAGAZINE and he didn’t want Broadway to get "involved."
When a Federal grand jury, for instance, charged some
members of the Pennsylvania Refuse Removal Association of conspiring to fix
prices, Karafin appeared (he was introduced by Donolow committee co-counsel,
Joseph Savitz) and offered the trash collectors his services for $1000 a month.
Although the Association hired him, its members were found guilty anyway.
When the District Attorney’s office began looking into the
abuses of debt collection agencies, Karafin appeared at one such firm and told
the owner he was in dire need of his services. "You’re wide open," he
said. Admitted Harold Whittaker, president of National Collection and Credit
Control, one of the firms that did hire Karafin: "Harry has offered a lot
more services than I could take advantage of as far as publicity is concerned.
In the collection business, unfortunately, the quieter it is sometimes the
better."
When the Combs College of Music was charged by a former
student that it had lured him into its program by falsely claiming it was
accredited, Harry Karafin appeared on the scene as a public relations
consultant at a modest $3000 annual fee.
When Jack Alter, president of Teachers Service Organization,
a Philadelphia loan firm, was
subpoenaed before Senator Donolow’s committee in 1962,
the Inquirer reported a warrant had been issued for his arrest. It
wasn’t but shortly afterwards Joseph Ball showed up and suggested that Alter’s firm
could use certain public relations services. As a result, Harry Karafin wound
up with a new client and over $12,000 in fees over the next few years.
When his close friend Constable Murray Adler’s business was
failing, he got another close friend, Magistrate (now City Councilman) Joe
Hersch, to throw the traffic scofflaw work to Adler. Then he wrote a series of
sensationalized articles about traffic scofflaw which aided Adler in his
collection work. As a result, for a couple of years after, Karafin and his wife
were Saturday night dinner guests of the Adlers at expensive restaurants all
over town. (At one time, the late Mitch Cohen, one of Mafia-boss Bruno’s
lieutenants, picked up the tab for the Karafins every Sunday at the Latin
Casino.)
THERE IS NO doubt about it: Reporter Harry Karafin
became, in a few short years, one of the most successful public relations men
in Philadelphia — despite the fact
that many people now claim they did business with him reluctantly. "I
don’t like to deal with Harry," says one of his clients, "but he can
do things for me. It’s like castor oil. You don’t like to take it but sometimes
you have to.”
Enough people took Harry Karafin to make him a
relatively affluent mad. (Too many, in fact, to detail in a single article.) Long
conditioned on frugal survival on a reporter’s modest salary, Karafin found
that the rewards of public relations work could enable him to live a new style
of life.
He became more popular. People showered him with gifts. (He
got, for instance, more watches than he could use. His very close friend, bail
bondsman Albie Schwartz, gave him an expensive set of golf clubs which, though
he doesn’t play the game, he keeps out ostentatiously in a corner of his den.
Magistrate Dave Keiser regularly sends him cases of Scotch. He boasted that he
didn’t have to pay a cent for his daughter’s engagement party at Palumbo’s, or
even for his recent hernia operation.)
He took to acquiring expensive jewelry (mostly from a store
owned by the brother-in-law of a real estate man who was in the bankruptcy
ring) and buying his status-conscious wife — an aggressive woman with whom,
friends say, Karafin is a milquetoast — flashy clothes and fancy furs. He began
vacationing in Europe and Puerto Rico .
He even began dabbling in the stock market.
He had, of course, sold his modest twin home in Oxford
Circle — for $1000 less than he had paid for it a decade before — and put up
$19,000 cash towards a huge two-story house on a large lot in the far
Northeast.
A real estate expert estimates the value of the house
conservatively at $45,000. Karafin had builder Solomon Bronstein construct the
house for him for $30,000. (Bronstein was one of the witnesses called in the
Special Grand Jury’s probe of zoning abuses in 1963.)
In addition, Karafin added a host of special features to the
house, including a custom-built staircase, expensive lighting fixtures, air
conditioning, and an enclosed rear patio and fireplace. Then he packed more
than $20,000 worth of fancy new furniture in his newly-acquired castle and
surrounded it with a nursery of expensive shrubbery and a $3000 fence.
In 1964, shortly after he purchased his new home, Karafin
also bought, for cash, two new cars from Wilkie Buick on North
Broad Street — though at the time he was the only
one in his family who knew how to drive. On one car went the license tag HK
156; on the other, 156 HK. (Harry Karafin’s new house was at 156
Stratford Road .) He kept both cars for two years,
and last December, bought two new Buicks, one an expensive Riviera
model, and paid cash for them also.
All this despite the fact that in the last few years Harry
Karafin’s salary at the Inquirer has averaged less than $11,000
annually. Before that, it was lower.
How did he do it? He did it by prostituting the power of the
press. He pimped away his legitimate rights and privileges as a reporter and
pocketed the returns. He used subtle threat and coercion on those who could
least afford the kind of notoriety he might give them if he were an ethical
reporter. He provided public relations and other types of "services"
at inflated fees because he knew that only he could give them what no other
public relations counsel could give them: Alleviation from fear of exposure in
the press, from fear of sensational, slanted articles. (He couldn’t do it
alone, of course, but that’s another story.)
And, yet — and this is what was particularly infuriating to
those in the business who had an inkling of his activities — Harry J. Karafin
went around calling himself a reporter.
He was a mouthy guy.
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