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.
ONE OF THE characteristics about Harry Karafin’s methods of acquiring new business for his public relations services was that he seemed to squeeze the most out of every lead. The same State Senate committee, for instance, which questioned First Pennsylvania officials also had decided to take a look into the tangled affairs of the Holland Furnace Company.
Holland, at that time, was recently defunct. Its downfall was caused, claims a former company executive, by too many payoffs to City officials and inspectors. "If I told you that story,” he said, “I could end up in the river with rocks."
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.