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 A venue 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 Philaphia’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 of 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 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.
ONE EVENING IN August of 1961, an organization called the Pennsylvania Association of Sales and Finance met at the Warwick. This was a group composed mostly of firms buying or brokering credit paper, though it did include some home repair outfits and others which were generating it. One of the moving forces behind the Association, at the time, was the Commonwealth Financial Corp., and the moving force behind Commonwealth was attorney Albert Gerber. In fact, the Association was originally formed in Gerber’s office at 1512 Walnut Street.
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.
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.
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.
NOW IT’S POSSIBLE that a reporter who is doing a little public relations on the side may never face a direct conflict between his responsibility to his newspaper and his obligations to his client.
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."
ONE OF THE most amazing things about Harry Karafin’s career as a public relations consultant was the uncanny knack he had of showing up almost precisely when potential clients could most make use of his services.
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 work to Adler. Then he wrote a series of sensationalized articles about traffic scofflaws 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.