The Akron Beacon Journal from Akron, Ohio • Page 41

Coming Monday Corporate Spotlight, a new feature in the business section, appears Monday and will take a close look at Smucker's, the Orrville jam and juice giant. For everything you want to know about the company and its stock, see Business Extra. The Beacon Journal Sunday, May 22, 1994 QD, What is the Fed UP tO? There is very little to justify its rate hikes The Federal Reserve has now raised interest rates four times in as many months. Short-term rates have gone from 3 percent to 4.25. The prime rate has gone sl Robert Kuttner from 6 percent to 7.25.

Mortgages are about 8.5 percent. This will, of course, slow growth which is just what the Fed intended. DECEIVABD i BY GLENN G.GAMB0A Beacon Journal business writer Former Phar-Mor Inc. President Michael I. Monus backed by a few young, aggressive corporate execs is accused of pulling off what federal prosecutors say is the largest corporate fraud in U.S.

history with the simplest of schemes: Shift a few zeros. Act cocky. And high-powered people will fall all over themselves to give you money. 1 4 f- ichael I. "Mickey" Monus was the toast and envy of the nation's business community.

He took a single store in Niles, Ohio, and, It will become more expensive for consumers to buy a home or finance a car. The higher cost of capital will also deter business investment. On the very eve of this latest rate hike, government statistics once again showed that the Fed is mistaken about inflationary pressures. The consumer price index for April rose just one-tenth of 1 percent, and the core i inflation level actually fell. What, then, is the Fed up to? Many say the Fed is trying to compensate for the irrationality of money markets.

There may be no inflationary pressures now, goes the theory, but if money markets think inflation is around the corner, they will bid up interest rates anyway. Thus a prudent dose of tighter money now can supposedly head off worse rate hikes later on, by assuring markets that the Fed will be vigilant against inflation. There is one thing wrong with this theory. The markets were happily committing long-term. money at about 6 percent interest befire the Fed acted.

They obviously had no expectation of inflation. It was the Fed's own i action, and not market anxieties, that precipitated today's higher, rates. Politically correct? A second popular theoiy holds that the Fed's timing had something to do with the "political business cycle" the sensitivity of the Fed to the election calendar. -l" It is possible that Greenspan signaled President Clinton that rates would have to rise at some point, and better to get the rate hike out of the way now, rather than on the eve of the 1994 election (or, worse, the 1996 presidential election). But that presumes the rate hike was necessary at all.

The, National Association of Manufacturers and the U.S. Chamber of Commerce, no friends of Clinton or inflationary monetary policy, criticize the Fed for imagining inflation. Likewise, the administration's own economists, though declining to criticize the Fed publicly, find neither wage nor price inflation. A third possibility is that Fed acted, in part, to defend the U.S. dollar.

There are reports from Frankfurt that Germany's powerful central bank, the Bundesbank, has an implicit deal with Greenspan to shore up the dollar by letting German rates subside while American ones rise. This also has the virtue of stimulating German growth in a German election year. Almighty money market There may be some truth to each of these theories, but there is a more fundamental explanation. The Fed chronically panders to the concerns of the money markets that are its prime constituency. It has a congenital bias in favor of slow growth and absolute price stability, because this guarantees that bonds will hold their value and hence soothes creditors.

The Fed is supposed to be a committee of wise elders, largely immune to political pressure and motivated by what is good for the economy. But such bodies are seldom truly above politics. The politics, in this case the Fed's deference to Wall Street, aret simply more opaque. Greenspan did one thing right with the latest rate hike: He hinted that he will now leave rates alone for awhile. Too bad he didn't decide that back in February, before the Fed needlessly sandbagged growth.

aides have pleaded guilty 16 the fraud charges. The 46-year-old Monua-has denied any involvement in the company's billion-dollar scheme of hiding losses and fabricating profits tosobtaln more financing to grow even fester, which caused it to lose even morejnoney. He is to stand trial May 31 in U.S. uismci court in ueveiana bringing the Ladies Professional Golfers? Association Tour to Youngstown. t'kt the height of Phar-Mor's phenomenal growth, Monus and his inner circle believed they were untouchable.

one knows," they would tell other, attorneys say. "No one could know." And for six years, they were right. Phar-Mor began in 1982 in a strip mall in Niles, a small factory city north of Youngstown best known for its General Electric plant and as the birthplace of President William Mc-Kinley and Harry M. Stevens, the inventor of the hot dog. The store's concept was simple, inspired by a trip to the Cleveland discount drugstore chain Bernie Schulman's: Buy cheap.

Sell cheap. And sell everything from aspirin to zirconium rings. Phar-Mor was then a subsidiary of Giant Eagle, a Pittsburgh supermarket chain. Giant Eagle executives just wanted to test the concept. David Shapira, Giant Eagle's president and chief executive officer, believed this successful strategy could be duplicated around the country.

But only if it had a deal-maker, someone who could talk vendors into selling large lots of goods below cost. Enter Monus. The son of Nathan Monus and the former Frances Tamarkin, from two of Youngstown's best-known families, Michael "Mickey" Monus had stature and a winning resume. He was a vice president in one of his father's firms and was known as a man who did more than talk a good game. He usually delivered.

The senior Monus had built the Tamarkin Co. into a successful distributor of health and beauty aids to-retailers throughout the region. The family gained prominence as he joined in high-society galas and made high-profile donations to local See PHAR-MOR, Page D3 his aggressive nature and marketing savvy, parlayed it into Phar-Mor a 306-store national chain with $3 billion in annual sales. The legendary Sam Walton called Phar-Mor the most serious threat to his Wal-Mart empire. Monus seemed too good to be true.

In mid-1992, it turned out he was. Mickey's powerhouse discount drugstore chain was based on a fraud, cried Monus' boss, Phar-Mor chairman and chief executive officer David Shapira a $1.1 billion fraud allegedly crafted by Monus and his lieutenants, -v, Within weeks, the company filed for Chapter 11 bankruptcy protection. Within months, federal prosecutors swooped in with indictments against 1 Monus and two aides: chief financial officer Patrick B. Finn and finance vice president Jeffrey C. Walley.

The What follows is an account of the rise and fall of Monus and Phar-Mor. It is based on testinjony1 of jimers in proceedings in federal Kttfkruptcy court in Youngstown, the findings of a court-appointed examiner in that case, and filings in related lawsuits. Monus declined to be interviewed for this story. As Phar-Mor's president, Monus was called a "merchandising genius" and "chic hero." He cultivated a reputation as a flamboyant up-and-comer in the world of professional sports starting a basketball league, the Colorado Rockies baseball franchise and Figgie attempts to find its footing, again Conglomerate that Harry Figgie Jr. built is in process of ambitious redesign and search for permanent leader Harry E.

Figgie 70, announced his retirement last week after 30 years at the helm of the company he founded. long-term person to lead the company," said Larry Petrucci, an analyst with First Albany Corp. in Pittsburgh. "But then again, nek ther is Walt Vannoy because he's been on the Figgie board for a number of years and can't be considered a true outsider." While the question of a successor won't be answered for awhile, the company is trying to work out a financing agreement with a consortium of 38 banks. Jay Alix, a nationally known turnaround specialist hired by Figgie, said Friday the banks are close to an agreement.

"I think it's more a problem of the banks having a dispute among themselves as opposed to their having a prob- See FIGGIE, Page D5 best-selling author said he stepped down for health reasons and a desire to spend more time with his family. "Harry Figgie deserves a lot of credit for building the company," said Phil Brannon, an analyst with Mabon Securities in New York. Still, analysts agree, new blood in the executive suite will surely help Figgie. Figgie's son, Dr. Harry E.

Figgie IE, was seen as a likely successor until March, when he was encouraged to step down to run Clark-Reliance a Strongs-vUle family business. Now the company says it will look outside for a chief executive, a move analysts cheer. "I think it's in the best interest of the company to hire an outside By Janet Moore Beacon Journal business writer The Trouble with Harry is not only an old Alfred Hitchcock film, it may also be a statement befitting of corporate chieftain Harry E. Figgie who decided last week to step down from the multimillion-dollar conglomerate he built from scratch. The trouble with Willough-by-based Figgie International, analysts say, is that it lost its focus in becoming an industrial and technical conglomerate: The company's products range from hockey sticks to packing equipment to financial services.

Following a sunny 30-year history of steadily improving sales and profits, the company has floundered and reported its first-ever annual loss of $180 million last year. Figgie, it seems, has lost its sparkle. The company has embarked on an ambitious redesign, selling off noncore assets, paring debt, renegotiating its line of credit with bankers and hiring a turnaround specialist to steer it through rocky waters. The culminating step in that process: the resignation of the elder Figgie, 70, on Wednesday. The ft- manager," said T.

Edward O'Neil, an analyst with S.W. Ryan Co. in Bala Cynwyd, Pa. The company has named Walter M. Vannoy, 66, a former vice chairman at McDermott International, the parent of Barberton's Babcock Wilcox, as chairman and chief executive while it looks for a new permanent leader.

"Harry Figgie, at 70, is not a.