Follcmsbee Mystery

Cried the New York World-Telegram: "Never in the history of American business have the many students of corporate doings been so confused. . . ." The confusion was over strange doings in the stock of Pittsburgh's small (total assets: $12 million) Follansbee Steel Corp.

The mystery began last month with a letter to most of Follansbee's 2,000 stock holders from a New York firm called 625 Associates, Inc. The associates promised stockholders $50 a share for stock listed at about $30 on the New York Stock Exchange. Although Wall Streeters had never heard of 625 Associates, options began pouring in to its Empire State Building office. Follansbee's stock became the most active on the Big Board: in twelve days it jumped about ten points to 40.

Last week 625 Associates announced that it had options for 183,000 shares (70% of Follansbee's voting stock) and a buyer, in the person of one Alan Adams Haye. He was described simply as a rich man who had spent many years abroad.

Old Acquaintance. Follansbee's management finally woke up to what seemed an alarming fact: the company was about to be sold from under it. Frantically President Lawson Stone, who said he knew nothing about the deal, demanded that the buyer identify himself. He got no more information. New York's Attorney General Nathaniel L. Goldstein got into the act: he had a clue. The figures 625, he said, if ticked off on the alphabet, read FEE. That corresponded to the Follansbee ticker symbol: FEE. The Securities & Exchange Commission and the New York Stock Exchange were also looking into the deal.

But it was Goldstein's investigators who seemed to strike pay dirt. They found no prospective buyer named Haye --or named anything else. But they ran across the name of A. Terry Fahye, president of Consolidated Steel Mills Co., a company which had recently set itself up in the steel business. Goldstein peeped into his files and concluded that Fahye was really Haye. A few years ago, said Goldstein, he had also been Albert Bennett-Fey, and he had had many brushes with the law.

New Audacity. In 1939, roly-poly Terry Fahye, then going under the name of Bennett-Fey, was banned by the New York Supreme Court from trading in securities in New York. Four years later he turned up as "a war contract broker" in Washington's famed "House on R Street" inquiry (TIME, May 15, 1943). In 1944 New York City's late Mayor Fiorello H. LaGuardia accused him of being the front man for Racketeer Irving (Waxey Gordon) Wexler in deals in war surplus goods.

Investigators thought the Follansbee deal was an audacious attempt either to rig the market in Follansbee stock or to grab control of a steel mill to sell output in the grey market (see below). This week the elusive Mr. Fahye, who had been sought for several days, walked into the Attorney General's office. He was promptly jailed on a charge of violating the ban against security trading.

The deal was off and Follansbee stockholders were badly shaken. The stock had fallen nine points--and almost $2,000,000 in paper profits had vanished.

The steel companies are chiefly to blame for the grey market. So the Senate Small Business Committee's subcommittee on steel reported last week after looking into the steel shortage (TIME, Sept. 22). Because the companies had not kept a close enough check on customers, said the subcommittee, large quantities of steel (one estimate was 2,000,000 tons a year or 2 1/2% of U.S. production) were being traded in the grey market. Thus some customers were able to resell steel at fabulous prices (up to $600 a ton).

The subcommittee also found that the companies' current system of allocating steel to customers on the basis of their prewar purchases was unfair both to new enterprises and to old industries that made production switches. "If the steel industry wants to avoid Government controls," the subcommittee warned, the steel companies had better agree on a distribution system that is fair to customers.

But the subcommittee's sharpest words were reserved for the Department of Commerce. It accused the Department of allowing too much steel (an estimated 7,000,000 tons) to leave the country last year. Its chief recommendation: more stringent export controls.

This file is automatically generated by a robot program, so reader's discretion is required.