Business: More Unpleasant Encounters

Trading had already been under way for 30 minutes, and brokers were carefully watching the big illuminated screen that carries the latest stock quotations to the turbulent floor of the New York Stock Exchange. Suddenly there flashed a terse announcement about Columbia Pictures: CPS WILL NOT OPEN FOR TRADING TODAY. Thus last Friday began yet another episode in the unending saga of the troubled moviemaker.

The exchange’s floor governors, meeting in an emergency session, had decided on the suspension because of an article in the New York Times Magazine scheduled to appear on Sunday. After hastily leafing through advance copies of the article, which had already been circulating on Wall Street, the Big Board’s bosses decided it would be unwise to expose the shares to the uncertainty that the article could cause. Columbia’s stock, which had sold at a high of 20â…ž last December, was down to 14â…œ last Thursday in the wake of the scandal involving David Begelman, 56, the former president of its film and television divisions; the shares had fallen another point on Thursday, in anticipation of the Times article. Begelman, after admitting to embezzling more than $60,000 from the studio, was suspended from his job last October, reinstated in December, and then forced to resign last month.

The Times piece seriously compounded Columbia’s troubles by directing attention to the power behind the scenes: the prestigious and secretive Wall Street investment house of Allen & Co. Inc., which owns approximately 7% of Columbia’s stock, or 500,000 shares, worth some $7.2 million, and dominates Columbia’s board. The article, which was written by Lucian K. Truscott IV, an aspiring novelist and a freelance journalist, asserted that Allen & Co. was seeking to sell out. Begelman’s reinstatement and the condoning of his crimes, charged Truscott, were part of a scheme by Allen & Co. to show that all was well, in order to keep the stock price high and thus make a big profit. Even more serious was the article’s suggestion that Charles Allen Jr., 75, the firm’s frail founder, had associations with the Mafia.

Author Truscott, a disaffected former West Pointer who has written mainly in Manhattan’s Village Voice, never flatly accuses Charles Allen of direct Mafia connections, but the implications are strong. For example, he calls Allen “the godfather of Hollywood,” and traces his rise in the film industry through a maze of allegedly Mob-infiltrated enterprises. According to Truscott, Charles Allen in 1955 bought a 25% stake in a Bahamian company that controlled a casino that was “manipulated” by Crime Boss Meyer Lansky, and one of Allen’s partners in the venture was Wallace Groves, a convicted swindler. Then, aided by funds from his Bahamian operation, Allen formed an alliance with Producer Ray Stark and proceeded to take control of the small Canadian movie and TV producer called Seven Arts. Next, Allen acquired Warner Bros. The acquisitions seem innocent enough, but Truscott manages to impart a suspicion that they were somehow tainted.

In a stinging, well-documented denial, Allen & Co. charged that the article was “full of falsehoods, unfounded innuendo and sinister allusions.” The company directed its lawyers to file a $150 million damage suit against the Times for false and defamatory statements. Among Wall Streeters, Allen & Co. is known as an aggressive loner with an enviable record for profitable investments (among its big winners: Syntex, the birth control pill maker). While Charles Allen Jr. lives in semiretirement in Manhattan’s elegant Hotel Carlyle, the family-held firm’s day-to-day business is run by his hard-driving nephew Herbert Jr. Though Allen & Co. is far from the most popular firm in the investment community, even its toughest competitors found the Times’s article hard to believe.

Downplaying the imbroglio, the Times ran an evenhanded story about the stock-trading suspension on its business page last Saturday. It quoted Edward Klein, the Times Magazine editor, as saying, “The story did not state, nor did it mean to imply by the use of the word ‘godfather,’ that Charles Allen Jr. was connected to the Mafia. The term ‘godfather,’ as used in the story, was intended to convey the image of a man of power and influence in Hollywood.”

The article further depressed the low morale at Columbia Studios in Burbank, Calif. Executives are worried about possible new charges of irregularities in the studio’s bookkeeping. No replacement has been found for Begelman. Columbia chiefs complained that their blockbuster, Close Encounters of the Third Kind, did not receive an Oscar nomination for picture of the year because of the Begelman affair. Close Encounters has now slipped to second place at the nation’s box offices, behind Allied Artists’ The Betsy, but it has grossed $26 million so far. Ironically, while its stock is being clobbered and its executive offices are shaky with scandal, Columbia may be on the way to its most profitable year ever.