Thrifty to close sports firm after finding fraud scheme.

Affair will cost parent firm Pacific Enterprises millions

Hoping to wind down an embarrassing affair that may cost it more than $50 million this year, Thrifty Corp. next week plans to close its Florida tennis-racket company after concluding it was rife with fraud for five years.

Thrifty's own treasurer, Richard Ramsey, had doubled as the Florida firm's treasurer, and he quietly left the Mid-Wilshire-based retailing giant in July.

The firm, FTM Sports Corp. of Miami, manufactured the popular Fox brand tennis rackets and Cactus golf clubs. Four former FTM executives and a private accountant for that company are being sued by Thrifty in a Florida court on charges of racketeering and creating false documents to borrow hundreds of millions of dollars from a bank between 1985 and 1990.

Allegedly, the fraud's purpose was to inflate revenue figures in order to hide losses. There are no embezzlement allegations.

Restating earnings and cleaning up the mess will clip profits at Thrifty's Los Angeles-based parent company, Pacific Enterprises, which also is the parent of Southern California Gas Co. And the brouhaha comes at an awkward time and place for Pacific Enterprises, amid a stock-price drop, dividend cut and criticism that its problems trace to having entered an unfamiliar business -- the retailing world (by purchasing Thrifty Corp. in 1986) where the scandal now appears.

An attorney for FTM's ex-president, lead defendant Robert O. Miller, conceded that FTM's books were troubled. But he claimed his client had become "a whipping boy" for Thrifty officials who were "well aware" of what was going on at their tennis-racket company and chose not to stop it.

During the five years, neither Thrifty nor Pacific Enterprises conducted an independent audit of FTM.

While fraud and forgery was allegedly going on at FTM, Thrifty Senior Vice President and Treasurer Ramsey was also serving as FTM's treasurer, vice president and chief financial officer.

His departure from Thrifty came three months after the snafu was discovered in April, according to Pacific Enterprises General Counsel Leslie E. LoBaugh Jr. But LoBaugh said there was no evidence to justify suing the treasurer and declined to comment further on him, citing the pending lawsuit which was filed in September.

It was other FTM officials who carried out "a very elaborate and complex series of fraud," claimed LoBaugh, who quarter-backed the investigation that was carried out by a New York law firm and private investigators on the East Coast.

Pacific Enterprises is seeking $58 million in damages. PE officials this fall told the Securities and Exchange Commission that restating earnings to reflect the FTM revelations wiped out $30 million, or 4 percent, of their after-tax profits for the five-year period, and will cost another $21 million for losses in 1991 and expenses related to undercover investigations, legal actions and liquidating the firm.

The losses come at an uncomfortable time for Pacific Enterprises, which halved its dividend this summer. It is no darling on Wall Street, thanks in part to other financial challenges at Thrifty, which operates about 1,000 Thrifty drug stores and Big 5 sporting-goods outlets.

Pacific Enterprises is primarily known as the holding company for Southern California Gas, which last year accounted for half the parent's $7 billion in revenues and most of its operating profits.

PE officials have taken heat over their retailing arm -- $3.2 billion-in-sales Thrifty, which it bought in 1986 as a diversifying move -- from Wall Street and from an employee union. While Thrifty has reported operating profits every year, $100 million was set aside in 1990 to shut down about 40 unprofitable drug stores and liquidate obsolete inventory. PE's stock has fallen in two years to $25 from $62 a share.

"Thrifty continues to show no light at the end of the tunnel," said securities analyst Paul J. Milbauer of New York's C.J. Lawrence. And "disappointing" oil and gas finds by PE's exploration-and-production division have also soured him, he said. "I back-burnered the stock . . . and I think a lot of analysts feel that way."

Also upset at the FTM news was Maureen Lynch, president of the Utility Workers Union of America and representative for 5,000 SoCalGas workers. SoCalGas employees, including management, own 24 percent of Pacific Enterprises stock.

"The high-level corporate officers responsible for the multimillion-dollar 'discrepancy' in the books (of FTM) should receive no special treatment," said Lynch in a written statement to the Business Journal last week.

Several executives departed PE and Thrifty recently. LoBaugh said the moves were unrelated to FTM's problems. Long-time Thrifty Chairman Leonard H. Straus was replaced in August by William E. Yingling (former Lucky Food Stores Southern California president). Yingling then replaced Eve Rich, Thrifty Drug Stores president. Then PE's own chairman and chief executive, James R. Ukropina, resigned this month, citing health reasons.

The FTM affair, however, convinced PE's board to review financial controls for all PE companies. The review, performed by accounting firm Ernst & Young, "found no significant problems," said LoBaugh.

Nevertheless, "an in-depth review" of Thrifty and its subsidiaries was also performed by PE's auditors, Deloitte & Touche in Los Angeles. "They found the problem was limited to FTM," said LoBaugh.

Those charged with wrongdoing at FTM were fired or resigned. All are Miami-area residents:

* Robert O. Miller, ex-president, and his wife, Office Manager Nina Miller (no relation to the Miller family that ran SoCalGas for decades).

* Robert Wohlleber, former vice president of sales.

* Ray Belitsky, ex-controller.

* Richard Cahlin, FTM's certified public accountant, and his firm, Richard A. Cahlin, CPA.

LoBaugh alleged the FTM team used fraudulent and forged documents to borrow hundreds of millions of dollars from Bank of America, some of it for non-existent goods, then shuffled the funds around affiliated companies, and eventually reported it as revenue. FTM overstated revenue by $85 million between 1987 and 1990, and it reported 1990 revenues of $66 million when they truly were $13 million, said LoBaugh. The artificially high revenue hid losses and FTM officers were able to "hold onto their jobs," he said.

But according to Miami defense attorney Harris Buckbinder: "Neither Nina nor Robert Miller have any of this money. It was used for the business." Attempts to interview other defendants were unsuccessful last week.

Buckbinder didn't deny the appearance of inflated income and assets. But he said Miller was instructed to follow certain accounting procedured "by personnel at Thrifty -- officers and directors." Ultimately, "Mr. Miller is not a financier. He's basically a tennis pro," said Buckbinder about the co-founder and 25-percent owner of FTM, which stands for Fox Thrifty & Miller.

Although Miller earned bonuses and commission payments based on bogus sales, such personal gain amounts only "to thousands of dollars," alleged LoBaugh.

Buckbinder questioned how Thrifty expects to extract $58 million from the defendants. Miller earned no more than $150,000 a year, he said, and surrendered his FTM stake to Pacific Enterprises seeking to avoid getting sued.

Pacific Enterprises spokesman Tom Sanger said the lawsuit was justified for several reasons. "It's an example to set for anybody else there who believes companies with deep pockets won't just roll over," said Sanger. He also noted that PE must seek to recover the losses prior to recouping any money from PE's insurance policy against fraud.