(author’s note: The footnotes look they might be clickable, but they are not. You can find them by scrolling to the end of the document)
The Swedish opera singer Jenny Lind visited Northampton in the nineteenth century, newly married and full of herself. She marveled at the views around town and pronounced Northampton, “A Paradise.” Much later, when the 1950s rolled around, the city was tired and run down. There were empty storefronts everywhere.
Northampton went through hard times after World War II. Factories that were running full blast doing war work shut down, others went south. Regularly scheduled passenger trains were on their last legs, and double-barreled Route 91 wasn’t built yet. Cigar smoke, booze, gambling raids, and “old boy” corruption flourished. Before there was a Fitzwillys, before Northampton was a hip destination for the campus crowd, before it turned to progressive politics and had a Gay Pride parade, it was just another rundown factory town on the shores of the Connecticut river. During the 1970s the Northampton area was wide open. There was no shortage of dark barrooms : There was the Watering Hole, the Rainbow Room, and the infamous Captain’s Table out on Damon Road.
In 1977, Northampton’s police were hit by a scandal when two officers, Donald Roy and Luke (the spook) Scanlon, were convicted of responding to late night break-ins by locking the doors behind them and stuffing their squad cars with stolen goods. In the wake of the scandal, a new mayor appointed five new patrolmen to the force. When they arrived, no one in the department would talk to them.
“We were just handed our badges and our guns and told to go out and patrol,” said one of them to me. “No training. The old timers felt that at least one of us was working undercover.” Owners of the Hotel Northampton came and went, and the hotel’s fortunes steadily went downhill. In 1978 Holyoke businessman Marco Marinello bought the hotel and shut it down. Valuable antiques disappeared; pipes burst.
Wiggins Tavern turned into an Italian restaurant and barroom run by the late Danny Constance, a tough ex-cop from Holyoke. In 1960 Danny and mobster Pasquale Tranghese crashed their car through the display window at the ABC bakery in East Longmeadow. Tranghese would later do ten years for drug trafficking charges. Danny became partners with Marinello in managing the Hotel Northampton.
In 1979 he did some bookmaking out of Wiggins Tavern and rented rooms upstairs for $1200 a month to Probation Officer Billy Nagle and his Honor Court, whose men were renovating the hotel without benefit of building permits. Heritage Bank lent him and his partner a lot of money, and Danny was, I think, the critical link between the Tranghese crime family and the bank.
In 1974 the legendary Roger Kerwood remodeled a seedy bar on lower Main Street. In the first and second floors of the building that once housed the offices of Calvin Coolidge, he went to town, knocking down walls, building a mezzanine level with some cozy hideaways. On the walls and hanging from the ceiling were all kinds of funky antiques and commercial artwork. He had brought something new into Northampton, a casual stylish restaurant with a tasty affordable cuisine.
Fitzwillys was born and flourished and soon Northampton began to be a destination town. McCallums’ vast department store died and the fashionable shops of Thorne’s Market gradually filled up its four floors. There was live music every night thanks to Eric Suher and his Iron Horse. With the college crowd coming to town, more clothing stores and restaurants cropped up. The old Calvin theatre fixed up its marquee and hosted folk music and rock & roll concerts. There was Pearl Street and the Tunnel Bar. The old Bay State Hotel was filled up with trendy restaurants. Architects, builders and people in real estate became wealthy. New restaurants and shops had splashy openings and very hush-hush closings. Younger progressive politicians replaced the old guard. There was the old mob and the new mob, the old police department and the new police department.
In 1986, Felix Tranghese, a “Capo” in the Genovese crime family bought the building next to the police station and turned it into Mulino’s Trattoria. A Capo has either orchestrated or committed a contract killing, and has the rank of a captain, heading up a crew of Mafiosi who do what they usually do, run gambling games. commit extortion, hijack truck shipments and get involved in other crimes.
In Northampton the mob kept a low profile. The only place I would bump into mobsters was in the 391 diner on Conz street down near the bowling alley. Springfield was a different matter. It was a strong Genovese area, led by the Scibelli family. There was Skyball Scibelli, Anthony (Turk) Scibelli, and Albert (Baba) Scibelli, along with Big Al Bruno and Felix Tranghese. Soon Felix Tranghese would be convicted in federal court along with the Scibelli brothers for their role in controlling illegal gaming operations in the valley.
The more sophisticated people involved in the mob decided they had a better shot at the big money by getting into real estate and forming alliances with prominent lawyers, politicians and corruptible bankers. Having some old-fashioned muscle behind you helped clear away regulatory obstacles. Building inspectors said yes to your proposals. The de-regulation of the banking industry had loosened lending practices and lead to the “go-go” era where the old tight loan standards went out the window.
For eighty-three years the Genoveses worked out of the Monte Carlo restaurant in West Springfield, run by the Pugliano family. The “Three Pugs”, Louis, Frank and Frederick, all owned the Monte Carlo at one time or another during the seventies and eighties. Louis and Frank would he arrested in connection with the murder of Mafia under-boss William B. “Billy” Grasso in June of 1989.
Northampton was where the action was in real estate, and one of the Puglianos closed a deal on a choice parcel of Northampton, our old county jail on Union Street. Frederick Pugliano and his partners proposed to turn the building and its grounds into condos. Pugliano was working with two men, Carl R. Pagella and Theodore DiMauro. DiMauro was a lawyer and former Mayor of Springfield, Carl Pagella was a lawyer from Agawam. They made the winning proposal to the Hampshire County Commissioners. 
The three men got their financing from BayBank. They got their permits, and extensively remodeled the jail. Their condos sold well, going for between $90,000 and $110,000 apiece. Felix Tranghese would buy unit ten in 1990 from Frank Suher, Eric Suher’s brother, but it would soon wear more than $177,000 in liens from the state for unpaid meal taxes for Mullino’s Trattoria. Frederick was on his way to respectability, but Louis and Frank would bring bad publicity to the Monte Carlo. Louis and Frank and Felix Tranghese would be involved in the ham-handed murder of “Big Al” Bruno. By 1990 Frederick’s partner Carl Pagella would owe more than $35 million to a whole group of Springfield area banks, and would be on the brink of bankruptcy. 
Dick Covell came to the Northampton Institute for Savings in the 1960s when it was like most of the old banks that lined Main Street. Their banks had limited resources, and their loan officers were conservative, cautious, parochial people, working in banks that closed at three, in a town that went to sleep after six pm. NIS’s assets were only $28 million. Everett Heaphy, who had been the President of NIS since 1932, was a “bond man” on the verge of retirement. He steered clear of investing anything as risky as home mortgages.
Covell would take the bank into the twentieth century, opening up the bank’s first branch on North King Street. The bank did promotions, and competed aggressively for deposits and loans. Its Main Street headquarters was remodeled and expanded, and another branch opened up in a Hadley mall. In 1978 NIS became the first bank in Northampton with cash machines. Covell became the acknowledged leader of the business community and supported a variety of community improvement efforts, including the creation of our industrial park. The biggest venture was the rebuilding of the Hotel Northampton.
The Hotel Northampton Caper
“What had begun as a community improvement project ended as a disaster.”
Chuck Johnson, Smith College[i]
In 1980 Dick Covell was fed up with the ratty appearance of the Hotel Northampton, which was right around the corner from the bank. He decided that something had to be done to turn it around. It was boarded up, the heat was off, antiques were being carted off and the pride of the community, Wiggins Tavern, was now just another dead-end bar. Local developer Eric Gross floated a plan to convert most of the upper floors to condominiums. Dick Covell roused businessmen and bankers all over town against the proposal, and Gross found he couldn’t get a dollar anywhere for his idea. Covell wanted someone to fix the building up, run it as a hotel, and return it to its glory days. He brought new people into this quasi-public group, the Northampton Development Corporation (the NDC), and girded for action. Its offices were at the Chamber of Commerce, and he brought practically every banker and civic leader in town on board. He planned to raise a kitty of about a million dollars, purchase the hotel from Marinello, and then sell it to some out-of-town group, who would fix it up.
Three tough guys roadblocked the Covell plan. Marco Marinello, Danny Constance, and Billy Nagle. Marinello ignored Covell until the Mayor and a big gang of city officials inspected the hotel and the building inspector hit Marinello with a condemnation order. Marinello finally agreed to sell the hotel to the Covell’s new corporation, but Danny Constance wouldn’t move out. Billy Nagle and his recovery group joined him, and sued to block the impending sale, saying that Honor Court had made $23,000 in improvements to the place, and his 15 men had nowhere to go. Many months of stormy negotiations produced an agreement. Danny Constance got $295,000 from the proceeds of the sale, and Nagle dropped his suit.
Dick Covell and the NDC went to the Robert Warren Associates for help. They had been organized just eleven months earlier, on Jan 16, l980. . Three men, Irwin Nebelkopf, Joseph Krzys, Jr. and John Eller were the principals. They told Northampton that they would remodel the hotel, top to bottom, and add the amenities expected by today’s business people. Nebelkopf was a plumber and developer from the North Shore, Krzys was a Boston consultant with close ties to the Democratic State Committee, and John Eller had been a top aide to David Bartley when he was speaker of the House. The whole town chipped in to help the venture. Seven local banks, the Gazette and Smith College all bought bonds. The developers, doing business as the Northampton Hotel Associates (NHA) raised more than $6 million toward the project.
Payments on the loans were slated to start in March of l982, and only three months later, NHA defaulted. The partners never hired a reliable local general contractor. There were no reliable drawings, not enough tools to go around, and a lot of wasted effort and money. Manager after manager was hired and fired.
“The decor in the bar kept getting changed like a Broadway set. For a time, the lounge was a wine bar with a $10,000 ‘Cruvinet’.
While the hotel was in debt to its rafters, it dispensed fancy vintages by the glass. Then, with a sudden change in management, the Cruvinet was put into mothballs and the bar became “Legends”, complete with a knight in armor. Another management turnover, and the Oak Room Lounge was born. “
The committee of borrowers got furious at what it perceived as a lack of straight answers. There were burnt contractors, banks and investors all over town. They couldn’t pay Squash Trucking or the sheet rockers or the people who did the painting. Much of the remodeling had been completed and the place was operational, but a lot of that $6 million had just vanished into thin air. Not until the game was almost over did local people start to wonder if a small hotel carrying $6 million in high cost financing (12. 5% plus) could ever hope to make enough money to cover its payments. Somewhere in Rhode Island where the sharp operators hang out, there was probably a little check mark and a note on their map next to Northampton.
These people in Northampton will give you millions if you promise to rebuild their old hotel.
“Covell wasn’t a bad guy. It’s just when everyone kisses up to you and tells you that you’re a great guy, it goes to your head. I remember when he first came to town there was a lot of buzz about him. He had some big job in Boston. The head of Rotary was saying to me, ‘Have you met that new president of NIS? We got to get him over here to Rotary, get him involved. We’ve got this project or that project that he could help us out on.’ Everyone always had their hands out. ‘Oh,’ they would talk, ‘He’s picking up this bank or that bank.’
“Let’s face it. Everyone wants to have a banker that knows your name. The Rotary meetings used to be down at the Hilton. I remember when the matter of the (Heritage Bank) stock offering came up. People asked me if I was interested in buying stock. I was working at New England Telephone, which became NYNEX. I was down at Martha’s Vineyard all summer working for the phone company. Doing residential appeals, troubleshooting installations for their celebrity clients. I was a member of Rotary for twenty-eight years. Almost everyone wanted to sit at the table with Dick Covell. I was on the lower pecking order in the scale. The phone company sent me there to represent them. Pat Goggins sat at Covell’s table. The publisher Peter De Rose and other bankers were there. We were top-heavy in bankers and lawyers. Lots of lawyers, lots of banks. If you sat at Covell’s table you were in; if you didn’t you were out.
“A lot of the young lawyers joined. You had to dress up in those days, white shirt, jacket and tie. Sometimes I’d show up in a sport shirt and a jacket and get a $1.00 fine. I fought that rule a long time and changed it. I felt the organization ought to be more welcoming to trades people. The people at NIS were always people that everyone looked up to and tried to get close to. There was a lot of talk about how well the bank was doing. People told me, ‘We’d go over to Heritage and they would always come through for us.’ (The Rotary) discourage cliques these days. Not then. Then everyone was striving to move from the “in” crowd and the real “in” crowd.”
The trend in banking in the valley during the 70s was mergers. The big Boston banks were aggressively moving into Western New England. The small banks couldn’t make the big loans that their larger customers wanted and smaller banks in rural towns couldn’t meet the need of people who might be in Greenfield in the morning, Amherst in the afternoon, and Springfield at night. The first big merger saw the Amherst Savings Bank merge with the Franklin Savings Institution in l982 to become the Heritage Bank for Savings.
Attorney Paul Ford of Amherst was on the board and supported the merger.
“When I came on the board of trustees it was a tiny old fashioned bank. I remember bars everywhere, ornate cages for the tellers and a president who took his afternoon nap behind his roll top desk right there in the front window. Then the board of directors brought in Robert Carter, who bought the old Five and Dime building next door and brought the bank into the twentieth century.”
The merger between NIS and Heritage Bank of Savings (Amherst) was finalized in January of l986. Many more mergers and acquisitions followed. Seven banks, from Greenfield in the north, to Chicopee and Holyoke in the south, were swallowed up.
Wall Street was pushing the advantages of banks going public, ie: becoming a corporation, selling shares on the public market, becoming responsible to Wall Street and big stockholders. A successful public offering would make these bank executives instant millionaires. There was a whole wave of stock offerings in the l986/l987 period. Banks went public, coast-to-coast, selling shares in their banks to raise money.
“Later on,” Ford told me, ” I began to see what was going on, and what Covell was up to, but by then it was too late to stop him. He and James Watt, who was president of the Heritage Bank for Savings, came up to my office to try to enlist my support. I asked who was going to be left after the massacre. You couldn’t expect all the 100-odd people who were incorporators of the newly merged banks to end up on the new board of directors. They wouldn’t answer. I knew I was out. ”
He became convinced that Covell was choosing only “Yes”people for his board. At the meeting, he and the other people opposing were outvoted, three to one. The conventional wisdom at the time was that a larger bank with a big portfolio of investments in a “hot” area like western New England would be an attractive takeover target for a big Boston or New York bank. Rumors were being spread that the laws that prohibited multi-state banking were on the way out.
The Jump into Commercial Lending
The “Big Picture” guy comes on board
Dick Covell decided to broaden out and get into a field that he saw as being much more lucrative than home mortgages. He hired David Shearer to be the head of his new commercial loan department. Shearer was in his forties, and had twelve years of banking experience and a graduate degree from Harvard. Eight years into Covell’s tenure the bank already had a relatively high percentage of delinquent commercial loans, and Covell brought him in to do damage control.Covell had got into a number of deals with Wayne Alderman, a banker down in Holyoke who pulled together consortiums of banks to finance housing developments that eventually started losing money because they were electrically heated. There was an energy crisis, a big increase in oil prices and a weak economy, and these places were taking a beating. In the fall of 1982, Dick Covell ran an ad in the Gazette for a loan officer. Mike Smith answered it. Mike was 26 years old, a big handsome young man. He had grown up with Dick’s sons.
The FBI in l991 interviewed Smith after the bank began falling apart. He told them a highly edited story of his life; how he played basketball for Northampton High under Bill Scanlon, and how he went on to attend Union College from the years l974 to l978. He chose Union for its basketball and soccer programs. He played all four years, was a member of Delta Phi with his roommate Ira Sutton, who would later get indicted for bank fraud. The FBI asked him if he had any trouble when he was there; he said he had “minor disciplinary problems” resulting from beer drinking. He broke a lamppost after one of these parties, etc.
He was a jock and a fraternity member; he was not really a scholar. His grade point average was an uninspiring 2.6. He worked summers at NIS as a teller while he was in college, and met his future wife Gaelyn through sports. His first job after college was with the Third National Bank in Springfield. He became a commercial loan officer in a branch office but left because his lending ability was limited, and much of the work was routine.
He saw the NIS ad in the paper in September of l982, and ended up calling Bill Covell, the President, and writing him letters. He saw a job at NIS as an “exciting opportunity to expand the bank”; he wanted to be a “community leader” and characterized himself as a “big picture” guy. He said that Bill Covell didn’t know much about commercial lending.
“I got the impression that Dick Covell thought I knew a lot,” he told the FBI. He said he “snowed” Covell about his experience, built his experience up at Third National like he knew a lot about community lending, but “admittedly”, he said, “(he) did not know that much.”  He started at NIS as a commercial loan officer working for David Shearer, who would leave the bank around the time of the big merger with Community Savings Bank.
“Shearer was the force that kept the lid on Mike, that kept him from going wild, I think.” said this one guy who had known both men, “As long as he had to answer to Shearer, he was ok. Shearer was an older guy; he had an advanced degree from somewhere. Harvard I think. But maybe that’s a handicap to surviving in the banking community. In those days, the people who came out of colleges majoring in business and going into banking were not the brightest lights in the firmament. It’s not like today when the brightest people go to MBA programs. Back then the football scholarship people majored in business. My father heard I was going to major in business and said “What the hell, you’re going to disgrace the family?”
He laughed. “But Shearer was not a people person. He was probably uncomfortable with . . .
He paused and fell silent.
“With who?” I asked.
“Oh, what the hell, I’ll say it. The typical idiot that runs most businesses around here. Shearer was brilliant, and brilliant people are not, generally speaking, people persons. They are often seen as intimidating to the average guy. Mike was dumb in most respects, but he was very good at doing what he did. He was able to get loans in. Mike had the common man’s touch, he’d play basketball with these people, he’d drink with them; he was a ‘good old boy. ‘
Smith complained in the FBI interview about the trials of the early days, of being the only commercial loan officer at the bank, having to order his own forms, type his own notes, work late nights, etc. He did “cold calls” on small businesses, drumming up work. As time went by his loan authority increased. Every two years he got promoted. From Assistant VP to VP to Senior VP. Loans over his limit had to go to a committee of the Board of Directors. Covell took the notes, the membership of this was Kurt Hertzfeld, Smith, Dave Fogel, Joe Tarantino, Joe Whalen, Allan Torrey, and Donald Southwick. They met monthly. Smith said he loaned mostly to restaurants and bars, both high-risk business ventures that have more than their share of failures. He believed no loans were ever turned down by the board. None.
The FBI interviewer underlined this statement, I underlined it here. I think T.J. Roberts took the notes and he was a CPA with experience in bank fraud, and I think it must have astounded him, that off-hand comment that this board which met monthly during the heat of the 80s run-up, and reviewed all kinds of applications from all kinds of people, never turned anyone down.
There were a few people who were turned down, but when you look at who was on this board, most of them were beholden to the lending department. David Fogel and Joe Tarantino got financing from Heritage while they were on the board. Joe Whalen was Pat Goggins’ partner and the Goggins-Whalen agency was probably the biggest single beneficiary of Heritage money during this period. Heritage held a big $2 million plus mortgage on Allan Torrey’s employer, Hampshire College. Only two out of the eight, Kurt Hertzfeld and Donald Southwick, were clear of entanglements. To add insult to injury, Mike Smith said that the board members didn’t really know what he was doing. And he was right.
Covell brought in. a consultant, Sara Griffin. He wanted all the bank officers to be more marketing oriented. She met with Covell, the commercial lending staff, and branch managers to give them pep talks. Covell didn’t want his officers sitting around waiting for business to come in. He wanted them out of the office, “Off their duffs” as he put it, calling on potential clients, pushing Northampton Institute for Savings as the place for people to go for their commercial loans. She trained Smith and Shearer to do so-called “cold calls” on prospective clients, selling the bank and its new focus on commercial loans. Mike Smith went out on the street and brought the business in. In 1986 he was earning about $41,000, two years later his salary had doubled to more than $85,000. Taking Heritage Bank public gained momentum. Depositors got mailings and were offered a chance to get in on the ground floor. The initial price for stock was $18, but demand was weak. Covell cut the price in half and made 200 phone calls to key players, and his offering of six million shares was almost completely sold out. The bank was now known as Heritage Bancorp, a holding corporation for the Heritage Bank for Savings. They were reporting record earnings since the merger, and their surplus account was $4. 2 million. In the years between 1987 and 1990, a development group lead by developers Joseph Pacella and Ralph DePalma went on a buying spree when the stock was around $9.00 a share. They gradually acquired a 5% stake in the bank (376,000 shares). When the FDIC did their 1990 audit, there were no applications on file for two big Pacella/DePalma loans totaling $888,000.
Favorable stories in the Daily Hampshire Gazette helped build interest in the stock. The big majority of stories were done by one reporter, Marty McDonough. Merrill Lynch and Paine Webber were the brokers. Between April and October of l986, the Gazette carried 12 stories about the stock issuance. Nine of them were on page one. On October 4th, Richard Covell was featured as their “Newsmaker” Most stories were on page one and they helped promote public interest in the offering.
“This is coming at a bad time for the bank, but for the investors it’s a wonderful opportunity,” said James Svenstrup of Merrill Lynch to the Gazette. He told the reporter that the stock was one of the better bank conversions. He didn’t tell the Gazette, however, how many other banks in New England were also converting to become publicly owned institutions. Between 1984 to 1992, 98 New England savings institutions converted to stock form, “resulting in large influxes of often redundant equity capital.” Heritage Bancorp, now with $1.7 billion in assets, would be the holding company for Heritage Bank for Savings. Its stock was now traded on the NASDAQ exchange. The big trouble was there were almost 90 Dick Covells out there selling stock in their banks. Did they need all that money that poured in? Did they have plans to put that money into profitable investments? No.
Now the pressure was on for Mike Smith and other loan officers to generate loans, or in Covell’s parlance, “Move the money onto the street. ” Cash looked bad on the books; it had to be converted to loans, which in theory could be converted to profits for the bank and better prices for their stock.
 The best account of this period is found in Heartbeak Hotel, Hampshie Life, February 15,1985 Paul Dunphy
 Honor Court was a recovery group modeled on the Synanon organization. It started out as a pioneering group that treated drug addicts and alcoholics, but later disintegrated into being a violent cult. Our Honor Court foundered after Billy’s death. A raid by police uncovered large stashes of narcotics in their dormitory spaces.
 The building is still there.
 Big Man Off Campus, CNN Money David Whitfield April 1,2005
 I am indebted to the reporting on the Springfield mob by Kevin Claffey, Nancy Piccin,, and Stephanie Barry of the Springfield Union.
 The partners did business as P.D.P.Construction. It was organized in 1985.
 “Despite woes, West Side ok” Union News, Sept 10, 1990
 “Heartbreak Hotel:. How, in four years an exciting project became a financial nightmare. “Paul Dunphy, Hampshire Life, February 15,1985
 Phil was a city councilor for one term, defeating Pat Goggins.
 Some factor inoculated Midwest bankers, the epidemic of bank failures primarily was a New England phenomena
 MAK interview with David Shearer
 Between July 31,1986 and March 1989, Sutton obtained thirteen loans from Smith; they totaled $9,429,468. Hoar Report to Heritage Bank, November 27,1989
 Details drawn from FBI interview of Michael Patrick Smith, 1/29/1992 17 handwritten pages
 FBI Interview of Michael Smith, page 11 He said the committee was comprised of Dick Covell, Bob Mahar, RS?. Joe Whalen, Kurt Hertsfeld, Bob Carroll, Bob Gelinas and Dave Bartle
 FBI Interview with Mike Smith, page 6
 MAK interview with Shearer
 ‘Poison pill’ plan adopted by Heritage
Union-News (Springfield, MA)-October 13, 1989
Author: NANCY PICCIN STAFF: UNION-NEWS (Springfield, Mass.)
 ‘Lessons from New England Bank Failures” Richard E. Randall, VP Federal Reserve Bank of Boston, May 31,1993