The Heritage Bank Scandal
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On the Dark Side
The renowned opera singer Jenny Lind visited Northampton in the nineteenth century, newly married and bubbling over with happiiness. She walked about town, savoring the views toward the south and the east, and pronounced Northampton, “A paradise.”
Here words were a gift that kept on giving over the years, through good times and bad. Maybe it was back then, but a century later, in the 1960s, ,the whole valley was economically stressed,. The war was over, and many of the factories that had fueled our prosperity were moving south. Supermarkets and malls were taking business away from downtowns There were quite a few empty storefronts on Main Street. . Paint was peeling, and porches were sagging. Slum clearance was talked about for the lower stretches of Pleasant Street.
I came down from Wesst Chesterfield in in the winter of 1978, I think. The job market was brutal, and after I can through most of my u unemployment, I took what was that particular morning, a job aat Yankee Hill Machine inn the Bay S taate neighborhood of Floreence. The cutlery had died, but Yankee. Hilll carried on. It was a hellish job., tending milling machines and chuckers. It was 500 good parts a hour or you were gone. This is the place that was in the Gazette not long ago when they announced that the old mill building was now going to be a grow place for marijuana. You work in a factory being beat down by a brutal foreman you undersrstand where the bread and butter of organi. zed crime cused to omes from. You need a little hope of things going your way and playing a number, paying your trip threes or betting on the horses is So help me God. I went in the door in the fall and didn’t break out of there until late summer of the following year. se milling mchines and chuckers. . The second shift got ou after eleve, and we all went over to Cantwells, alias the Bucket of lood, to have a couple of drinks before last call.. I wrote some short stories about that time. Until Yankee If you aree on my website you can click on this to ge t there. The job at the VA wasn’t much better than Yankee Hill, but Ben, the God-lkeke night foreman told me that I was one the few success stories he had heard about in his six years at Yankee Hill. Mostly the old timers just disappeared, You need diversions, you need hope that Lady Luck will smile on you this weekend. You play the numbers or bet on the horses.
A little of your paycheck goes to support the gaming network run by the family. , A writer friend of mine who was getting by as a short order cook at the old 29 1? re staurant on Conz Street The morning I was there the place was full of thugs, hoodlums. Sldiers, whaver. They were all big guys and it only took four or five of them to fill the place up, talking loud and having a wonderful time scarfing down homefries and big rashers of eggs and paycakes.
The working people in Northampton hung on during the tough times hustling to keep the warn out machinery at Pro Brush running . There were arson fies and an”old boy” type of corruption. Before there was a Fitzwillys, before Northampton became a destination for the campus crowd, before the town turned to progressive politics and had a Gay Pride parade, Northampton was just another rundown city on the Connecticut Rives, rfactory town on the shores of the badly polluted Connecticut River.
The Hotel Northampton, once the pride of the Chamber of Commerce and Smith College, had fallen on hard times. It had flourished during the heyday of the railroads, but the railroad companies were merging and often going out of business. Owner after owner o the hotel came and went, and the hotel’s fortunes steadily went downhill. In 1978, Holyoke businessman Marco Marinello bought it for scrap value and shut it down. Valuable antiques disappeared; pipes burst. Wiggins Tavern had become an Italian restaurant and barroom run by the late Danny Constance, a tough ex-cop from Holyoke. Danny was partners with Marinello, and he was Marinello’s eyes and ears up in Northampton. He rented a group of rooms upstairs for $1200 a month to Probation Officer Billy Nagle and his Honor Court, whose men were renovating the hotel without pulling the required permits.
In 1974 the legendary Roger Kerwood completely remodeled a seedy bar on lower Main Street. On the bottom floor of the office building that once housed the offices of Calvin Coolidge, Kerwood went to town, knocking down walls and building a mezzanine level with cozy hideaways. Hanging from the ceilings were all kinds of funky antiques and commercial artwork. Kerwood 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 for shoppers and people looking for nightlife. McCallums, a vast department store on Main Street, died and became Thorne’s Market. There was live music being played by nationally known acts at the Iron Horse thanks to Eric Suher. With the college crowd now 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. The old Bay State Hotel became the home of trendy restaurants.
In 1977, the police were hit by a scandal when two officers, Donald Roy and Luke Scanlon, were convicted of responding to a late night break-in at the Caldors department store by locking the doors behind them and stuffing their squad cars with stolen goods. In the wake of this and other scandals, 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, maybe with the Staties.”
It was a different age. The politics were conservative and city council meetings were occasionally punctuated by shouting and quarrels over turf issues and personalities. In the old days Northampton neighborhoods had well defined boundaries. Most wards had their own councilor, thein own school, variety store and park. I came onto the city council in 1989. Everybody tuned in on Thursday nights to watch all of us go at each other.
My adoptive hometown reminds me of the fictional world of the novelist Raymond Chandler. Northampton was a smaller version of Chandler’s “Bay City.” A nice little town with lots of secrets. There never was a hint in the Daily Hampshire Gazette that organized crime figures were active in our town and that one of our classiest restaurants, Beardsleys, was the headquarters of a regional gaming operation. Even when Felix Tranghese, a “Capo” in the Genovese crime family, bought the building next to the police station and turned it into a gourmet Italian restaurant there was no hint of problems in our town. A “Capo” has either orchestrated or committed a contract killing, and has the rank of a captain, heading up a crew of Mafiosi who run gambling games. commit extortion, hijack truck shipments and get involved in other crimes. When a mobster buys a building next to the police station it says that the mob is comfortable and safe here.
After college and a siege of cab driving in Boston, I found Northampton in 1978. It was quite a while before I got a half-decent job. For about five years I worked in various factories and the VA.
It was only after getting into community politics that I began to sense a problem behind the nervous joking at city hall. There was the building inspector who checked to see if there was a bomb under his car, a planning board that acceded quietly to demands that their porn store have “R” rated display in our neighborhood. The escalation in property values in the eighties brought a time of greed and corruption into our valley, and attracted the attention of the connected guys from the North Shore and Rhode Island.
. The 1970s were wild and wooly years in Northampton nightlife. Lots of partying, gambling and drugs. That era ended with a crash on May 13th. of 1978 with the death of a black UMass student and part-time waitress, Seta Rampersad. A late night party started at closing time at the Captain’s Table and then went to the Castaways, a strip club in Whately, and ended up at a motel room at the Motel Six in South Deerfield where there were drugs and sex. When the medical examiner called her death a possible homicide, the scandal hit the papers. It scared straight a lot of prominent businessmen and politicians who had partied and gambled with Gus Perfito at his regular game down at the Hilton. Businessmen who gambled with Perfito sent their wives out of town until things settled down. An inquest was held in Greenfield on November 13, 1978, and used to be on file at the Greenfield Superior Court. It was a disturbing document. All that was really proven by the inquest was that there was a lot of bad behavior in that hotel room. The “older man” in the party seems to have been “Jimmy the Greek”, who owned the Castaways. Most of the people at the party were people who worked at the VA. They failed to get Seta medical attention when she collapsed and had a number of seizures. An ambulance was not called until about one thirty in the afternoon of the following day, and the medical examiner termed her death a possible homicide.. Rumors flew, and there was an organized cover-up starting with the District Attorney closing the inquest, and refusing to reopen it or indict anyone in her death. The manager of the Motel Six was gone the next day, the Captain’s Table was shut down, and drug tests from the inquest disappeared. The record of the inquest disappeared from the District Attorney’s office. All that the affair demonstrated was that in the 1970s if a young black woman died under mysterious circumstances, no one will be held responsible, and the evidence will be destroyed.
The predecessor of Heritage Bank, the Northampton Institute for Savings (NIS), held one of the commercial mortgages on the Captain’s Table. It’s president, Dick Covell, lent aggressively to bars and restaurants, and those ventures had a high mortality rate. NIS ended up foreclosing on the presumed owners, Gus Perfito, Steven Kloc and Robert Czelusniak, the Registrar of Deeds. At the one year anniversary of Seta’s death on May 15,1979, a rally was held in front of the Northampton courthouse and a petition was presented to the district attorney, Thomas Simons, asking that the case be reopened. There was no response.
Over the years, Northampton has had more than its share of bank troubles. People in the Victorian era sometimes kept their savings in five or six passbook accounts, all at different banks. Banks frequently failed, and there was no FDIC to recompense depositors. There was the First National Bank headquartered in the regal Art Deco building at the corner of King and Main Streets. Born in 1928, it died in the crash of 1929. There was the million-dollar bank robbery that cleaned out the Northampton National Bank in 1876 and the simultaneous failures of the Hampshire County National Bank and the Hampshire Savings Bank. Their president, Lewis Warner, skipped town after embezzling $90,000 from one bank and $150,000 from the other.
In the 1950s the NIS was like most of the old banks that lined Main Street. They all 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 back then 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.
When Heaphy retired, Dick Covell would take the bank into the twentieth century, opening up the bank’s first branch on North King Street. It was our family’s bank, and always served us well. The troubles with the bank were in commercial lending. The new NIS did promotions, and competed aggressively for deposits and loans. Its Main Street headquarters was remodeled and expanded, and another branch opened up in Hadley. In 1978 NIS became the first bank in Northampton with cash machines. As the bank grew, 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.
“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. I remember the head of Rotary said to me, ‘Have you met that new president of NIS? We’ve got to get him over here to Rotary, get him involved. We’ve got all these projects 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.” Sullivan added, “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 of the Gazette, 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 fined a dollar. 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 Hotel Northampton Affair
“What had begun as a community improvement project ended as a disaster.”
Chuck Johnson, Smith College
In 1980 Dick Covell was fed up with the state of the Hotel Northampton. It was shut down and the heat was off. Windows were boarded up. The plate glass front and gleaming white portico on today’s hotel would come along two owners later, when the architect Tris Metcalfe and the rumors of some fresh money would fix it up. In 1980 it was just an aging railroad-era hotel with smallish rooms and a general lack of amenities.
Local developer Eric Gross floated a plan to convert most of the upper floors to condominiums. Covell roused businessmen and bankers against his proposal, and Gross found he couldn’t get a dollar anywhere for his idea. Working with the Chamber of Commerce, he took a dormant corporation, the Northampton Development Corporation (the NDC), gave it new leadership, and started to raise money. Its offices were at the Chamber of Commerce. 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 Marco Marinello, and then sell it to a group who would fix it up.
Three of the toughest guys in town roadblocked the Covell plan. Marco Marinello, Danny Constance, and Billy Nagle. Marinello ignored Covell until the mayor and a big group of city officials inspected the hotel. Marinello was hit with a condemnation order, and 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 fifteen 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 might have picked a local developer, but he went to Boston and tapped people with State House connections. The Robert Warren Associates had been organized just eleven months earlier, on January 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 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, the Northampton Hotel Associates stopped all payments on its obligations. The partners never hired a reliable 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. More management turnover, and the Oak Room Lounge was born.“
The borrowers got furious at what they 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. Afterwards, local people started 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 smart guys hang out, there was probably a little check mark and a note on their map next to Northampton: These people will give you millions if you promise to rebuild their old hotel.
The trend in banking in the valley during the 70s was the acquisition of partners. 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 of the Amherst Savings Bank and supported the first 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. 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 that sells their 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.
The Jump into Commercial Lending
Early in his tenure, Covell got into a number of deals with Wayne Alderman, a Holyoke banker who pulled together consortiums of banks to finance housing developments that started losing money because they were electrically heated. There was an energy crisis, and the price to heat these apartments skyrocketed. He hired David Shearer to do damage control. Shearer had twelve years of banking experience and a graduate degree from Harvard.
In the fall of 1982, Dick Covell ran an ad in the Gazette for another loan officer. Mike Smith answered it. He was 26 years old, a big strong handsome young man who had grown up playing sports 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 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 become a major borrower from Heritage and got indicted for bank fraud.
“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 in June of 1988.
“Shearer was the force that kept the lid on Mike.” said an Heritage appraiser. “ He kept him from going wild, I think. As long as he had to answer to Shearer, he was ok. Shearer was an older guy; he had an advanced degree from Harvard. But maybe that’s a handicap to survival 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 into 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 ran 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. ‘ ”
As time went by his loan authority increased. Every two years he got promoted. He went from Assistant Vice President to Vice President to Senior Vice President. 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, Mike 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.
Covell wanted all the bank officers to be more marketing oriented. He brought in. a consultant, Sara Griffin. 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. Covell’s push to take 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 reported record earnings since the merger, and their surplus 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 becoming publicly owned institutions. Between 1984 to 1992, ninety-eight New England savings institutions converted from being old fashioned mutual savings banks to being organizations owned by stockholders, “resulting in large influxes of often redundant equity capital.” Heritage Bancorp 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. There were almost 90 Dick Covells in New England 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.
So 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
“Even back in 1982, you could see the warning signs of a bank getting out of control. Senior people had promised a lot of people in all the merging banks that they would keep their jobs, but there was no need for two controllers, or two treasurers or two accounting departments. There were even two presidents. There was all kinds of confusion and bad feelings. When I came back to Heritage NIS in l986, I spent six months just straightening out the fundamentals, like getting our tellers to balance out their accounts the same way. We had to write off about $150,000 of bad loans. We’d find a big check clearing and nothing to back it up. A bank officer would write someone a loan without creating a file.”
“Following the Initial Public Offering. (IPO) we got 60 million in three days. $60 million. Say you got $60 million one day, what would you do with it? And guess what! Now you have new bosses. You are responsible to stockholders who want a return on their money. At the bank the day after the IPO, though, things hadn’t changed. We still had our old bosses; we still had the old crew of people that were all mutual savings people. They were good at dealing with home mortgages, but they were green at commercial lending. And there was no way in our area of the state that we had the kind of normal home mortgaging work that night have absorbed that kind of money. ”
“Oh, he used to scare the hell out of me. He came in, in a bad mood, and he’d start yelling. This wasn’t right, that wasn’t right. He’d threaten to go to Covell, he threatened to fire me more than once. . And the hell of it was that to the customers, he could do no wrong. He walked on water. Of course, they loved him. He never asked any questions, never raised any objections. Want to finance a widget factory in Hong Kong? Great idea. Oh no, no problem with your not knowing anything about widgets. And to Covell he was his original fair-haired boy. His son and Mike went to school together. Covell hired him practically right out of college So we were all at his beck and call,
buttering him up all the time to stay on his right side so we could rise up the ladder too.”
One of Mike Smith’s office staff
The May 1986 board meeting was a critical one for the bank. Dick Covell told David Shearer that there was no loan business going to be transacted at the meeting and that he need not attend. Shearer was about to be fired. His side ventures in Watertown, New York real estate were headlined in a newspaper and some board member clipped out a headline that highlighted his ambitions to be a millionaire, and sent the article to all the board members. As early as l983, Shearer had been speculating in Springfield area real estate through his corporation Seven Springs Inc. Dick Covell and Mike Smith were launching their own real estate ventures. Covell had already started to invest with board member Doug Elder in l985, in Lakewood village in Southwick. He was also a 5% general partner with Elder in Kensington Apartments in Sarasota, Florida. Shearer never saw the train coming until it had run over him. The next morning, he was called into Covell’s office. Shearer recalls that he was in and out of his office in about ten minutes. Ten minutes and his banking career was over. The way Covell told it, his outside activities in real estate were getting in the way of his job.
A board member who attended the critical board meeting said that the real issue was that Shearer was “getting in the way” of the loan program. He wasn’t a socializer and a glad-hander. Young Smith, for all his faults, loved to get out there and meet people and sign up new clients. And Dick Covell wanted one thing out of his commercial loan section; He wanted double-digit growth; he wanted to get the bank into the hottest part of the real estate business, Florida and other resort areas.
By 1986 many Northampton people were making fabulous money on real estate. Everyone would watch the real estate closings, and go crazy with the escalating prices. In the 1976 Northampton phone book there were just a couple pages of lawyers; by 1983 they filled the yellow pages. This new generation of lawyers would have these leisurely breakfasts and long talks at Jakes, which was right next to the courthouse. They’d have coffee and bagels at the Bagel Deli. The talk would be of real estate and the deals going on, of Mike Sissman and his ever-bigger deals. When he bought, financed, and developed a project called Millbank on the south side of town, everyone buzzed.
Jeff Dwyer, one of the movers and shakers in town, gave him “The First Annual Big Balls” award for “walking where angels fear to tread.” The award was bestowed on him at the Hotel Northampton by the mayor and witnessed by a crowd of applauding bankers, developers, and businessmen. To put together a development was where it was at for Northampton in 1986.
The eighties were the glory days for entrepreneurs, builders and developers. Paul Britt was all three. He was a cagey character out of the GQ magazine, always tanned, usually driving a BMW or Rolls Royce, a couple of days of stubble on his cheeks to show his true feelings about establishment behavior. He had an admirable disrespect for us politicians. One Christmas morning the front doorbell rang and here was Britt with a big elaborately gift wrapped package for me “Merry Christmas!” says Britt and departs, waving goodbye and jumping into his car. And speeding off. And what was in the package? Gleaming little lumps of coal all packaged lovingly in their own compartments like fine chocolates.
Britt didn’t want to talk about his adventures during this period. I would see him on the street, he would wave\ and smile and go on. He did a beautiful job of renovating Tepper,s an old five and dime store on Pleasant Street. IN X-CESS was his corporate name; the sign is now down on the wall next to the men’s room in Packards. I could do this too, these lawyers in town thought. But it was harder than it looked. Development requires a whole arsenal of hands-on skills.
Donald Todrin had found a friend in Mike Smith, and began dropping in on him regularly. The first property deal was developing a parcel in Amherst near the University of Massachusetts. The development would become known as Tanbrook and the corporate vehicle was “TSL” Here is Richard Egbert, counsel for Irving Labovitz, speaking at the Heritage trial.
” TSL” starts because Donald Todrin goes to Michael Smith and tries to borrow more money from Heritage Bank. He goes to him and says I have this proposal to build these condominiums in Amherst. Will Heritage lend me the money? Smith, who is always thinking, says to him, no, I can’t lend you the money. You’re not worth enough money. So sorry and sends him off. Todrin goes back to his office. Smith calls him back and asks for a meeting. Smith says to him I can’t get you the money. I got these two guys in Springfield, Labovitz and Shrair. And I know they want to invest in real estate projects. They’ll put up all the money. You don’t have to put up a dime, Todrin; I don’t have to put up a dime but want in on the deal, I’m Mike Smith. But we got these two guys in Springfield, Labovitz and Shrair, they want in this business and they want real estate development, and here’s the deal. I’ll get them to give you the money, millions of dollars, and if they don’t have it , they can go borrow it. I’m Smith; I’ll take 25% of the deal. Todrin, you get 25 percent of the deal, and Labovitz and Shrair get 50 percent of the deal for putting up all the money. Todrin says, okay with me; Smith says okay with him, and Smith ultimately goes and sees Irving Labovitz and David Shrair, these two sharp lawyers in Springfield, Massachusetts who know everything about lawyering and not a whole lot about investing.”
Northampton is a small town, and there is very little you can get away with without people noticing, and probably talking about it. The commercial and legal and political world used to be pretty well focused in about four or five city blocks in the downtown area, and a few restaurants outside downtown. You can’t have an affair in Northampton, or if you have it, it will probably become a choice tidbit passed around and elaborated on. People will see the two of you together, and even if there is nothing going on, they probably will think there is. One night the late Mike Sissman saw the three men who ended up being key players in the secret partnerships that did so much to bring the bank down. They were having dinner at the Inn at Northampton. (formerly the Hilton) He said he realized right away that something was terribly wrong at Heritage Bank.
“Well, here they were at their table plotting.” Mike said. “There’s Donald Todrin, Irving Labovitz, and Mike Smith. A lawyer already renowned in our town for his shady dealings, the bank’s counsel, and its chief lending officer, all buddy-buddy. Something was happening.”
According to Shearer, Irving Labovitz made his initial approach to Covell by leaking the news to him that an important borrower was about to declare bankruptcy. The message to Covell seemed to be: If you hired Labovitz, you got protection from these over-leveraged people. He also went to Covell in the early eighties pushing a plan that would put Heritage in the then-lucrative field of northern New England real estate by helping him create HCC. (The Heritage Conveyance Corporation) The wave of second-home development in New Hampshire in the eighties paid off big in the short term for Heritage.
After Todrin and his TSL group started building the Tanbrook condos, they decided to do another project: converting a nice old piece of row housing on Clark Avenue in Northampton to condominiums. Like a snowball running downhill, the partnership gradually added members as they got into other ventures. Patrick Goggins joined the group for Clark Avenue. Todrin indicated to his associates that “for Pat’s information, as it has been in the past, it is our practice for the partners identities to remain un-named to the public.” It had the tone of something written by the senior partner in the group. These partnerships, Clark Avenue, Parsons Brook, Tanbrook, and Investment Partners would cost the bank $8.5 million in losses.
Todrin knew that most people sitting on bank boards never look deeper into deals than the paperwork in front of them. If you have the signature on a document from an appraiser saying your old apartment house was worth $600,000, that was good enough for them. When Mike Smith needed an appraisal that would bump up the potential value of a big development, he put in a call to Smith & Reynolds down in Springfield. Tom Butova did a lot of work for Heritage during this period, and the FBI later wanted to see almost all of it.
I talked to Jeff Reynolds, founding partner of S& R and he said he felt badly about the poor quality of Butova’s work. He took some of the responsibility for Butova’s bad appraisals.
“I encouraged all my independent contractors to go out and develop relationships with people, and I knew that he had a close relationship with Mike Smith, and I would see a lot of correspondence coming through from Mike to Tom. At that time we had 10 or 12 appraisers working full blast. But I didn’t review thoroughly the work that he was doing for him, and to that extent I’m responsible. I’m head of the agency. “
“In the ski business we call projects like Cummington Farms ‘monuments.’ To make money, you can’t spend too much on the building. All the floors and windows at Cummington Farms had to be replaced. If the Rockefellers or Donald Trump were funding the place, the work would have been perfect. The spacious horseshoe shaped building was completely rebuilt almost from the ground up. The system of trails they built were one of the nicest cross-country trails in the United States when they were completed. Craftsmanship run wild. The design was stunning. Ski people from all over the Northeast came in to see Cummington Farms.”
Tom Beggs, Former Partner,
The principals in Cummington Farms came from Northampton, Amherst, and Hatfield, places that are not bothered with ledge. You can usually dig a cellar in Northampton without blasting powder. But up in the high bogs and meadows of Cummington it was a different matter. The garden that flourishes in Northampton perishes up in these bony hills. Northampton and Amherst planning boards were loaded with friends of developers and realty people. Up in Plainfield there was a deep-seated distrust of developers and developments of any sort.
Alexander McCallum, a nineteenth century businessman, owned McCallums, the Northampton department store that would later get resurrected as Thornes Market, a key element in Northampton’s downtown revival. He thought that modern dairy methods could generate jobs and prosperity in the poverty-stricken hilltowns. He bought up several farms in Plainfield and Cummington, and in l917 he turned the acreage into a modern dairy farm, complete with a huge beautiful barn roof and a whole network of outbuildings built around a large court. The floor in the barn was a soft mixture of cork and concrete to make the walking around and the standing around life for the cows a little easier. The beautiful farm and its high silo were visible for many miles around.
“McCallum’s folly” some locals called it. This ambition of McCallum’s had been cooking for many years, but when the farm was fully completed in l919, he was an old man with only a few years left to live. He had poured hundreds of thousands of dollars into the venture, but no hilltown farmer wanted it. His estate ended up selling it in 1924 to the August family, who resold it for $15,000 to a group of people who turned it into a summer camp for Jewish children from the New York area. For the next fifty years the 300-acre property passed through five owners. The years were hard on the magnificent old buildings, and the place was remote. Route Nine passed about four miles to the south, and access to it was by two narrow ill-maintained roads. Most of the buildings weren’t heated during the winter, and rot, field mice, and weather took their toll.
The Dawson family from Connecticut bought the property in l975, added another 300 acres, and for the next ten years they ran it as a cross country skiing area and vacation resort. There were hot air balloon events and concerts. In the l977/78 period they had snow from early December to St. Patrick’s Day, and about 45,000 ski visits. They had good years and bad years, but there were too many bad years, and the Dawson kids eventually threw in the towel trying to keep the place going.
Three years after Graeme Dawson died, his widow Jean walked into the Goggins and Whalen office in Northampton and put the property on the market. Her daughter Dale Dawson remembers having dinner at Fitzwilly’s with her mother and Goggins realtors Denny Nolan and Charlie Dole to talk about the price they were asking, and their insistence at not taking any paper back. They wanted a cash sale, with no delays while people got their permits. They knew any development up there would face rough sledding with the Plainfield.
“I remember,” said Dale, “We told them that the land wouldn’t perk and that rezoning in Plainfield wouldn’t be easy. After years in the hilltown real estate business, it wasn’t anything new to them. Actually, I liked both of these guys , and trusted them and I remember kidding with them about their big shot boss, Pat Goggins. ”
The Cummington Farms development would encompass two facilities, Cummington Farms and the Berkshire Ski Basin, both of which were being marketed by Goggins & Whalen in the fall of 1986.
The Basin was a smallish ski slope 9 miles west of Cummington Farms. It was similar to many slopes created in New England in the 1950s. Handicapping its growth was an FAA-managed aircraft control tower on the top of its mountain. For years the Basin had been run on a shoestring by the Ruth Brown and her husband, both of whom had been on the U.S. Olympic team in the fifties. The pay at the Basin was minimum wage, its equipment was held together with spit and bailing wire, but it had a friendly kind of communal atmosphere. Ski Basin loyalists, mostly families, came back year after year. After her husband died, Ruth Brown put it up for sale. When a hairdresser from Connecticut, Edwin Waszkelewicz, wanted to buy the ski slope, Ruth Brown introduced him to Ken Bowen, who had been an enthusiastic skier at the Basin, and was on the NIS board of directors.
When Edwin walked through the front doors at 109 Main Street, he got the red carpet treatment from Dick Covell. Ruth Brown’s mortgage with NIS was in default, and the prospect of getting rid of that default through selling the ski area to this young guy probably gave a bad idea some plausibility. Covell introduced him to David Shearer, his head of commercial lending.
David Shearer had private doubts about lending him money. Edwin had neither experience nor much collateral. A NIS appraiser found him standing by his cubicle one morning. He didn’t look too happy.
“Should the bank give money to the Berkshire Ski Basin?” he asked.
The appraiser was surprised that he was there asking him, and the way he was asking it made him think that Shearer didn’t like the idea. So he gave him his honest take on the situation.
“Look at it this way,” he said, “Does it have snow-guns? No. Is it going to make money? I don’t think so. Some businessman from Springfield wants to go skiing on a Wednesday. Just to take off the day has cost him money, let alone all the money for the equipment. So is he going to the Ski Basin because its only forty minutes away when he could go to Mount Snow, ski on some challenging slopes and have everything perfect? You tell me. Being close by is not that important anymore.”
Shearer nodded, and went away, presumably to go to the Board of Investment meeting and be on the losing side of an argument with Bowen and other people. The bank gave Waszkelewicz the money to purchase the ski area and sent him over to Attorney Donald Todrin to help him work up a business plan and financing.
Don Todrin usually had more things going on than he had time for, but he liked to keep the welcome mat out for new clients. He did a pro forma for Waszkelewicz that made the Berkshire Ski Basin look like a winner. It probably snowed all winter in his pro forma. Todrin becomes his 10% minority partner, and he cuts himself in for $5,000 out of one of the NIS notes for advertising help for the Basin, The following November he co-signs a $49,000 note for him.
But up in West Cummington the weather for skiing is miserable, two of the warmest winters on record. Edwin couldn’t make payments to the bank and fell behind on his taxes. The second season there was an early cold snap and the Ski Basin opened up on December 9th. But then for the all-important Christmas vacation, it rained. Then it turned cold again. During the February school break, it rained again. “We kinda broke even. ” said Waszkelewicz.
The third year when the snows finally came, the bank wouldn’t give him any more money. The bank sent him over to get some engineering help from Huntley Associates to prepare a plan for his development. He saw his ski resort attracting New York area buyers for second homes. Huntley told him and the bank that a full scale engineering and market study was needed. Ed went before the town of Cummington asking for their OK for his venture. The local people liked having the jobs and tax money that the Basin represented, but some of them didn’t like the idea of second homes up there. The development would more than double Cummington’s population, and the development would be about 10 miles from their fire station. When the town sent out questionnaires seeing what voters thought about his idea, the message was mixed. 1/3rd were against it, 1/3rd were for it. 1/3rd wanted more information about his development plans. This is where things start to get murky. Edwin said the town didn’t tell him about the vote, but the bank knew all about it. Then Dave Shearer gets fired. On August 6, l986, Ed Waszkelewicz gave up, and gave Goggins and Whalen the exclusive right to sell the land. He had hopes that the agency would find him a partner. No one materialized. The bank would foreclose on him and, because all his notes were cross-collateralized, they would take everything. Even his car. His wife would leave him.
The only customer that Goggins & Whalen found for the Dawsons was a group of trail biking enthusiasts who wanted it for their hill-climbing meets. The town of Plainfield wasn’t crazy about that idea, and a general uproar ensued. There were no more bites as spring turned into summer and summer turned into fall. Jean started to give up on being able to sell the old farm.
Tom Beggs had seen the drama with the bikers taking place in the Gazette. Tom was a skier and formerly was marketing director at the Mount Snow operation in Vermont. He told his architect friend Bill Gillen that it would be a shame if the area lost Cummington Farms as a cross-country skiing area. Shortly thereafter he got a call from Gillen.
“I’m here with Art Pichette and Pat Goggins and we’re going up to Cummington Farms. Come on up,” Gillen said. The men walked the property, and decided that they wanted it. Beggs told the Gazette that they “walked the site and clambered through the buildings, ignoring how run-down they seemed.”
Jean Dawson didn’t expect any company that quiet Sunday afternoon in the fall of l986. The phone rings, and Charles Dole was on the line. He and Dennis Nolan wanted to talk to her about the offer that their boss was willing to make for their resort. They were driving down that afternoon to her home in Connecticut to see her with the details.
The details were disappointing. Goggins and his partners would lease the land while they obtained financing and permits. Jean said “No.” Her partners were conservative Hartford business people, and would never go along with this lease. She told them that her ownership group wanted a simple sale, with no paper taken back. The two agents poured on the charm and the heat, however, and eventually she agreed to sign the one page purchase and sale agreement, more or less to get rid of the two pesky salespeople.
“Well, I’ll sign it for you, ” said Jean. “But it doesn’t mean anything. It has to have the signatures of our partners to be legal. ”
Unfortunately, it could be argued that it was binding on all the partners. Her partners were furious with her for signing it. On November 17, Pat Goggins and Art Pichette, aided by Attorney Richard Pichette, sued Jean Dawson and the Franklin Associates for a million dollars. It generated headlines in the Gazette and the Springfield Union-News and Jean Dawson and her partners found themselves inundated by calls from reporters.
In February l987, the Goggins partnership went to court and obtained a “Lis Pendems”. This draconian measure enabled the would-be purchasers to take possession; the partnership immediately moved to padlock all the buildings. Dale talked her mom into filing a complaint with the Massachusetts Board of Registration of Real Estate Brokers and Realtors. Mr. Occipinti of the licensing board scheduled a public hearing on the Dawson’s complaint. The board could have taken away Goggins &\Whalen’s commercial real estate license. Probably the most potent threat was the public hearing that would have given the Dawsons a chance to talk about their case with reporters present. Three days before the Board hearing, Pat Goggins contacted the Dawsons and offered to drop the lawsuit and purchase the Cummington Farms property for $630,000. The Dawson complaint with the real estate board would be dropped.
The entity that would lead the Cummington Farms effort was formally organized on May 27, l987. For the next three years, the Cummington Farms Associates (the Associates) met at least weekly, usually in the conference room at Goggins & Whalen on King Street. At a side group meeting that day, Mike Smith informed the group that the Berkshire Ski Basin was going on the auction block and could be acquired by the partners. “t appears,” said the FDIC study of the development, “that a pro quid quo existed. Heritage had a parcel of foreclosed property which Smith needed to sell, and the Associates needed financing to develop its property nine miles away.” Smith had the new partnership between a rock and a hard place. “We had to buy the Berkshire Ski Basin if we wanted the Bank’s help in acquiring Cummington Farms” said a partner who didn’t want to be identified.
On July 1, Smith told the loan committee of Heritage’s Board of Directors that he was meeting with a potential buyer of the Berkshire Ski Basin. Smith was evidently referring to a meeting he was having that afternoon with Art Pichette to discuss a joint venture with the Cummington Farms people. Smith told the Heritage Board of Directors that he would now entertain bids from interested parties, and “was optimistic that no loss would be incurred. ” He made it sound like an arms-length transaction. It wasn’t. There was only one bidder, and the bank officer was a partner with the potential buying group.
The sale of the Ski Basin made Mike Smith look good to Covell and the Board of Directors, but it would prove to be a millstone around the necks of the development group, the Cummington Farms Associates. They would be responsible for two facilities, nine miles apart. Two days before the auction, Tom Butova of Smith & Reynolds provided Mike Smith with an appraisal for the Berkshire Ski Basin. He estimated that the value of the land and four buildings was $350,0000. Up-front costs brought the acquisition price for the Cummington Farms partnership to more than a half million dollars.
In the hilltowns, petitions were being circulated against the development. Tom Beggs recommended that Pat Sackrey, Hampshire County Commissioner and hill town activist, be brought on board. The new owners had a month to withdraw from the agreement with the Dawsons. The day before the deadline, the engineering staff from Huntley Associates, who had done the soil testing, were there at the meeting. The idea behind soil testing is to see if the land is porous enough so that sewerage entering leach fields will drain properly. The Associates wanted to put 150 homes on the property; they needed many acres of leach fields.
According to the FDIC study, Art Pichette told the membership that 5 out of 32 holes that were tested by July 9th were positive (OK). The FDIC found that none of the holes had tested positive. The property was largely ledge, clay and hardpan only a couple feet below the surface. Costa conjectures that Goggins and Pichette (the lead partners) knew that if they withdrew from the deal, the Dawsons would sue them. The study seems to suggest that Goggins and Pichette kept their partners in the dark.
On August 12th, when it was too late for them to withdraw from the sale, their consultants, the Nordic Group International and the Berkshire Design Group, delivered a three-hour presentation on the site. They had been out trudging in the swamps, climbing the rocky hills, and bushwhacking through the dense forests.
The consultants said, “The entire site is characterized by soils which are not conducive to building development “. There was a severe mosquito problem in certain areas, the barn complex was dilapidated, wetlands were more extensive than first thought, and some of the cross-country trails were on abutters land.
The west wing at Cummington Farms was gutted, and Pat Sackrey’s son was told to start lining up contractors for the construction. On June 3 1988, Arthur Pichette reported that out of the whole 500 acres, they had only been able to find a 300 by 400 foot area that was dry, deep and sandy. They could use this area to replace the existing leach field for the main complex. No homesites were perkable.
Pat Sackrey had done a lot of preparation for the joint town meeting held on June 14th. She had sent out personal invitations to residents; she had got the Cummington Planning Board.to co-sponsor the meeting. 175 people showed up. Blanche Beyer from Cummington captured the mood of the people when she said that after driving through Lenox and Stockbridge, “I’m thankful that I live in Cummington. This will destroy the entire complexion of the community.”
On June 17th, the partners sat down and wearily digested the results of the joint town meeting. It had not gone well for the Associates, even though Patricia was said to have made an excellent presentation. The temperature of the meeting was definitely chilly. To many people in Plainfield and Cummington, it looked like the invasion of “the suits and ties”. The threat they made to directly sell lots for single-family homes if they did not get their permits did not scare people. The planning boards would not approve siting any house on land that would not perk. A clear majority of the two town meetings opposed the development, in either of its incarnations. They needed a two-thirds vote to approve it. Bill Stapleton, a Heritage vice-president, attended the meeting, took notes, and the notes circulated.
It was a fundamental turning point for the project. The partners now knew that their housing plans would never be approved, and dropped them. There was no snow, so there was no cross country skiing at Cummington Farms village. On January 13th,1989 Smith looked at the money going out and stopped being “Mr. Nice Guy “. Between October and January, he had advanced $927,000 to the partners without board approval and he had also loaned the operating company $263,000. No further funds would be available from the bank. The partnership would be responsible for meeting the $100,000 a week they were spending. The partners had to come up with $700,000. The partnership of Tom Beggs and Patricia Sackrey broke up, partners Kuhn and Riddle wanted out, and Tom Beggs signed over his interest to the bank.
In early February of 1989, George Dimetras, an auditor in the finance department, discovered that Mike Smith had advanced the project $950,000 more than authorized. Smith got called in by Fridlington and asked to explain his behavior. Smith admitted that he did not believe he could get the proper approvals, so he went ahead and advanced the money on his own.
The merger had brought into the bank a conservative old fashioned banker, John Fridlington. Fridlington and other Heritage bankers, shocked by this revelation, found many more over-advances. They told Covell what was going on. On the fifteenth Smith got called on the carpet. In February a big team of FDIC auditors came in and found that things were not well with Heritage. Almost all of the lending deficiencies they found were in Covell’s portfolio, not in Roy Scott’s. A routine meeting Smith had with Fridlington, Scott, and Covell turned into a tense discussion of why many of Mike’s loan accounts had been adversely classified by the FDIC.
On the eighth of March Covell and Fridlington met with Smith to lay down the law: Fridlington or his assignee would work with Smith on loans to close friends or relatives. Fridlington wanted him fired, but Covell overruled him. It was a key decision that would lose the bank many more millions. Smith still had his checkbook and would use it generously.
On April 28, the bank had its board meeting out at the Cummington Farms property in Plainfield. Before the Heritage Executive Committee meeting on May 10, Covell was pressured by Goggins and some of the Associates for more money. Costa’s report suggests that the Associates threatened to sue Heritage for failing to follow through on further financing. A bargain was struck. The Associates didn’t sue, and the bank got out of its direct equity involvement in the project. Heritage gave the associates an additional $2.35 million, provided that the loan was secured by an additional $1 million in collateral. The bank also agreed to buy back the Basin at Butova’s inflated price. They poured a lot more money into the project even after all the indicators pointed toward a massive cool-down in the red-hot real estate market. New England was overbuilt, just bulging at the seams with unsold condos. Like Smith, the bank had become the prisoner of the project. Left unfinished, Cummington Farms would be worthless.
The Cummington Farms Associates closed on their $5. 1 million dollar loan on June 9, l989, but two and a half months later, they were already running out of money. The last invoice they paid to Berkshire Design was dated July 26th. On August 24th the partners decided to put off paying their subcontractor bills, so they would have some money left for the expenses they were going to incur in the opening months. Between December and March of l990, liens from disgruntled contractors started to be filed against the Associates.
On the phone with me one night one of the contractors who lost the most money on the project was reflecting bitterly on why his firm had gone out on a limb and ended up paying a supplier thousands of dollars for materials during the summer and fall of l989.
“I mean,” he said, “who was doing the ordering? Pat Goggins! There shouldn’t be any trouble getting paid, should there?”
“At least,” he said, “there was one decent person in that group. A couple years ago young Whalen wrote me a nice note and sent us a check. Not a really big check, but a significant amount of money. He said he wanted to be able to sleep nights. ”
A White Christmas at Cummington Farms
“Those were hard times for me. I was new in Northampton, going to Holyoke Community College studying hotel and restaurant management, and living hand to mouth. I saw an advertisement in the Gazette for a front desk job, and was interviewed by Pat Sackrey, who at that time was in charge of room reservations.
The place was beautiful. The rooms were really luxurious, and many of them had living rooms and lofts with king size beds and views. They were nicely decorated, with decorative stencil work running around the walls. The owners had kind of grandiose ideas about what they were going to do with the place. I was shown plans for adding 50 more rooms in a new building, putting in a swimming pool and a 18 hole golf course. During the summers they were going to use the network of cross-country trails for jogging and running.
I started in October, when the leaves were changing. It was very quiet, those three months. I worked the 2 to 11 and during the week there was usually no one staying there. No one at all. The only person who ever called most nights was my girlfriend. I’d leave the desk now and then and wander around outside. The restaurant was usually dark and empty. There was a chef, maybe one line server, but no customers.
The worst part of it was that there didn’t seem to be any plan by the management as to how they were going to bring customers in. The calls I remember receiving were from people from New York, New Jersey, or Connecticut, from people who had seen the ad in the New York Times. People would inquire as to the basic rate. At the time I think it was $124 a night for the European plan. They ran it more or less like a bed and breakfast. There was no cable, but the guests could rent movies from the front desk.
I only remember one night being busy; it might have been Thanksgiving. I had to bring my own meal. They never supplied any. Winter arrived. It was cold in some of the rooms, there were electrical problems, and one night a pipe exploded in the lobby and ruined all the stuff we had in this old-fashioned cart where local merchandise was displayed. There was no snow. They were trying to get the place going, but they were very disorganized. They purchased snow guns to lay down man-made snow on the trails. I heard a lot about John Sackrey, Pat’s son. He was in charge of contracting, and he would have people come in and do jobs and not pay them. I never really saw him doing anything. He hung around and gathered dust, like me.
If a customer wanted more information, there was no basic brochure to give them on the hotel. Pat Zachary kept saying one was coming, but after awhile I knew it would never arrive. Out on the highway there was only one tiny sign like you’d have for a tag sale, and no sign at all where the road forked at the top of the hill. People would get lost and end up in Plainfield. It was a rough sell to the sophisticated clientele they were reaching out to. People wanted to be close to restaurants, activities and nightlife.
Christmas arrived. I had to work Christmas Eve and Christmas day, the whole bit. We had all of Bill Cosby’s uncles and aunts and cousins there. I remember all the kids coming down and looking for videos. The Cosbys had them over for Christmas dinner to their place in Shelburne, but they needed places for them to sleep. Really nice people. Bill and his wife came over to check on everything, and I think they felt a little sorry for me, being all alone in that ark during Christmastime. I think they brought me over dinner.
To take the curse off things, I invited my girlfriend up for Christmas eve and we slept in the most expensive room in the house, the silo room. Beautiful place with a gas fireplace, a sitting area and a circular staircase. $240 a night. Boy, was the place cold. My girlfriend was shivering. The snow was drifting under the door and you could see your own breath. I got a ceramic heater going, but it was still cold. I ran around and found a second heater and plugged it in. All the lights went out. And I mean all the lights, everything in the whole wing. Just one set of breakers for everything. I imagined all the Cosbys sitting there in the darkness, wondering what the hell was going on. I ran downstairs with a flashlight and found the breakers and turned everyone back on. I tried the heater again, and it blew out the juice again. . Three times the lights went out. Finally I gave up on heating the place. I found some towels in the maid’s room and stuffed them under the door and we huddled that night under three or four blankets, shivering and giggling. It was a long cold night.
They closed in January. The final day they gathered us together in the small conference room by the dining room. Pat Goggins, Pat Sackrey and Peter Whalen were there. They told us that the lack of natural snow had killed their finances. They would have to close the inn. They wished us well. A month later we had a major snowstorm and a couple more storms after. I half expected them to reopen, but that was it. After it closed, I heard that all the subcontractors got nothing.
Goggins, Whalen & Smith?
Pat Goggins and Peter Whalen now held 63% of the Cummington Farms project. While the loan was being restructured, Smith was negotiating a side agreement with the two men to purchase of a one-third ownership in Goggins and Whalen. Did signs ever get ordered with the new agency’s name? Goggins, Whalen and Smith?
The agency had grown phenomenally since their days on Crafts Avenue, and that growth during this period can be directly traced to the open checkbook that Smith had on his desk. He had made twenty loans to the principals of the agency or the agency itself . The full total exceeds $13.1 million. According to the FDIC auditor, he had also given his brother-in law releases on condos B and C at 71 King Street without receiving a pay down on the principal.
The cash in hand to the Associates after the closing was going fast. Four months later only $12, 100 was left. The bedrooms were all finished, but empty.The fracaso that killed the bank, more than anything else, was the extravagance that the Cummington Farms directors showed in ordering a shipload of classy furniture with no money in the accounts. Smith, pushing his luck as Dick Covell’s protégé, kept writing checks. At first no one noticed. His activities finally caught the attention of George Dimetras, the bank’s auditor, and about the only hero of this story. His report to senior management lead to Smith’s fall from grace and a federal audit. The sky was falling. There was still a bill from the furniture supplier for $219,400 due. Smith wrote the furniture company that Heritage had set aside money to pay the bill, but the check was never sent. The thunderclouds were forming. Board members were angry following the release of an internal memo that documented substantial deficiencies in 57 Smith loan files.
“How could you fuck up so bad?” yelled David Fogel, board member.
On January 8th, Heritage finally acknowledged that the associates were in trouble, and held a loan workout meeting. On January 17, l990, four months after it had opened, the directors of Cummington Farms gathered together their staff and told them that they were closing.
“In 1992, Pat Goggins and Peter Whalen settled on their $3 million they had in guarantees for a pittance, $110,000 and $100,000 respectively. Heritage felt that it had to settle for any reasonable amount as Smith had released the guarantees of Goggins and Whalen with no consideration provided.” Was a $100,000 payment a :reasonable” amount to settle a million dollar guarantee?
I got the following story from someone who does not want to be in a book on Heritage Bank. “Bill” used to work in a gas station in Burgie. In his idle moments, which he had quite a few, he watched Pat Goggins drive by on his way up to Cummington Farms. Up in the morning, back in the afternoon. He says that when he started the operation up there, Pat was driving a Jeep. When it was all over with and the development was in bankruptcy, he was driving a Land Rover.
I ran into a guy on the street a long time ago that talked to Mike Smith at the YMCA one day and three days later got a check in the mail for a plane he wanted to buy. A couple weeks later he got a somewhat embarrassed phone call from a woman at the bank saying that she couldn’t find any paperwork on this plane purchase. Could he please come in and sign a note?
“Oh,” he said, being a kidder, “That money? I thought that was some kind of promotional offer from the bank. You know, buy me a plane and I’ll tell all my friends I got my money from Heritage. ”
A long silence ensued, and somewhat chastened, he came in and signed the note.
In the wake of the bank failure, many people wondered where the board was when all the funny business was happening. But when Ed Shanahan, former editor of the Daily Hampshire Gazette, drafted a column for the paper that had in it the names of the board of directors, the Gazette refused to print it. There were too many “good people” on the board who didn’t deserve the bad publicity.
Grand juries always indict because they get all their information from the prosecution, boards go along because they get all their information from management. There were people on the board of directors who steered clear of taking Heritage money, but they were few and far between. I talked with Irene Soucy, who was treasurer of the bank for many years.
“I lay a lot of the blame for what happened on the board. I wasn’t really part of the inner circle at the bank, but I attended enough meetings to get a flavor for what was going on. They were picked because they were the cream of the crop of the communities we worked in, but since they were all hand-picked by Dick, they took Dick’s word for everything. They would troop in, eat their sandwiches, and then leave. “
“And Dick gave them very little information. It was all very general. Everything is fine, everything is fine. Very few of them ever asked intelligent questions or conalbuted anything. They saw their role, I think, like an honorary position.”
The critical executive committee that Mike Smith said more or less ran the bank was dominated by developers and friends of developers, and partners of people who were doing business with the bank. The members were Dick Covell, Roy Scott, Bob Mahar, Joe Whalen, Kurt Hertzfeld, Bob Carroll, Bob Gelinas, and Dave Bartley. Covell and Scott were staff. Whalen was co-owner of Goggins & Whalen and a partner with Pat Goggins. Heritage held more than $15 million in mortgages and notes in ventures where Joseph Whalen was involved.
Robert F. Mahar was President of The O’Connell Companies, Inc, the biggest developer in the valley. Heritage wrote more than a million dollars in first mortgages on their Hampshire Village development in Amherst. David Bartley, besides being a former speaker of the House and President of Holyoke Community College, was also a director of CSB Development Corp, a subsidiary of Heritage holding that held a 75% interest in the Indian Ridge partnership in Wilbraham. Only Kurt Hertzfield and Bob Carroll were free of entanglements. All of them were paid well to be on the board, which from l989 on, was meeting in ritzy surroundings in the Holyoke board room. Outside directors received $350 per meeting attended and a $750 quarterly retainer. In. l990, there were 15 regular meetings of the board. If you attended all the meetings, you would receive a stipend of $8250 from the bank.
There was little oversight. The lack of structure to loan meetings meant that officers like Smith could ram things through. There was no written policy for funds management. The FDIC commented that “The absence of such a policy in a $1. 8 billion dollar bank dependent on purchased funds is extraordinary.”
A woman who once worked as an assistant branch manager at Heritage raised her eyebrows when I said I was working on a book about Heritage.
“Oh, if I could just talk, I could tell you a story. And you know, when all this craziness was going on, all of us branch people were being held right to the line. My lending limit was nothing, $5,000! And we had to make sure we dotted every” I”. It was two worlds, Heritage. One for the peons, one for the higher-ups.”
During the eighties, Jim Raymond and Roger Atwood used to see Pat Goggins, Mike Smith and Irving Labovitz having breakfast together at the Northampton Hilton,
“They met almost every morning, all during this period,” said Dick Guisto. “Jim Raymond and Pat fought hard as competitors do, and they never got along. Jim, knowing Pat’s feelings, loved to go in anywhere he wasn’t wanted. He’d go right over to where they were sitting, and his voice would boom, ‘What’s happening, Pat? How’s business?’ “As soon as he got close to them, they would stop talking and Pat would bolt down his shutters and stare at nothing, not saying a word.”
I double-checked the story because my source was no fan of Pat Goggins. Jim Raymond had passed away, so I went to Roger Atwood, who owned Northampton’s second airport, a dirt strip that paralleled Route 5 south of the dike. In the sixties Route 91 arrived, and they put the interchange right on top of his runway. In 1999 he was a Northampton institution, a living time capsule, sassy and cynical, living in a small Cape on Hubbard Ave. He got his start in aviation in WWII by training Navy pilots to fly at LaFleur.
I decided to try pushing him off course in case Dick was exaggerating.
“How often did you see these guys there during this period?” I asked him, “A couple days every now and then, or maybe three days a week?”
“Oh no,” he said, “More than that. Almost every day, they were there, always talking quietly.”
Down at the LaFleur airport sometime after midnight on February 16, 1983,young Robert Borucki was trying to make a phone call on the pay phone. The airport is in the meadows area of Northampton next to Route 91. It’s your standard country airport, a tar strip, a scattering of planes and hangars. In winter, it’s a desolate place. After hours, no one is around. A neighbor who usually walks around nights and keeps an eye on things was out of town on vacation.
The way Dick Guisto, one of the owners of the airport at the time, tells the story, Bob was trying to call a friend, lost his money, got angry, and tore the phone off the wall of the hangar. Borucki was a troubled kid, a shabby quiet loner from a rural background who hid behind a big bushy black beard. Someone who might have been a schizophrenic. Someone who brooded a lot about the state of the world, who had been hospitalized out at the Northampton State Hospital, and now was living at Northampton Lodgings, a brick building on Pleasant Street close to downtown. going to meetings, and taking his medication. Norma The graduates and drop-outs of Northampton’s mental institutions have always given our town a certain odd flavor. Just as many five college graduates stick around the area after graduation, so did many people from the Northampton State Hospital and the Veterans Medical Center in Leeds, which had a big in-patient and out-patient mental population.
A counselor who knew him told me that Bob hated the airport. Guys in his program had talked about it and how the heroin and cocaine that was a big part of street life came through Lafleur on light planes flying in from the islands. Staring down at the wreckage of the phone, he saw something glinting on the ground. A key, with a tag attached. On the tag was a woman’s name, and plane registration number. He walked along the rows of parked planes, and found the right plane, and unlocked it. Inside, he found the starter button and cranked it. The engine wouldn’t catch and he got angrier. Nothing was going right.
Sitting next to the plane was a truck with a plow on it. It was open, the keys were in the ignition, and he got behind the wheel. All he could get out of the battery was a feeble groan. He remembered that the plane had a good battery in it. Bob was handy the way farm kids are, and took the battery out of the plane and put it in the truck and turned the key. It sprung to life with a roar, but he had forgotten that it was in gear, and it smashed into the woman’s plane. As the fragile plane crumpled under the plow, he realized what he had come here to do, to wipe out drug dealing at the Northampton airport. In the next hour he roamed the taxiways of the little airport like an avenging angel, leaving piles of twisted wreckage behind him. Before he was done he had destroyed 23 planes, many of them old Cessnas and Pipers lovingly restored by their owners.
About three in the morning, a policeman on routine patrol discovered the carnage. In the morning the truck could not be started, and the plow was jammed in the down position. Bob was arrested, arraigned, and sent to Bridgewater for observation. His war on drugs was over. Later, I think he was found not guilty by means of insanity, and committed somewhere.
Dick Guisto said that there were a lot of coming into the community through LaFleur in the eighties. The airport was wide open nights, when no one was around. He had many meetings with the Drug Enforcement people and federal prosecutors trying to get a handle on it. One dark night he was sure there was something going on out on the far end of the runway, near the river. Getting his Ford Bronco out, he crept down the runway, with his lights out. He stopped, he listened; he could hear the sound of people talking. He opens up the Bronco, turns on the headlights, and here glaring in his lights was a plane, two cars, and two men carrying rifles. He jammed on the brakes, pulls a screaming u-turn, bounced off into the surrounding fields, and made for town, the drug dealers in hot pursuit. He finally managed to shake them down on King Street, and hid out the rest of the night behind Dunkin Donuts, about a hundred feet from my house. All the drama never woke me up.
The drug of the eighties was cocaine. Powdered cocaine was the pure stuff that is supposed to make you feel invincible and holy and a little racy and euphoric. There was cocaine addiction and then there was being high on property values. You were richer every day. It was the eighties and there were parties and openings and groundbreakings. People were on a roll, building major projects and taking enormous risks.
Donald Todrin brought a deal to one of my friends, a Northampton lawyer of the old school, and my friend read his prospectus with some foreboding. He pointed a pencil at one paragraph in particular that offended him. “I see cocaine here.” he said, “Right here in this paragraph.” and Todrin lost his temper and swore that he had been clean the last six months. Maybe he had, and maybe he hadn’t. The prosecutors in the Labovitz knew that some of his substance abuse had to be admitted to up front.
“Until several months ago,” they said, “Donald Todrin has been a casual user of marijuana for the past ten to fifteen years.” Casual or formal, dry or wet, clean or dirty, there is the mindset that went with that druggy age when boom times are so luscious that they seem like they will go on forever.
Someone who worked for the Rostoffs told me that whenever the Rostoffs met with them, they were always trying to sell their “sure-fire deals.” The lawyers at Crafts Avenue, with businessmen Matt Pitoniak and Ed Kamansky, started buying things from the Rostoffs. When they were all through there was a mountain of paper with their signatures on it. Total Heritage exposure to the ventures of the Crafts Avenue group (Pitoniak, Gervais, Kaplan, Gliserman, Washburn, Feeney, and Kamansky) was enormous, a grand total of more than $24 million. It was a lot of money for a group of small town lawyers and businessmen to borrow. The businessmen in the group, Matt Pitoniak and Ed Kamansky managed to hold onto their ventures, the lawyers by and large, couldn’t or wouldn’t. Many left town.
Maybe the lawyers on Crafts Avenue felt the lure of the open road and high times. They wanted to get away from this stifling little hothouse of a town where you met the same damn people in the street two or three times a day. Maybe they were bored with closings, wills and small time clients. They wanted to be flamboyant and adventurous, they wanted to own restaurants, winter in the islands, and become big shots like the Rostoffs, who were throwing money around and driving better cars than they were.
One of their acquisitions was the Flat Street Nightclub in Brattleboro, Vermont. Dennis Smith, who was partners with the Rostoffs. He ran their dining operations. He also had converted an old garage in Brattleboro into a nightclub during the early eighties, when Vermont was the only New England state where you could drink at 18. It proved to be a tremendous draw for Northampton and Greenfield high school kids. They’d rent a hotel room for the night, and dance and drink at Flat Street.
It soon became clear that Vermont was going to up its drinking age to 21. Dennis Smith and his family sold the club to the Rostoffs (dba Paul Revere Realty) on February 14th, l986 for one dollar. The Rostoffs went out and got two mortgages, one for $200,000 from a bank, and one from North Star Properties (Dennis Smith and his family) for $150,000. The sale bumped up the value of the club. You sell a club whose fortunes are declining to your partner for a buck, stick some real and some phony paper to push its apparent value up, and market it to these Northampton lawyers as a sure fire investment.
On May 27, l988, at a meeting of Paul Revere Realty (the two Rostoffs and James Harris) at 8 Crafts Avenue,Northampton. They sold the club to Gliserman, Gervais, Kaplan and Washburn for $700,000. That same day the lawyers get a mortgage from Mike Smith for $700,000. In a 1988 inspection, a Anthony P. Piriano is listed as the owner of Club ESD, which was the management vehicle. 
All that is clear was that during the period the lawyers were the defacto owners of the building, the people that ran the club didn’t pay their taxes. There were liens from the state for past due withholding and sales and room taxes totaling $22,000 for 1988 and l989, and a huge federal withholding bill for $106,000 for l990. The l989 FDIC audit for Club ESD revealed $2.4 million in outstanding loans to the partnership, no financial statement on file, and no appraisal for the property on file.
The Flat Street venture had the hallmarks of a classic mob-type operation. Guys with connections to organized crime team up with a corrupt bank official and convince a group of lawyers to act as the front guys, and a syndicate runs the club. Much of the cash flowing into the club is skimmed off and the people running the place fail to pay their taxes, fold their operation, leave town and leave the bank to hold the bag.
The Hub Club
The Hub Club” was in the north end of the “combat zone” a tough place full of strip joints, video arcades, and even houses of prostitution. Go up a back street and you would have found all these big RVs with Florida plates parked on back streets. By 1999 the neighborhood had not been cleaned up, despite the best efforts of the Boston Globe, big business, and Suissehotel, who opened a new multi-million dollar hotel right across the street. When I saw 533 Washington Street it was the Club Joy. The sign on the door told you not to bring weapons into the club. it was closed up and dark, faux fluted golden columns, chairs piled up. A note on the door said it was open on weekends only.
Mike Smith loaned his college roommate Ira Sutton and a group of investors $9. 4 million, and $7. 9 million of this had to be written off as a loss, a record 84%. The Hub Club, a limited partnership, operated this club. Soon the place was wearing all kinds of paper including liens and agreements. Then the trouble started with the police and licensing board. Many Friday and Saturday nights in the summer and fall, there would be huge unruly crowds spilling out into the street at closing time. The licensing file in the city archives was about an inch and a half thick, full of incident reports. Then the venture collapsed about two years after it was born. The original owner forecloses on everybody.
Ira Sutton, who talked the bank into investing in the Hub Club, also helped broker their investment in Saco Island, a speculative development scheme to rebuild and market 1 million square feet of old factory buildings on an island in a river in Saco Maine. The idea was to attract more affluent people from the Portland area who were priced out of the high end Portland suburbs.
They bought the land and buildings from the city, got $9 million in financing from the Yankee Bank in Boston, but then the bank went under in October of 1987, choking off their financing. Andrew Ross, the developer, went to Ira Sutton, and Ira Sutton mentioned Heritage Bank as a source of funding. In 1989, Heritage bankers John Fridlington and Jack Patterson had a conversation with Ross when they were trying to renegotiate the Saco Island package of loans. Heritage only had a second mortgage to secure their investment and some personal guarantees that turned out to be worthless. At the time the bank got involved, FDIC was already threatening to seize and auction off the property. There was, Ross said, “things that Heritage doesn’t want to know about” or “things in the woodpile” regarding the loans. He refused to provide the two men any further information other than to describe it as a “very nasty situation”. There had been a “finders fee” paid to someone at Heritage Bank. A bribe. Who got it, how much it was, and if it was shared remains a mystery. The project was a body blow to Dick Covell because he and other top officers took a personal interest in the project and went up there to Maine to evaluate it.
The late Mike Sissman talked to me in September, 2000 in his new maple kitchen on South Street. He was chunky, ageless, humorous, excitable, given to jumping up and walking around as he talks.
“The first thing you got to understand, was that Mike never offered me any of his deals. Heritage always made me work for my money. There were no favors to me. I never got a break from those people. Other people got the deals. Why no favors for me? What did I do wrong? I guess I wasn’t part of the club. I was a Jew, I was an outsider. I wasn’t Irish, I didn’t love to drink. I worked for the money, sweating out little $60,000 deals with Lucille Cernak in two hour meetings before the bank would give me a dime. They wanted all the ‘i’s dotted and the ‘t’s crossed. I would pay one point, maybe two. They loved me down there at the bank because they made big money off me. “
“This money Mike Smith got from people; it was chump change. Stanley Labovitz gave him, what $50,000 for a $2. 1 million deal? Oh God, that’s not a bribe, that’s a tip. If someone was going to give me $2 million and wanted a bribe, I’d give him a hundred thousand at least. Not that I ever bribed anybody.
David Shearer was my first banker. I started with $26,000 in l972, buying a house in Williamsburg and then I bought a printing business, Heron Press. I did letterpress work for Smith College. Later on I worked as a blacksmith, doing old-style forged iron hinges and ornamental work. My work made the cover of Antique magazine. I had plenty of little real estate deals. Smaller buildings on Green Street, the building where Sylvester’s was.
“Then in l985, I started buying real estate in Springfield. A year later I owned ninety apartments and had about $750,000 in equity. In 1986 I made $1. 1 million on a gross of $6 million, making most of my money on short-term sales, buying buildings, fixing them up and turning them over to condominium owners. Most of the time I had to deal with these private financing sources, at rates that were just this side of usury. You know, from 18% to around 25%. I didn’t mind at first, because I needed the money. But then the pressures got enormous, and I had this one deal where the guys I was dealing with were threatening to take my building away from me as their price of helping me out with capital. When I got into this jam, I went into Shearer’s office at NIS and he listened, and he helped me get my first commercial loan at normal bank rates.
Shearer was a joy to talk to, because he was smart. I love to deal with people that are smarter than I am. He was a great analyst, Harvard trained. He could deal creatively in real estate. He could understand what I was trying to do, and he’d say sensible things. “What you really want to do is this,” he would say. He had some vision. He usually would get the idea right away of what I was shooting at. But he’s a kind of stiff guy. He’s not a schmoozer like Mike. “
I really had to work for the money I got out of the banks, and the deals had to be economic no-brainers. When I would come into the bank, I had all the construction contracts in place, and the exact figures of how much the project was going to cost. I did the cash flow analysis; I would have appraisals, a detailed pro forma, how the cash would be spent, and how the cash flow would go. . It always had to come in within the bank’s requirements, and it always did. I had, in my hand, 30% presale of my units pre-sold, so the bank knew they were going to get their money.
All my deals. I loved to dream up these complex deals, like with Millbank, where I borrowed $1. 1 million to do the project. I had umpteen cross collateral arrangements, hypothecation, you name it. Crazy mortgage schemes. When I was selling the condos at Millbank place, I acted as the bank in the deal and loaned two of my purchasers the $240,000 they needed to buy their units and I could pledge these mortgages as collateral. I’d be in there all the time at Heritage talking about buying this or that. Breaking the ice with Mike Smith was hard, because he was so green. When Shearer left, I had to sit him down and explain a deal that me and Shearer had worked out. He had a hard time understanding things. He ended up changing the deal and really didn’t understand what was going on. .
But he was a good guy. ‘What do you need?’ Mike Smith would say. And he would listen. Lucille Cernak was always the cautious one, the conservative one who would look at the details and ask the questions. It would go on and on, and finally Mike would say, ‘ Oh for Chrissake, give it to him, Lucille. ’
So, things were roses until the whole market crashed and you couldn’t sell a condominium to anyone. I never thought the market would go as low as it did. I thought I could ride out the storm. I remember Irving Labovitz all right. I ended up selling off my Orientals and antiques to pay back Heritage. Then I sat down with the Bank of New England and learned that they wanted $350,000 in cash from me. They would work out a deal and rewrite the remainder of the loan. Irving was representing the bank. I sold all my silver to pay them off. Then the other people left the room, leaving me alone with Irving.
“You know, Mike,” he said to me in a savage tone, “You’re a goddamn sucker to pay the bank back. “
That stuck with me for some time. Maybe I was a sucker, but people remembered that I paid them back. I moved to New York and bought a Fifth Avenue condo, and then that deal crashed. Eventually I came back to Northampton without a dime in my pocket. I ended up going back to Lucille Cernak at the Coop Bank for the money for this development, and she listened to me and gave me the money I needed because I had gone in and cashed out everything to pay the bank what I owed them. When the money is easy to get, it’s not worth much. When you have to work really hard to get it, you’re more likely to make the deal work. ”
When the money was pouring in, it seemed that nothing was going to go wrong. In the fall of 1988, when Investment Partners was getting organized, Mike Smith and Irving Labovitz and their wives took a walk on a parcel of land they hoped to develop in Greenfield.
“We talked about down the road, both of us owning property there and living next to each other, and him being a judge and me being a bank president.”
Mike Smith, September 2, l997
The Franklin County Courthouse in Newport, New Hampshire is in the center of town, a big old church-like structure. The registry of deeds is small and friendly and was still uncomputerized when I was there. There were whole walls of bulky cobwebby books straight out of the Dickens era. A scrivener’s delight. The data in these buildings is a pathway into the shadowy world of the men and women who wheel and deal in real estate. It’s where you have to file your intentions. You can see who the players are, who is financing what, the joys and troubles, the acquisitions, the attachments and liens as trouble hits, the ignominious endings when the bank or the FDIC moves in and forecloses on you.
The lawyers that prepared the so- called Hoar report for the bank came up here in l989 trying to nail down the source of the persistent rumors that Mike Smith owned a condo in the Lake Sunapee area. They found no Mike Smith in the index and they went home empty handed. There was, however, a luxurious condominium on the lake owned by The Dutchman, Inc. a New York Corporation doing business out of 8910 Third Avenue, Brooklyn, New York.
The Brooklyn address belonged to G & H Leasing, a firm owned by Jeffrey Anderson. The relationship of Mike Smith and Jeffrey Anderson started in September 1986, when he gave the Andersons a $150,000 mortgage to buy their home in Northampton. There were six million dollars in loans over the next two years. The heaviest traffic was in June, l988, when Mike loaned him 2.7 million dollars. Three months later Mike and his wife purchased this Sunapee condominium using a $50,000 cashier’s check from G&H Leasing. Thereafter, G&H issued monthly checks to the Dutchman from July 9, l989 to July 2, l990.
The FDIC examiner noted dryly, “It appears that Anderson and G&H Leasing, in addition to providing the down payment, were also making monthly mortgage payments (about $3,000) for Smith on the condo. Anderson was not a shareholder of the Dutchman, nor did he have a second mortgage on the property.”
In l987 Anderson gave Smith an envelope containing $8,000 in cash during a meeting at Wiggins tavern, and for eight months, between l987 and early l988, Anderson paid Smith $2,000 monthly for a mysterious “Texas Project.”
“The Dutchman” is a nickname for Mike Smith’s college team at Union College. Mike was both president and secretary of Dutchman, Inc. At first the corporation was sited in Brooklyn, then it was in Florence, and finally in Milford New Hampshire, where he moved after he lost his job at Heritage.
Sunapee was a regular clubhouse for some of the big Heritage borrowers, many of who came up here in the summer. Just above the Dutchman listings, in the grantee index, I see “Duseau”. Armand Duseau, alias Buddy Duseau. And of course there is a big Heritage mortgage on his summer home. And then I looked up Bill Wood, Buddy Duseau’s partner in Calduwood Enterprises, the corporation that used to operate the Northampton landfill. He has a house here too. Buddy Duseau was a major figure in the Hoar report and the FDIC audit too. Duseau Trucking and Duseau Waste Industries was a big borrower from Smith. Between October of l987 and May of l988 he gave him ten loans totaling more than $5 million.
At one in the afternoon, it was even colder than it was this morning. Only a skeleton crew looks after Sunapee in the winter, making sure that the pipes don’t freeze and access roads are plowed. The parking lots by the cottage communities are empty. Lake Avenue leads up a forested bluff to Indian Cave Condominiums, spacious modern-California style duplexes with shake roofing and cedar siding. Two carports, two doors, two decks. There was a model unit that was open for inspection. Back in the teeth of the condo boom they were going for $350,000; now they have been marked down to $250,000. Three floors, three bathrooms, a big Jacuzzi. Soaring ceilings over the kitchen and living room. The kitchen cabinets have a cheap feel to them, but there is plenty of glass, and access to a heated swimming pool and tennis courts for everyone. The development went belly up in 1990, and the builder bought it from the FDIC. I go out on the deck and look across the lake. Buddy Duseau’s summer house overlooking Dewey Beach is across the bay. He took possession of the condo in October of l988, and the Feds took over the Bank of New England a year later and seized the condominium shortly thereafter. Maybe he got one summer of swimming out of it.
I fantasize that it was the summer of l986 and there was a party at the Buddy Duseau’s house. The ice and snow were gone, the lake was flecked with sailboats and crisscrossed with the wakes of power boats going nowhere in a hurry. Buddy and his wife are putting on a fireworks show on July 4th, and the beach and lawn are thronged with people from all over. Skyrockets fill the sky, fired off from an unseen barge. Mike Smith is the guest of honor. The fireworks drench the skies with color and stun the onlookers. There is applause. Young Mike Smith would feel, perhaps, that he has finally arrived, finally made his American dream come true. In the crowd are scores of people whose projects depend on his financing. He sees what could be, he and his family living the good life with their own summer home here, boating with his Heritage friends on the lake. Mike would wonder who might help him with this dream. He would think of Jeffrey Anderson.
Life in the Tower
Heritage moved to an ultra-modern, boat-shaped tower in Holyoke in June of l989, at long last consolidating their offices in one place. The landlord, thrilled to get Heritage as his prime tenant, had put 1.4 million of his own money into outfitting the executive offices. These digs were meant to be the crowning touch that would make Heritage Bank a truly first-class acquisition for a New York bank.
One sunny morning in l998, I had a couple of empty hours in my work schedule. and so I decided to drive down to Holyoke and try to talk my way into seeing the old offices, which by then were occupied by Pioneer Health, an organization that monitors health care for insurers. Heritage Bank occupied the top three floors of the high-rise building sheathed with imported pink granite and plate glass. It was on the west side of I-91, not far from the Mass Pike, and it overlooked the fast-growing Holyoke Mall to the east. It was the perfect location for a powerhouse regional bank.
That morning it was just me and the guard in the high-ceilinged lobby. He looked at me, I looked at him. I went for the elevator. He took a while to get to his feet, and by the time he got himself organized, the elevator doors closed behind me, and I was zooming up in the glass-walled elevator. The parking lots dropped away, and the hills around us and the vistas of distant towns opened up. The doors slid open to a world of dark elegance.
Oh, the things that mother doesn’t tell you about the corruption of America. This is how it happens. You sell out the little guys who bought your shares for twelve dollars apiece so you can get an atrium lobby with the dark bronze glass, the marble on the outside of the building, the Japanese garden with its pond and walkways, the contract restaurant on the first floor that flips over every three years, the access to Route 91, and all those parking spaces. In front of me was a vast waiting room. In the distance a young blonde sat behind a raised dais that looked vaguely like an altar. She lifted her eyes to mine.
“Yes?” she said. I told her that I was writing a piece on the fall of Heritage Bank, and that Heritage Bank was once headquartered here, and I wished a tour of the offices.
There was dead silence. “A tour?”
I rephrased the request; there was more silence. She went to consult someone, and then came back. The inner reception area was huge. Any furniture Pioneer Health had placed in the area was dwarfed by the scale of the place. Eventually a man’s head popped out of a doorway.
“A tour?” he asked, and laughed.
The young man was intrigued with me and my story. He confessed that his company felt a little guilty about the ostentatious quarters. He explained that the offices had been vacant for some time, and Pioneer Health got a terrific bargain because the landlord was desperate to get an anchor tenant.
We began the tour. First, he showed me his medium-size office and his desk, piled high with papers, and a wall of cherry cabinets behind him, where he had stowed his CD player. We moved into the inner office areas. Deep velvety carpets. A phony sky above us was ivory and light blue. The whole area was superhumanly quiet. We entered the conference room, where the board of directors met. Along the room’s north end was a mahogany wall that rolled back at the touch of a button to reveal a screen and built-in projection apparatus. There were arched ceilings and hidden lighting. My guide said that Pioneer had shortened the huge conference table Heritage had left behind. It was now ten feet shorter. A long line of leather chairs surrounding it. We looked into the smaller conference areas, which also had built-in screens and computers that rose at a punch of a button out of custom cabinets. It was all first class.
“Look at all this,” said my tour guide, sweeping his arm. “Not a hollow-core door in the place.”
He gave me a quick peek into one of the executive offices, and it was huge, truly fit for a king. Douglas Auctioneers had the liquidation sale here on June 29, l993. Paintings, prints, photographs and sculptures— 450 pieces in all were auctioned off. The main attraction at the previews was the opportunity potential bidders had to view all the luxurious appointments – the custom- built walnut and cherry furniture, the golden chandelier and the antique china cabinet in the executive dining room. People trooped through Dick Covell’s bathroom, oohing and aahing at the fancy features and gold hydra-headed fixtures in the shower. My guide showed me one of the bathrooms, but not one of the executive bathrooms. I saw the bathroom for the secretaries. It too, was first class. Only months after the bank moved into this building, the bank began to disintegrate. When Mike Smith left the bank, a healthy percentage of his customers stopped paying their notes at Heritage.
Through the years the bank had grown haphazardly. No one pruned it back to make the system work better. Dick Covell, ever the genial politician, loved to say “yes” and assure people that no one would get hurt as the bank swallowed one bank after another. There were two of everything at one point or another, and that meant a fair amount of infighting and lack of accountability. Two controllers, two treasurers, and for a year or two, two presidents, Roy Scott and Dick Covell. Co-presidents in name only. Dick Covell from a Northampton bank was the boss, Roy Scott from Holyoke was not. Covell kept operational control of lending and administration, mirroring the unequal status of the two communities.
Northampton was the successful small metropolis, Holyoke was not. Northampton had Smith College, part of the prestigious Five Colleges network. Holyoke had fires, poverty, and mills that emptied out in the fifties. But Scott’s loan package was conservative and solid. The bad paper came from Covell’s portfolio. Only a very small portion of the defaults came from Roy Scott’s Community Savings Bank. Scott evidently ran a pretty tight ship. He was one of the few people at the bank who stood up to Mike Smith and gave him a hard time at loan meetings. Smith hated him.
With his bank gone from under him, Scott busied himself by buying art. With all the offices that the newly merged bank now had, there was plenty of room to hang paintings and display sculptures. Springfield antique dealer Janice Thronja had Roy Scott as her dream customer. It was buy, buy, buy.”
The Voice from Accounting
I interviewed “Anna”in 1999. She asked to remain anonymous. She worked in accounting and was laid off just before the regulators arrived and shut the bank down. She said there was a lot of fear and craziness as the red ink rose every month.
“It was late in the game, and everyone was gasping for air in accounting. They had already written off 28 million in assets. One day after I got back from my regular vacation, a senior executive called me into his office and told me that there was a problem with the so-called GAP report [which estimates the asset-liability ratio] that went out monthly to the FDIC. “
“That puzzled me. I wondered what the problem was, because a number of people had worked on it, and I assumed that maybe there were a few little errors in it. Well, I looked at it and there was a big problem with it. They had taken all of our junk [i.e., bad loans] and put them back in the report. They overstated the portfolio. They made the case that the bank was making money instead of losing it. We were keeping two sets of books at the time. One told things as they really were; and the other one was for the FDIC. When I first came on the job, one of the VPs was fudging everything. There was no thought given to the implications of what he was doing. I realized that I could be the fall guy when the FDIC came after us. They’ve altered one of my reports. If they were doing any kind of trend analysis at the FDIC, they would have already spotted it as a sudden spike. All of a sudden one month the bank is profitable?”
“Look, you’re just out of college. You want to propel yourself up in the world. I only have an accounting 101. I call a close family friend who is in banking and I tell him what is going on with the reports and ask him I am doing wrong by doing the reports and what the FDIC would do to me. He’s a smart person. He doesn’t answer my questions but keeps knocking my questions back to me. ‘What do you think is going on? Do you think it is wrong?’ What he was saying without saying it, was that if you’re asking me, you already know that these things are wrong.”
“So I go in and tell one of the top executives what was going on. He wants me, a lowly analyst, to go in to the head of accounting and tell him that his report is screwed up. Tell him he messed up. We had an argument. It was his job to tell Bob that he had messed up, not mine. ‘No,’ I told him, ‘I’m not going to do that’ but he ordered me to, so I went into his office and told Bob that boss had suggested that he please check the call sheets and make sure the GAP number was correct. “
‘What do you think it should be?’ he asks me, and pulls out the call report and then he says, ‘Oh my God, it’s 2.9. It’s asset sensitive. It says we are cutting a profit.’
“But we aren’t. “
‘It wasn’t that important,’ he says. ‘Don’t worry about this, the FDIC would just give us a slap on the hand.’
One day Roy Scott came to see her.
“He wanted to know, from me no less, what the problem in the bank was. He was upset because he felt that people didn’t approve of what he was doing. A supervisor in the accounting department had complained about the $1,800 brass candlesticks that he was buying.”
“Roy was misreading history, I guess. He thought that during an inflationary period, the safest investments that the bank could make were in antiques and art. So we bought the candlesticks and the Deborah Rubin watercolors. And the Frederick Remington stuff. I have to wonder why Roy, being the president, knew so little about what was going on at the bank.”
Mike Smith resigns
Mike Smith gave the bank his resignation on August 1,1989. There were mounting concerns at the board level about his people defaulting on their loans. The persistent rumors that Smith owned condominiums in Sunapee, New Hampshire and the Virgin Islands, led the bank to retain the law firm of Goodwin, Procter & Hoar to conduct an “independent, confidential review of the loan portfolio of Michael P. Smith.” The lawyers had access to the loan files and the audit, but were forbidden to talk to outsiders, and the text of the report would be a closely guarded secret, even during the federal trial. Lloyds of London in their civil suit argued that bank management did not want their attorneys to know the full extent of what was going on. Covell even forbid their talking to Mike Smith.
The FDIC conducted a second examination of their books in March. Louis Gonzales, who headed the audit, found many unauthorized loans to Smith’s friends and relatives, including Pat Goggins. Smith had loaned $20 million over his lending limit. While the audit was underway, the bank realized it had a problem with its Worcester office, which was also experiencing a tidal wave of delinquencies.
On May 11, l987, 43 year old Manuel Duarte had been hired to run their commercial lending office in Worcester. When he came over to Heritage, all his business with Ward Limousine came with him, including a number of loans and lines of credit with other banks. Six days after he was hired, Duarte gave the Ward people a $60,000 loan collateralized by a 1987 Cadillac limousine. When the FDIC investigated Duarte’s portfolio, they found two invoices for the Cadillac. The real one showed its purchase price at $56,000, the inflated one showed $73,000. According to the Wards, Duarte encouraged them to write him a phony invoice so he could give them more money. Duarte would be under Mike Smith’s supervision.
In March l990, John Fridlington studied Manuel Duarte’s $60 million portfolio. Realizing that his record for lending was as bad, if not worse than Mike Smith’s, he asked for his resignation. In April, Fridlington hired Alfred Dean, a former banker, to do an in-depth review of his portfolio. Going through his desk, Dean discovered this bundle of checkbooks with a rubber band around them. The names on the checkbooks were relatives and friends of Manny’s biggest clients. The signature cards at the banks all had Manuel Duarte’s name as signing for these people. Rather than go to the loan board and try to argue for expanding the credit lines of overextended clients falling behind on their payments, he had created loan agreements for “straws” ( i.e., people whose sole purpose is to provide cover for the principals.) When the loans came due, Duarte would get out the checkbook and pay the loan from the “straws” loan balance. A week later Fridlington cancelled his severance pay. In September of 1990, Dean submitted a final memorandum, outlining even more egregious sins. He had allowed lawyers, especially Stanley Labovitz, to do their own closings, and write their own loan documents. The FDIC found $110,000 of unexplained income (mostly cash) that he deposited to his personal bank accounts. They strongly suspected, but could not prove, that he was getting kickbacks in cash from his clients.
All this bad news from Worcester couldn’t have come at a worse time. An audit was going on. The Chief FDIC examiner, Louis Gonzales, thought for a while that he was seeing the ceiling on their losses. There was a slight falloff in the number of delinquencies, but then Fridlington told Gonzales about Duarte’s checkbooks and the massive losses that had just cropped up in the Worcester branch. Concerned that that they might have another Smith on their hands, Louis Gonzales told a discouraged Dick Covell that the bank was in apparent violation of minimum capital requirements and that, by definition, the bank “was deemed to be engaged in an unsafe or unsound practice.” Gonzales also filed a report of an apparent crime that Michael Smith might have committed, and that brought in the FBI.
In June, the word came in that St. Paul Marine and Fire was considering non-renewal or cancellation of their bond. The word was out in the financial world that the bank’s financial situation was deteriorating. Heritage’s insurance broker, Gordon Langan, recommended that Heritage go to Lloyds of London, which was actively seeking insurance business from distressed American banks. St. Paul’s worked out a deal with them that if Heritage would just go away quietly and sign a release exempting them for claims, St. Paul’s would not issue a notice of cancellation, which would make it much more difficult and expensive for Heritage to get insurance coverage elsewhere.
The senior bank officers were desperate to get a new insurer. Signing the application to Lloyds of London were Covell, Joe Barbato, Senior Vice President for Operations, Everett Peterson, Assistant Vice President for Security, and Frederick Schluter, Chief Financial Officer. The form informed bankers on the cover page that they were required to fill out the form fully and truthfully, and omitting negative information would void the contract.
The bank had omitted from the application all kinds of relevant information that it had an obligation to tell any firm considering whether to insure them. In 1998 Judge Ponsor, in his 27-page opinion, cited a number of legal precedents that indicated that contracts are null and void when a bank lies or omitted relevant information from its disclosures. “It is important to remember that the bank was hiding damaging information about the very officers whose good faith the defendants were being asked to insure.”
Judge Ponsor found for Lloyds of London, who had been sued by the FDIC for $15 million to cover the government losses. They were off the hook. Lloyds of London. and the documents that the FDIC had put together to document their case were now in the public record. The FDIC, in this civil action, fell victim to the same contradictions that doomed the Labovitz trial. It tried to cover up the responsibility of senior bank officers for the bank failure.
“You know, it was poisoning me for many years after I left Heritage,” said a former Heritage official who asked to remain anonymous. “I left when it was still the NIS. Seeing the decline and destruction of what I had known to be a very good bank. A lot of those people who were working there went on to other banks. And they are doing well. Competent, dedicated people like Bill Stapleton, Lucille Cernak, Nancy Huntley and Joe Guercio. At many levels, the bank worked well. At the branch level, everything was reviewed. Everything was done carefully. The problem was not that bad loans were issued, but they were issued knowing they were bad loans. It was the looting mentality that killed Heritage. In the wake of any natural disaster you’re liable to see well-respected well-dressed people looting the store. Here they were looting the bank. In a bubble, if everyone is jumping off the bridge, that is normal behavior. Maybe it is no coincidence that in those bubble times, the cutting edge in sports activities was bungee jumping.”
“At that time Springfield Institution for Savings (SIS, nowTD BankNorth) was in almost as much financial difficulty as Heritage was. It did all the same kind of loans.” The reason SIS survived to become a valuable franchise was Bill Marshall. When their new President came in the late eighties, he recognized that he had to work with the FDIC and not fight them. For all of us at Heritage the Massachusetts banking commission and the FDIC were the enemy. We didn’t understand that the FDIC people held all the cards. We thought that the state examiners weren’t smart enough.
“They were an annual nuisance, get them in and get them out. They’d come in, and if it were summer, we’d put them in non-air conditioned space. If it was winter, we’d put them in the coldest rooms in the building. Anything to get them and their stupid questions out of our hair, the sooner the better.
“The S & L crisis started with the Texas banks, and gradually the FDIC woke up to the warning signs when a bank was going to fail. Over the years the FDIC gradually got to be more knowledgeable, more assertive. We didn’t change.”
A former Heritage executive
A Friendly Warning
Between June of l987 and June of l989, the Rostoffs got $4.05 million from Heritage for the remodeling of the Hotel Northampton.. But the money, about $200,000 a month, was going somewhere else. Things were ordered but not paid for; people were working but not getting paid. The big beautiful rug in the lobby wasn’t paid for. The Rostoffs were increasingly remote, managers came and went. Close to a million dollars in bills were outstanding when the Rostoffs, now based in Boca Raton, Florida, closed Wiggins Tavern on December 14, l989, just before the Christmas rush. Their corporations would shortly file for bankruptcy. Covell would once again have to deal with an ownership group who skipped town, owing everyone money. Now the bankruptcy court was getting set to approve the sale of the hotel to a Swedish businessman, Egil Braathen. Reporters for the Gazette were suspicious, but the editors had them on a short leash. Without travel money, they could do little to investigate the bankruptcy filing.
Bank officer Dan DiLorenzo of the Dartmouth Bank in New Hampshire had filed a search to try to seize Rostoff assets from all their corporations he knew about, including the three Pitoniak/Rostoff ventures used to hold Fitzwillys.He thought the Rostoffs had taken the Heritage money and invested it in Misty Harbor, a big resort development on Lake Winnipesaukee that went belly-up. Looking for evidence on the Rostoffs I began to pester the FDIC with freedom of information requests (FOIAs).
One day I got a call back from the FDIC.
“I believe we might have certain interests in common,” said the voice on the other end of the line. And that call lead to a meeting at Friendlys in Palmer with a fraud investigator from the FDIC. He had brought with him a bulging case file on the Rostoffs, and he let me look at it and make some notes. It was a breath of fresh air after being stonewalled by the FBI, who would take, take, take but would never give you anything. We talked about the Rostoffs. I told him of my suspicions that their sale of the hotel to Egil Braathen was not on the up and up. We agreed to stay in touch.
A couple months later he called me and said that he had been to Florida.
“You were right,” he said, “The Rostoffs and Egil Braathen were more than friends. They were partners.” A case number for a Florida appeals court proved that the Rostoff sale of the hotel was not an “arm’s length” transaction. The Rostoffs and Braathen were partners. The agreement gave David and Steven Rostoff jobs managing the hotel and gave them a cut of the profits. The Rostoffs came back to Northampton from Florida and took charge of the hotel again. The million dollars in unpaid bills from the people who rebuilt the hotel were now toast. And no one said a word. The Gazette was silent, and so was the Republican.
When I next saw him, my friend seemed gloomy about the work he had been doing for the FDIC.
“Well,” he said, “I don’t know what is going to happen with the case I have been working on, this lawsuit we are filing. It’s the FDIC versus Lloyds of London. We’re trying to recover part of the millions that this case cost the government, but if it is dismissed, all of our evidence will go on the public record. If we lose, go down to the clerk’s office in Springfield and get the accession number. It will all be there, everything that will show what actually happened to this bank.”
About six months later, the FDIC investigator called me again and said we had to talk. He was a different person, nervous, agitated and angry. He told me point blank that I shouldn’t have any illusions that anything would happen to Pat Goggins or Dick Covell or the other major players. They would escape charges. He warned me that I should stop my investigations, and that if I kept digging, something might happen to me. He said I didn’t know what I was up against. I was screwing with people that had people killed who got in their way.
He said I had to understand Massachusetts. He said in Massachusetts there was this unholy alliance between law enforcement, prominent politicians and the mob. They all worked together, and they were working together to protect the major players, who had powerful allies in the State House, Springfield and Rhode Island.
“The fix is in,” he said.
I didn’t know why he was unloading on me. Maybe someone had figured out that he had given me the information on this Florida business with the Braathens and the Rostoffs. Maybe his job was on the line. Maybe he was just trying to protect me. I only saw him once afterwards, at Mike Smith’s sentencing. We rode down the elevator together after it was over and he never said a word to me. Only much later would I find out about Joan Andre’s murder, which happened in January of 1993. It must have sent shock waves through the FDIC to have a lawyer murdered who was about to start work at their Massachusetts headquarters.
Many of the things he told me were borne out by events that would happen in Springfield. It was how the State banking commission would deny Labovitz’s lawyer critical evidence, the way so much of the FDIC’s evidence would be heavily redacted, the way that evidence in regard to Dick Covell, Mike Smith and Danny Constance would never be introduced, and the way critical transcripts and tape recordings would disappear.
When all the Heritage money dried up, a miracle of sorts happened. New money appeared. Not from banks, who were all going under, but from two local artists, Peter Laird and Kevin Eastman. Two unassuming guys who had hit it rich in Hollywood with a comic strip they brainstormed back in 1984 here in Northampton. There were movies, a TV series, there were cute toys. The Teenage Mutant Ninja Turtles was popular with kids all over the world, and between 1988 and 1991, the peak years for the Turtles craze, the money just flooded into Northampton and Mirage Studios, the producer of the series. When Danny Constance was facing the bleak prospect of having Beardsley’s taken by the city for back taxes, Kevin Eastman bought his building and remodeled it to be the Words and Pictures Museum that would feature all the greats in comic book art. Founded in 1992, it closed in 1999.
Pat Goggins, Peter Whalen and Mike Smith, the principal partners in Cummington Farm Associates, engaged Fred Fierst and Ken Neiman to represent the Associates when their venture got to bankruptcy court. They both worked intensely for Cummington Farms during the l990-92 difficulties. Fred developed a close working relationship with Mirage, the management vehicle for Laird and Eastman.
When Patrick Goggins and Peter Whalen were desperate to find a buyer for Cummington Farms, Peter Laird bought it. One of the lawyers for Cummington Farms, Fred Fierst, would manage the Swift River Inn (Cummington Farms) for Laird, and put the finishing touches on the facility, which was renamed the Swift River Inn and re-opened in 1991. It had at least three or four managers, and for a while hosted a successful restaurant, but the Swift River Inn never managed to draw crowds big enough to eliminate its deficit, which ran about $2 million dollars a year. It closed for good in October of 1996, and the property was sold to a group that is now running it as a rehab site for young people addicted to opiods.
When the dust settled on the bankruptcy cases, the Federal Bankruptcy Court in Worcester shipped the files to the Federal Records Center in Waltham, where they were archived. The lawyers working for the Cummington people received about $100,000 for their work. Lawyer Peter Stern in his tired somewhat threadbare Springfield offices handled the Chapter 7 closeout for both bankruptcies. On one side of the mountains the billable hours rain down on the Chapter 11 lawyers in Northampton, but when Stern got the files the skies are clear and all the money is gone, or buried in a nice safe place. He’s the guy that certifies that were no assets left in the corporation and closes it out with a stroke of his pen. He collects his modest fee, and things are all over.
It’s nothing new. When human affairs go bust and end up in the courthouse, the lawyers take over. They do the talking and maneuvering; the civilians sit in back of the courtroom and sweat. Checks are made out, notices for appearances are filed. Things that seemed straightforward turn out to be complex and loaded with thorny complications. More lawyers need to be hired to investigate things. And everything that is done must be recorded and billed.
I called Danny Constance in 1999, but he didn’t want to talk to me. “Do you want to talk about the 80s, Danny?” I asked, and there was a long pause. He was thinking seriously about it. “No,” he finally said in this gravelly voice, “I don’t think I do.” He was polite, but firm. I would never meet the man.
On February 1, 1983, Danny bought 138-140 Main Street, an elegant old building. Once a funky little restaurant on Button Alley, its new location was on Main Street a couple doors down from Thornes Market. The building was extensively remodeled. The new Beardsleys had a split identity. On the surface, it was a classy place with an effete elegance symbolized by the Aubrey Beardsley prints and the paintings by Northampton artist Barry Moser. I’m told that there was a small party room on the second floor. It was oak paneled, discretely dark; it was the place to meet for drinks and do deals. But there was another side to Beardsleys. Some nights the talk around the bar might turn to gambling and extortion.
“The guys weren’t very careful,” said someone who was in there frequently. “A fed with a hidden mike would have had a field day.”
The feds weren’t interested, but the State Police were.
The restaurant was an overnight success. The new Danny Constance was the consummate host who welcomed celebrities, state and local politicians to drink and luxuriate in the elegant surroundings and sample his French cuisine. On the top floor was the penthouse he used to entertain his influential friends.
When NIS became Heritage Bank and hit the jackpot, the bank was good to him. Its President Richard Covell and Mike Smith gave him an ever-expanding series of commercial notes secured by the building at 138-140 Main Street. First the loans were secured by the building, then he signed over his accounts receivable and liquor license; there was paper and more paper. The first mortgage to Danny Constance was on February 1, 1983, for $170,000. A year later his indebtedness was $194,000, three years later it was $540,000, on July 12, 1988 it hit $630,000. If you count a big 1.1 million Heritage mortgage on properties he owned in Holyoke with a John Anthony Russo, his obligations to the bank were almost $2 million. Danny boasted that he used to take Mike Smith and Richard Covell out sailing in the Long Island Sound on his boat.
He was an avid sailor. His first boat was the Emerald City, a luxurious Bristol sailboat docked in Chatham. It had all the bells and whistles; buttons would trigger machinery to unfurl the main sail and jib. A favorite trip was over to Block Island for the weekend. Later he owned an even bigger Bristol, the “Sid”, a single-masted sloop, a boat that mysteriously disappeared when the payments on it grew onerous.
“Now you gotta understand how popular Block Island is in summer,” said a friend of his. “Trying to get a slip to moor your boat is like trying to find a place to park near Fenway Park. Well, he’d motor right up to the dock, tie up and the harbormaster would charge over and say ‘You can’t tie up there,’ and he’d sit him down and pull out a roll of hundred dollar bills and start peeling them off.”
“Tell me when to stop,” would say Danny, “But don’t be greedy. One, two three….” Sometimes he’d get to eight or nine hundred dollars before the harbormaster would say ‘OK, OK, that’s enough.’ A thousand dollars to dock his boat he’d consider greedy.
A weekend with Danny at Block Island or Newport was nonstop bar hopping, dinners and partying. And Danny always paid for everything. Even though he dressed terrific for island life in chinos and Allen Edmonds loafers, he didn’t have much class. A friend remembers one day they were docked in Oak Bluffs in Martha’s Vineyard. Two boats down was Walter Cronkite sitting on the fantail of his yacht, placidly reading a book.
“Hey,” said Danny, “lets invite him over for cocktails.” And he did. Cronkite keeps his nose buried in the book. Ten minutes later he goes over and tries again.
“Hey, Wally,” hollers Danny, “What do you say come over and have a few drinks?”
“Wally?” said his friend. “At that minute I really wanted to vanish. Maybe this was the first and the last time Walter Cronkite had ever been called ‘Wally.’ Cronkite just stared at him as if he were a cockroach and went back to his book.
Danny Constance loved to hang out on the street with the deal-makers of the time like Sissman, Britt, and Todrin. His Jeep Wagoneer would be parked in front of his restaurant with a back seat full of unpaid parking tickets. His philosophy was, “Catch me, if you can.” He would charter a six-place Piper Navajo down at LaFleur, pay cash, and fly off to Nantucket on a whim. One trip he went to sleep in the back seat, and woke up to find the pilot asleep too. Danny liked to live large, but he didn’t like to pay his withholding and other taxes. Money was continually getting siphoned out of Beardsleys to support his gambling losses.
Soon Beardsley’s was wearing all kinds of liens. After Mike Smith left the bank, Heritage foreclosed on him, and on February 2, 1992, the restaurant served its last brunch and shut its doors. A year later Danny was still living up in the penthouse. By then Kevin Eastman of Ninja Turtles fame had bought his building and started remodeling it. Look up at the building today and enjoy the gargoyles installed during this period.
Danny Constance’s luck ran out the afternoon of October 13,1994. He was speeding on Route 5 in Holyoke, and a state trooper stopped his white 1990 Jeep Wagoneer. He asked him for his license, and found that the license had been suspended. A tow truck was called. When Trooper Alben looked through the car, he noticed all these slips in the passenger seat. Some of them indicated, “Pays”; many had coded numbers. Alben calls the stop in and trooper Brian Kennedy, who was attached to the Northampton barracks and was working organized crime, recognized the name, and knew what the slips represented.
They had stopped what they call a “banker,” the man in charge of a regional gaming operation. A secret indictment had already been issued for Danny Constance on March 7, 1993. The State Police had been investigating the small fry in this operation since 1991, and found his code number in seized paperwork. An informant told the police that Danny was running a large scale gaming operation out of Beardsley’s. That afternoon, the State Police got a warrant for a search of 140 Main Street. Back in Holyoke Danny arranges for the Wagoneer to be towed, and the tow truck dropped it in the parking lot of the Hotel Northampton.
That evening a delegation of troopers quietly climbed the stairs up to his apartment, and positioned themselves outside his door. A few minutes later the phone rang inside the apartment. On the line was a sympathetic sounding trooper who told Danny that his car has been vandalized, and he had better get down to the parking lot right away. Danny went running out the door putting his coat on, and was confronted by all of these police waiting for him. They tell him to relax; his car is ok, but they had this search warrant here. Local police were not present. The FBI was involved. The Gazette carried no story on the bust.
The arrest of Danny Constance eventually resulted in the conviction of eight defendants and the seizure of gambling records from 118 Sylvan Street in Springfield and 1030 Dwight Street Holyoke. One of the people who offered evidence against Danny was his brother, Michael. Danny Constance was convicted of setting up an illegal lottery which supervised four or more people. He did not object to being jailed and waived bond on May 5,1994. In 1995, he would plead guilty to the one count of money laundering.
He was sentenced to federal jail in Florida for 33 months, and came out a broken man. When he returned to Northampton, he was on probation and worked as a dishwasher for Felix Tranghese at Mulinos Trattoria on Center Street. He began to look more and more like a bum, unshaven and wearing filthy clothes. When the Trangheses sold the building in 1998, he moved to Springfield and ran a hot dog cart outside the Mardi Gras strip club.
The restaurant and hotel owner “Bo” Page knew Danny well. Danny had worked for him. “If you’re in hospitality, you got guys like him around,” he said. At the time I talked to Page, his hotel, the Delaney House, had been sold to a group which ran the operation into the ground. They bankrupted it, and Page had to come back from retirement and work for the bank to straighten out the finances. Two days before the auction where he had hoped to buy his hotel back from the bank, Danny Constance showed up. Page hadn’t seen him for years. He had put on a lot of weight. He came into his office and said he had a message from Peter Picknelly. Peter was president of Peter Pan Bus Lines, and for a long time ran Springfield from his aerie atop Monarch Place.
Page said the message was clear. He prefaced it carefully. “Look,” he allegedly said to Page, “ Peter knows that this is your place; that you’ve put your whole heart and soul in it. He wants you to know that he respects you and all that you’ve done here. He’s going to put in a serious bid for your place at the auction, but he won’t show up if you give me the word that you want the place. Just give me the word,” he said, “And Peter won’t show up. The road will be clear for you to keep the Delaney House.”
“Well,” said Page, “I looked at him and I thought about his proposition for about thirty seconds. I knew that if I start saying yes to people like Danny and Picknelly and their deals, I was going to be seeing him all the time. It was time to retire and go to Florida and stay there.”
Two days later, Peter Picknelly bought the Delaney House at the auction for 6.45 million. Page went to Florida and tried to retire. He eventually grew tired of peace and quiet and golf, I guess, and came back to organize Page’s Loft, a restaurant at the old Clarion Hotel, which he had once owned. “Bo” Page is dead, presumably by his own hand. The papers said he shot himself in the head on June 24, 2011 in a phone booth in Springfield, New Hampshire.
Danny Constance died in August of 2006 in Springfield. His obit in the Gazette was a paean to the Eighties and the elegance of Beardsley’s and what a great host he was and how sad it was to have him die alone and forgotten. Feel-good stuff. No sense that Danny might have been a thug and an ex-con. His legal entanglements were talked about on the street, but no one in law enforcement would offer details. I called Northampton’s police chief and never got a call back; I called a couple other police I knew and no one would tell me anything about Danny’s legal troubles. Finally a friend who was a writer ferreted out the details of his conviction from a federal source and I had enough clues to go to Springfield and chase after his story. First it was the clerk’s office at City hall to get his last address, then the city assessor’s office, then it was the courthouse where I got the archive accession numbers. My last stop was the Mardi-Gras Gentleman’s Club down near the tracks, bricked-in windows, a run-down neighborhood full of people clinging to life and sanity by their bare hands.
Inside, the place it was as dark as pitch; black lights somewhere in the ceiling gave us invisible people, sporting magnetically blue T-shirts, socks and teeth, dress-shirts and ties. I was able, gradually, to make out customers sitting with their elbows resting on a raised dance floor. There were shapes out there in the night, panthers and tigresses stretching their long beautiful legs and winding themselves delicately around the drinkers, who were doing things I didn’t particularly want to see. I asked one of these invisible people how much the beers were; he said three-fifty or five, he forgot. I wondered how these people made any money at those prices with this kind of overhead. In the distance, girls in bikinis went up and down the winding staircase, bathed in the light from the tiny spots. I found the bartender, and I found a twenty dollar bill in my wallet, and she went off with it, and came back with a bottle of Budweiser and five singles. I looked at the five lonely singles. I was not a happy man. Fifteen bucks for a beer?
She and I talked and she was perfectly calm and I was perfectly calm and she went and checked and said that the ten I had given her was all by itself on the top of the cash drawer where she put it. There was nothing to do but ask for the manager.
The manager was also young and beautiful. She was wearing more clothes than the bartender. She was calm, she defended the bartender’s virtue; she went and checked and came back with her faith unchallenged. I stayed put. One of the girls walked by with her john, heading into the back room, where table dancing was “done to order”. Time went by.
“So, all right.” the manager finally said, “I will get you ten dollars.” I asked her about Danny when she got back.
“Danny? Poor Danny is dead.” said the dark-haired manageress, “Poor guy.”
“Where did he live?”
“Right across the street,” she said, pointing toward their rear door.
You run a hot dog cart outside a strip club and you live across the street. Out in the parking lot the seasoned thoughtful guy who would park your BMW for you said he knew nothing about Danny’s time in the hot dog cart. He looked me up and down and committed me to memory as someone who was asking too many dumb questions. As I was walking away, he relented. “Danny lived up there,” he said, pointing at the building across the street. Sixth floor, corner apartment, an American flag in the window. The first floor of the building was vacant and there was a pawn shop next door. I stopped in one day and it was full of guys waiting to see what the owner would give them for a radio-CD player with snipped off wires dangling. Not a great neighborhood.
The door to the lobby was open; there was a wall with a lot of buzzers, but no names. In a tough neighborhood why is the outside door unlocked? Above the buzzers was a placard. So this was the MacIntosh building. I had a file on the MacIntosh building. It was one of the five major Heritage developments that had Mike Smith as the silent partner. It was mentioned prominently in the Heritage Bank’s first notice of loss to their underwriters. Mike Smith’s best friend, Tim Sicard, owned one of these condominiums for a while. All that was really relevant to me, by that point, was that this was another Heritage package deal. Another enquiry that started in Northampton and had taken me into a bad neighborhood. It wasn’t an upscale development up on the hill that you would boast about with a big sign outside saying CONSTRUCTION. FINANCED BY HERITAGE BANK. No, it was a condo conversion across the street from a strip club, a place where Danny Constance could live when the old gambler and money-launderer could live where he probably had nowhere else to go. Outside the Mardi-Gras was his “Happy Endings” hot dog cart, gathering dust, waiting to be towed away.
In the last bitter days before the bank collapsed, Dick Covell came to give a soothing speech before the Lions club. He was greeted with frosty silence, and one of the members took his Heritage stock certificates and distributed them to the people at his table to use as placemats. There was seething anger among the many stockholders who were there.
Opposite the great complex of malls in Holyoke, is the marble-sided tower that held, for three short years, Heritage Bank N.A. Up there on the balcony of the top floor I can see the ghost of its genial president, Dick Covell, looking through his brass telescope and counting falcons that circled in the air, working the updrafts on nearby Mount Tom. On December 4th of l992, the creatures in the air would be vultures, and 500 hard working bank employees would be out of a job, and thousands of local people who bought stock in the bank would toss their worthless stock certificates in the trash.
After the fall of the bank, a young FBI agent named T. J. Roberts came out from Boston and started probing into the bank failure. Then more agents came to Northampton, spending many hours following the paper trails out from the County Registry of Deeds into the offices of people of the leading players in the Northampton area. Lawyers, doctors, politicians, developers, leading members of the friends of Mike Smith club. The FBI and FDIC investigators were armed with information from the 1989 FDIC audit and an internal investigation done by the bank’s counsel. Many prominent Northampton people who had been major players were close to panic with all the attention they were getting from the FBI, and the frequent articles in the Daily Hampshire Gazette, and the anger of prominent stock-holders stuck with a lot of worthless stock certificates.
The tough guys, the well-defended guys shrugged off these FBI agents. Pat Goggins told them to talk to his lawyer. The lawyers that got involved with the Rostoffs, however, were more vulnerable. They had the Massachusetts Board of Bar Examiners to answer to, and some of them bolted for safety. When the Rostoffs left town, they took Eric Gervais with them. In l991, Saul Gliserman suddenly quit his lucrative practice to try his hand at commercial fishing. Both men had been accused by federal investigators of conducting one-man closings, representing both Heritage and themselves. Saul Gliserman was also suspected by the FDIC of having tampered with the closing documents. Another attorney, facing disbarment, walked away from his practice and went to live with his family on Cape Cod.
Down in Springfield the wolves were at the door at Cooley Shrair and Dambrov. The firm had thrived during the heady eighties, but now they were laying off people as one client bank after another folded or was merged. The victims included Shawmut, MultiBank, even the big one, Bank of New England (BNE), with 482 offices and assets of 32 billion. In 1988, forty four FDIC-insured banks failed in Massachusetts. The FBI and auditors from the FDIC had been in to talk to the partners at Cooley Shrair and there were rumors that Irving Labovitz and David Shrair might be indicted for bribery and bank fraud. Over in the federal building, a new U.S. Attorney was laying the groundwork for a possible criminal case.
In the early fall of l991, Vice Presidents Patterson and Fridlington sat down with Irving Labovitz and told him they had heard rumors that he was making payments on Smith’s Virgin Island condominium. Why wasn’t Mike’s name on the corporation papers? Labovitz told them that Mike and his wife came into the venture later, and they were “putting in money now, on an on-going basis.” At the end of the meeting he denied that he had any other relationship with Mike over pieces of property.
Patterson and Fridlington now knew that Labovitz had not been straight with them. It was l991, however, and a huge tide of defaults and foreclosures were swamping the bank. When Mike Smith left, many of his customers stopped paying the bank. The bank leaned heavily on Irving’s skill and tenacity in doing workouts. He had a reputation of being able and willing to wring every last nickel out of all the creditors who were defaulting on their loans.
The Prosecution Begins
When the FBI started work on the case, Mike Smith was employed at another bank in New Hampshire. T. J. Roberts called him and let him know that he wanted to talk to him. The first couple of times Smith talked to the FBI, it was not a threatening business, just two young guys with notepads asking respectful questions.
Time passed. The FBI drafted a witness agreement, and put more pressure on Smith. He began to cooperate, very reluctantly. In a FBI 302 dated August 28, l992, T. J. Roberts indicates that “Michael Smith was going to be tape recording Mr. Todrin in the next few days. ” The first meeting Smith had with Todrin was at his office, the second was for dinner at the Bricker’s restaurant in Greenfield. And then the FBI called Todrin directly, and it was Todrin’s turn to go down to Springfield.
In November, the prosecution called up Mike’s best friend, Tim Sicard, a state cop with seven loans from Mike Smith totaling $307,992. His job for the State meant he was very vulnerable to pressure from the FBI. They could ruin his career. The FBI convinced Sicard to call Smith and tell him that he was about to get indicted and it would be in his best interest to come down to Springfield and cooperate wholeheartedly with the feds. Smith hired a lawyer, and on November 10, l992, he appeared at the U.S. Attorney’s office. Five men sat across the table: two from the U.S. Attorney’s office, two from the FBI, and a FDIC examiner. They gave him the bad news; he had taken bribes, and he was probably going to be imprisoned. He had taken a $5,000 bribe from Ira Sutton. They told him to sign a memorandum of agreement, and do everything they asked of him. On January 27, 1993, Ira Sutton, Mike Smith and Donald Todrin signed agreements to cooperate with U.S. Attorney Pucci and the FBI. Shortly thereafter Mike Smith got a phone call from Irving Labovitz. He and Irving had been good friends, but they had been out of touch since Mike had moved to New Hampshire. Irving wanted to get together for dinner.
Smith called his handler, T. J. Roberts, and he told Mike they were going to wire him. They wanted him to get Irving Labovitz to talk. Smith had a pre-dinner meeting with the FBI at the Howard Johnson restaurant in Brattleboro Vermont. Smith was wearing a blazer over a sweater. With T. J. Roberts was special agent Michael J. Smith Jr. Roberts was a little vague on what happened at this meeting when he took the stand at the trial. We know that FBI agent Michael J. Smith gave the banker Mike Smith a Panasonic micro cassette recorder. T.J. Roberts told Smith to try to speak privately with Labovitz about the ongoing investigation at a time when the two men were away from their wives, perhaps in the men’s room. Smith then drove to the Putney Inn. At 6:10 pm Smith and his wife met with Labovitz and his wife for dinner. Mike said that when he arrived, Labovitz took his jacket from him and hung it up away from the table. At 7:50pm, Smith and his wife left the Putney Inn. When the dinner was over, Mike brought back the tape recorder. The tape was blank. Later the tape recorder itself would disappear. When the case went to trial, Richie Egbert, lawyer for Irving Labovitz, couldn’t find any evidence that the FBI had disciplined or cross-examined Smith on what had happened that night. I don’t think the FBI talked to the restaurant staff afterwards. I talked to the manager and he could not recall the FBI ever visiting the restaurant and talking to the wait staff.
Under siege by creditors, Pat Goggins sold his house to his wife. John Pucci took over as U.S. Attorney in Springfield. Pucci had a strong record in Philadelphia. He had convicted the head of the Russian organized crime, and had prosecuted the entire narcotics squad of the Philadelphia Police Department for corruption. But when he came to western Massachusetts, he was not in a mood to take on the local mob or local corruption. The Matty Ryan investigation instigated by the Boston Herald and the Boston Globe died, even though Pucci admitted to the Springfield Union that Adolfo (Big Al) Bruno having a close relationship with Ryan meant that, “Bruno had emerged from the Ryan era with an aura of invincibility among his peers.”
Back then, many observers saw Pucci’s appointment as a hopeful sign that there would be significant indictments in the Heritage Bank affair, and a strong federal investigation of Matty Ryan. He and his office had been the focus of an extensive two part “Spotlight” series in the Boston Globe, as well as an earlier story in the Boston Herald that broke the story of Matty’s regular handball dates with the number two man in the Springfield mob.
When researching the condo conversion of the Hotel Northampton, I had noticed that the Rostoffs had brought out a big crowd of people from Boston to Northampton to sign the paperwork to buy their condoized hotel rooms. When they declared bankruptcy these people cropped up again as debtors, as people the Rostoffs owed money to. It was obvious that they had secretly fronted them their 10% downpayment. The down payment money became debtor claims by the Rostoffs. The Rostoffs and their investors were the largest group of people filing claims against the hotel.
I brought down the records to Springfield and J.C Roberts went over the files.
“It looks like they were doing the same kind of work here as they did back in Boston,” he told me. He went to John Pucci, and laid out what he had.
Pucci told him that he wasn’t going to prosecute the Rostoffs; the FBI and the U.S. Attorney had got them in eastern Mass, and “that was enough.” Only three months after Pucci was sworn in, he and his wife bought a piece of land on Maple Ridge Road in Northampton, a lot in the Milton Howard/W. J. Christiansen development.
The next year he would have the Wright Builders build a home here. It was significant, I think, that a federal prosecutor who was just starting to look at a case that could have involved the prosecution of some high level people in Northampton came here, where it all started, to buy a house in a Heritage-funded development. It sent a message, and the people with offices on Gothic Street in Northampton got it. It said he was just like everyone else.
A Federal judgeship opened up, and John Pucci put his name in for it. Wait your turn said the establishment. The existing U.S. magistrate, Amherst lawyer Michael Ponsor, was named judge of the U.S. court, and was sworn in on March 15, 1994. He would preside over the Heritage trial. A search was opened to fill his seat. Kenneth Neiman, who had been working for Pat Goggins and the Cummington Farms partnership, got the job, which opened up a vacancy at his law firm.
His partner Fred Fierst worked for Mirage; the operating company for Peter Laird and Kevin Eastman. He would also manage the Swift River Inn (formerly Cummington Farms) for Peter Laird. Mirage then announces a nationwide search for someone with expertise in entertainment law. But who would get the position? John Pucci, a federal prosecutor with no experience in entertainment law.
It sent a message. It said that Heritage wasn’t such a big deal. Banks were failing everywhere. On January 16, 1993 Pat Goggins got a proffer letter from Pucci. He would not be a subject of the grand jury investigation. Then on February 19th Dick Covell gets the same kind of letter. There was a sigh of relief in Northampton.
Now John Pucci could retire from federal service and give the Heritage case to a relatively inexperienced lawyer, William Welch II. I think that Ed Etheredge wrote the choreography for this game of musical chairs that placed Michael Ponsor as judge of the trial and give Pucci a lucrative stepping stone to private practice. Northampton protects their own. Pucci moved from the Federal Courthouse to the luxurious complex of offices at 64 Gothic Street, a complex co-owned by Dick Covell’s defense lawyer. Four years after he came to Northampton, he resigns as U.S. Attorney. The people working for the FBI and the FDIC became unhappy witnesses to a long drawn out show trial with Mike Smith as the prime witness.
Irving Labovitz was not part of the club. He was from Longmeadow; he was Jewish with a Jewish sounding name. In times of economic crises, Jewish participants are made scapegoats when banks fail. Unlike many of the players in this bank failure, however, Irving Labovitz always paid his debts and never walked away from his obligations. Labovitz, however, had a lot of enemies that came out of his years working for area banks. I heard a prominent developer call him the “prince of darkness”.
The power people in Northampton and many influential people in state government loved Dick Covell and would never want to see him put on trial. Dick had pumped a lot of money into the town and everyone’s pet projects. After Heritage collapsed, Mayor Claire Higgins sat with him on the board of trustees that governed Northampton’s Look Park. The trustees deferred to his judgment on their investment strategy and made him the treasurer. And he handled their portfolio the same way he invested the bank’s money. He put it in risky places. The value of the park’s portfolio plummeted when the stock market punished telecommunication stocks. Between 2000 and 2005, their income from investments was cut almost in half.
No, very few people in Northampton wanted to see Dick Covell or Pat Goggins or any of the board members go to jail. Better an out-of-towner, better a lawyer from Longmeadow. who was widely disliked for his years of doing “work-outs” for area banks, seizing and selling assets belonging to people that had defaulted on their notes. His nickname was “the flusher.” He hit the lever and you were down the toilet.
Mr. Smith, you must know, okay, was a local boy. People didn’t know his personal finances just because he was a local boy and worked at the bank for many years… He took over the commercial loan department. He looked like a golden boy because the financial statements were showing terrific profits, and Dick Covell, the president, knew zip or next to zip about commercial loans.
And what happened was in l989, early 89, a guy by the name of George Dimetras, an auditor, discovered over-advances beyond what was authorized by the board on this Cummington Farms Project, and Fridlington confronted Smith and he said, “I had to do it. They were going to have to close up, and we’d lose our entire investment. It was a rush situation.”
Atty. Julian S. Greenspun, of Storch & Brenner.
In a rambling Union News interview with Brad Smith after his departure from federal service, Pucci admitted that “Ryan was never on my radar screen.” The statute of limitations ran out with no action from federal prosecutors. “Sometimes that’s how these things end,” said Pucci, “They peter out.”
He admitted that he was tired of federal service. He came to western Massachusetts to be near his father and mother. He admitted that he was sick of the bureaucracy and fighting with FBI agents. As head of a staff of five attorneys in Springfield’s U.S. Attorney’s office, he was calling the shots or he was calling a truce. He would not go after Matty Ryan. He left the existing bureaucracy alone. He was not going after Covell, Goggins or any of the other major people involved in the Heritage bank failure. He set up Irving Labovitz to take the fall, made Mike Smith the star witness, and nominated a young inexperienced federal prosecutor, William Welch II, to became the lead prosecutor in the case. Then he resigned on November 14th, 1994.
William Welch II was the son of Superior Court Judge William Welch. Investment Partners had sold a choice hilltop lot to Judge Welch and his wife. William Welsh II was 28 or 29 and just out of college, when he came to the Department of Justice, and his experience as a prosecutor seemed to have been limited to prosecuting drug trafficking cases in Reno. He faced a tough job. In many respects it was an impossible job. There was a great deal of evidence from bank records, the FBI and the FDIC that had the potential for incriminating prominent Northampton businessmen like Matt Pitoniak, Pat Goggins, Buddy Duseau; and Jeffrey Anderson. Many Northampton people and Heritage bank officials needed to be protected from prosecution. The prosecution needed to mount a pinpoint laser-guided case that would send Irving Labovitz to jail without singing anyone else.
On the first of December l995 at about one-thirty in the morning, Southampton police officer Ian Illingsworth stopped a 1980 BMW with only one headlight. The arrest was videotaped automatically by a camera in the police car. The officer did a field sobriety test on the driver, Attorney William Welch II. He was asked to walk the dotted line, put his finger to his nose and recite the alphabet. He failed, and was taken and booked at the Southampton police station. Jeffrey Kinder, chief of the U.S. Attorney’s office in Springfield in Springfield, had no comment.
A trial on the charge of driving while intoxicated was set for May 1, l997. Before the scheduled trial, mysterious things happened to the evidence in the case. The videotape made by the automatic camera in the cruiser either was “erased without knowledge of its significance.” (Southampton Police Chief Eugene LaMoine) or the machine was “shutting itself off after three minutes.” (Southampton Lieutenant David Silvernail)
A special prosecutor was named but the trial was held in a friendly place, in Northampton District Court in front of W. Michael Ryan, the co-host of a big going away party for Mike Smith. Because his blood alcohol level was marginal and because of destroyed evidence, Judge Ryan dismissed the charges against Welch. 
The Labovitz Trial
The trial that opened on March 24, l997 was a long awaited event in Northampton. Almost five years had passed since the FDIC shut the bank down and put more than 500 employees on the street. There had been five years of rumors, innuendos and “no comments” from the prosecution. The initial work by the prosecution had been done by Kevin O’Regan.
Representing the defendant is an elegantly dressed, tanned and suave Richard Egbert, already a celebrity from representing mob heavies and politicians. It was time for O’Regan to present his case and call his first witness, John Fridlington. One dull cautious banking witness succeeded another. The sound of hammering from renovations on the fourth floor occasionally back-dropped the testimony. The crowd of spectators dwindled. I was there one day and here is O’Regan interviewing bank official Bruce Warsaw. Two blimps in a slow-motion tango together as the jury dozes.
There was pretrial jousting, with motions filed by both prosecution and defense. The prosecution motioned to have a good deal of information excluded on the grounds that it was irrelevant to the case and would distract the jury. The list was long. They wanted to exclude testimony about “possible negligent loan practices or policies of Heritage Bank officers” and any argument “imputing the knowledge of Heritage bank officers to the crimes alleged. ” The prosecutors were all too aware that there were quite a few skeletons in the closet.
“The only reason to admit such evidence would be to attack Heritage and its bank officers collaterally in an attempt to show their bad character. Such an attack would only distract the jury and confuse them about the real issue in the case.”
They wanted to exclude any discussion of the bribery accusation leveled at Richard Greenwood, former president of the Chicopee Cooperative Bank, who was on the federal witness list. They didn’t want any mention of the drug consumption of cooperating federal witness Donald Todrin.
“Until several months ago, Donald Todrin has been a casual user of marijuana for the past ten to fifteen years. Todrin’s use occurred during the events and time frame about which he will testify. “Throughout the period of his usage, Todrin remained gainfully employed and ran a legal practice… Finally, the government does not intent to prosecute Todrin for his admitted drug use.”
The prosecution also admitted that, “Todrin defaulted on several Heritage loans, and in addition, he bounced checks and over-drafted his funds on several loans or lines or credit he had with Heritage. ”
“These acts do not constitute crimes of dishonesty or fraud.” stated the prosecutors. But they indicate a certain lack of character, as would his business practices, documented in court records. There were U.S. and State liens, and many claims in small claims court. He failed to pay taxes, failed to pay withholding taxes for his employees, and pay copyright fees on the artwork on his products. The prosecution not only wanted to exclude things that painted Smith and the other witnesses in a bad light, they also tried to foreclose any evidence that Labovitz might have been responsible in relationship with the bank. They wanted to exclude any evidence that he had paid back all his loans to the bank.
“In a bank fraud case it is not necessary that the bank in fact be victimized. Simply attempting to commit is enough. ”
The prosecutors asked the jury if they knew the people that they expected to call as witnesses at the trial. There were 44 names on the list. Questions to jurors included your eyesight, “Can you see the documents on the television monitors?” and whether you ever had a bad experience with bankers. There was a general Heritage bank question. (Have you ever had a loan or done some other business at Heritage?) and specific Heritage questions having to do with whether you owned stock in the bank and whether you were satisfied with “your banking experience at Heritage.”
The jurors worried aloud to Judge Michael A. Ponsor if their minor league brushes with Heritage people would get them booted off the jury. They had to sit through this third degree on whether they knew any of the people on trial or any of the government witnesses, whether they had formed any opinions on the case and so on and so on. If they know any of the defendants, bang you were off the case.
But here was Judge Michael A. Ponsor sitting up there on the bench running things, and he and his first wife had a $187,000 Heritage construction mortgage on their Amherst property. His first big assignment for the state was to supervise the court-ordered close-down of Northampton State Hospital. Pat Goggins’ father was the administrator of the place, and he must have worked with him closely.
Someone should have gotten up and said, “Judge Ponsor, who was your banking officer at Heritage? Did you know any of these defendants or the people on the list of prosecution witnesses?”
Politics has always had a lot to do to with who was named to the Federal bench in Springfield, and both King Democrats and Dukakis Democrats have had a close friendly relationship with Dick Covell and Heritage Bank. The bank was almost a public utility which would loan to all kinds of public spirited efforts, hospitals, colleges, industrial development consortiums, downtown fix-up projects. David Bartley, former Speaker of the House, was on the board. assessed the portfolio, most of these political loans went back to the FDIC.
When the Enron scandal broke, the whole U. S. Attorney’s office in Dallas said, like real heroes, no thank you, too many conflicts here. Have someone else outside of Dallas prosecute this one. But Springfield wanted to protect their friends at Heritage Bank.
Mike Smith, Fix my Muffler
One week Mike Smith was really getting grilled by Richie Egbert. I got a call from Jim Stevens.
“Bulletin.” he says tersely, “Guess who owns Mike Smith’s business up in New Hampshire?”
“Matt Pitoniak. ”
Saturday I went up to New Hampshire again. According to the Gazette, Mike Smith was now managing an auto shop, earning about $250 a week and living over the garage. An innocent juror or newspaper reader would probably think that this new career of his reflected credit on him. Bank executive starts life over again managing a garage. Puts the past behind him, goes straight. Shows contrition for his sins, gets back to his working class roots.
I had two addresses for him in New Hampshire. A home in Brookline, and a garage in Milford. He and his wife closed on a nearly-new green colonial in January of 1991. Its in the back of one of those spooky high-priced developments full of houses set back in deep cul-de-sacs. I stopped the car at the top of his street and got out and listened. Not a sound. No people sounds, no arguments. No kids out running, chasing balls. Not even any cars on the road this morning except the mailman in his Jeep, stuffing catalogues in the mail boxes. No lights on anywhere until the automatic timers turn them on at sundown.
I don’t think they lived here too long in this dead zone, or lived here too happily. Sometime in l994 Mike’s wife probably got sick of the drama and got one too many nasty surprises about him from the newspapers and filed for divorce. In the settlement he paid $89 a week in child support for the three boys, garnished directly from his employer. He got the new Jeep Wrangler, she got the Subaru.
But he had his friends. Smith had developed his own witness protection program sponsored by some of his major lenders. He didn’t need to cooperate with the USDA or the FBI. And he didn’t. Almost every time he went out to tape anyone or entrap anyone, the trap would fail and the FBI would end up with egg on their faces. And they never retaliated.
The Hillsborough County Pro Auto Center was a modern two story six bay garage on a landscaped lot located strategically about a quarter-mile from the interchange of a double-barreled expressway. The garage was cinderblock, painted white with a candy bar type stripe running around the top of the building. WE DO BRAKES AND SHOCKS says the sign. It’s practically a carbon copy of the Pro-Lube operation in Northampton. There were three bays loaded with equipment and an office. Business was slow that Saturday morning, and the bays were empty. Smith lived upstairs, but the day I was there he was down in Springfield recovering from another bad day on the stand.
“I’m sorry,” said the nice young woman who was booking appointments, “He’s not here. He decided to stay over in Springfield. ”
“Yeah,” I said, “He got a pretty rough going over on the stand yesterday. ”
She looked at me sadly and her eyes teared up.
“Oh God, you’re talking about my boss.” she said, “He sounded just awful over the phone. I hate to see him suffering this way. ”
The name I found on the building permit for the business was a familiar one. Armand Duseau, alias Buddy Duseau dba Duseau Realty Corporation headquartered at Buddy’s home in Northampton. The date on the permit was December 7, l994. The building was valued for taxes as being worth $330,000: Duseau Realty leased the land to Hillsborough County Pro Auto Center Inc. for twenty years on February 1, l995.
A couple days later I went to Concord and the Secretary of State’s office. Mike Smith wasn’t an employee of the garage. He was the only incorporator. This was his business. It began to look like another Mike Smith shakedown. Like VI Corp, like the Dutchman, like TSL and every other venture that Smith authored. He was the phantom, organizing behind the scenes something he wanted but couldn’t afford, the hidden partner.
In l994 Smith was an indicted man, struggling for his life. All logic would indicate that he didn’t have two nickels to rub together. Every one of his ventures had been foreclosed against, he had lost his job at Fleet, his marriage was in trouble, and he would shortly lose his beautiful new house in Milford. It must have been easy to persuade his scared-to-death big lenders to help a poor guy who’s singing to the FBI and who is down on his luck. Invest in my garage, buy some shares, help me make a new start. Among the most vulnerable had to be all the people who got loans without appraisals, including Pitoniak and Anderson. Prominent Northampton people were helping Mike develop a new life up in New Hampshire, and not incidentally keeping themselves off the indicted list. And the federal prosecutors had to know all this. He was still in business, creating his shell corporations and trying to fool the world that he was now poor. So that was it for me.
How could the federal government justify a cooperating witness continuing a corrupt relationship with the people he shook down? The crimes didn’t stop with the bank’s failure, they were continuing. I called Richard Egbert in Boston and told him what was going on.
A couple days later it was in the papers. He had taken my information and put it together with other research and got part of it right. What he omitted was Matthew Pitoniak’s instrumental role in helping Mike get started in the auto lube business back in l989. His stake was $880,000 of Heritage money. Pitoniak got him started with his Pro-lube business, managed by his brother-in-law, John Ritchie. Buddy Duseau bought the land up in New Hampshire for him, and maybe other people helped with the construction costs. The corrupt hidden relationship between Smith and Pitoniak ran deep. Mike Smith made Matthew Pitoniak a millionaire virtually overnight , funneling money to trusts with winsome names out of “Lord of the Rings” such as Rivendell, Treebeard and Quickbeam. Loans from Heritage enabled him and his partners to buy a car wash, gas station, mobile home, a car detailing business, and condos.
Back in Springfield the trial went on. Judge Michael Ponsor, ever courteous and sensitive to the jury, called frequent breaks to help them stay awake and focused. Defense attorney Richie Egbert bombarded the court with motions, and occasionally cross-examined the witnesses. Egbert had thrown his net wide looking for evidence to clear his client, subpoenaing tremendous amounts of material having to do with loan practices. The FDIC hollered in protest, saying that just the estimated search time was 3,022 clerical hours. A preliminary review indicated that there were 125 boxes of documents available for inspection at the Hartford office. More than 500 cases of Heritage records were in storage in the FDIC storage facility at Iron Mountain, Pennsylvania.
But when the FDIC was talking “available for inspection,” the first people that were doing the inspecting were government people looking for any material in them that might be damaging to their case. The material that finally came back to Richard Egbert had passed through many hands. It was often heavily censored. Hundreds of blank pages were marked REDACTED, including most of. the proceedings of bank committees. The report that the bank commissioned on Mike Smith’s portfolio (the Hoar Report) was alluded to frequently in consultations at the bench, but Egbert couldn’t get a copy of it.
The Attorney General of Massachusetts, Scott Harshbarger, turned back attempts by the defense counsel to get reports of the state examinations of the bank. Most of the grand jury proceedings were not provided to defense counsel. Then there was the mysterious blank tape recording of the meeting of Mike Smith and Irving Labovitz at the Putney Inn. First the tape turns up blank, then the blank tape disappeared, and finally the recorder itself disappeared.
On Thursday, April 3rd,1997, Egbert realizes that there may be another tape recording somewhere of Mike Smith and Donald Todrin talking. Egbert had the tape of the morning meeting at Don’s office, but there seems to have been a taped meeting at Brickers restaurant that afternoon and he doesn’t have any record of it. He confronts prosecutor O’Regan. Is there or is there not another tape recording? The prosecutor isn’t sure; he goes back to the office and scrounges around and finds a tape and a 77 page transcript. On April 7th, Egbert stands up before the judge and moves for dismissal because of double jeopardy.
“Although I was provided from the beginning of this case with the haystack, the needle wasn’t in it, and on almost every occasion that we go through these commentaries, the government stands up and says we have given them an unprecedented amount of material. Well, that’s absolutely true. The problem is that the unprecedented amount of material has caused us endless, agonizing hours of picking through to find tidbits.”
There was something going on, said Egbert, something “nefarious.” The tape he had got of the meeting between Smith and Todrin was a high-speed affair, and was almost impossible to understand when played on a normal tape machine. He sends the tape to a specialist and gets a new transcript and another machine to listen to it on. In the original transcript, almost every time that Mike Smith or Donald Todrin mentioned someone’s name at the bank, UI(unintelligible) was inserted. It resulted in the interview being an enigmatic puzzle. On page 41, we had the following interchange between Todrin and Smith.
(Todrin). (UI) don’t get it because the moment you became (UI) was talking about us.
(Smith). Ah, who told you that? It’s not what people are saying.”
“No, my point is I guess what I’m trying to say is my, my, my son says that (UI) down the line you gotta talk to them. Their memories have failed them. So I’ve got a little piece of paper in front of me to keep those memories have failed. ”
Is Smith’s son, (who was only seven or eight at the time) giving his father legal advice? Egbert listens to it with his special machine and not only are people’s names clear, but the whole sense of it is different. It sounds like the real Smith, angry and betrayed.
“No, my point is I guess what I’m trying to say is my sense is that Lucille (Cernak) , Covell, Jim Moreau down the line they’re fucking me. Their memories have failed them. So I’ve got a, you know, (a) piece of paper in front of me of people’s memories who have all failed. ”
“Amazingly,” says Egbert, “the highlighted italic portion wherein Smith names Lucille, Covell and Jim Moreau is perfectly clear on the tape. These perfectly clear words are designated as unintelligible in the transcript…”It is the very essence of the defendant’s defense that these people, particularly Richard Covell, had knowledge that now had been lost from their memories, is critical. . .The evidence is crucial exculpatory evidence which had been withheld by the prosecutor.”
“Exculpatory” means evidence that tends to prove the innocence of the defendant. Complaints from defense attorneys about William Welch II and his handling of these so-called “Brady issues” would follow him through the years when his career was on the ascendancy after the Heritage case was closed. He carried forth the old-fashioned cynical policy, “Prosecution may hide,” and “Defense must seek.” The obligation of the prosecution to disclose “Brady issues” is meant to level the playing field. Prosecution lawyers, with their close relationship with the police and the FBI and the courts, have access to all kinds of information that might be favorable to the defendant. Before trials start, prosecution lawyers are supposed to divulge all information in their records that might tend to prove the defendant innocent.  In the Heritage trial, the prosecutors hid tape recordings and altered transcripts and recordings. They also failed to divulge critical studies that had been done by the bank and the FDIC. After the Heritage trial he came back to successfully prosecute Karen Gilbert, the so-called killer nurse at the Northampton VA, and he won a string of political corruption cases in Springfield. Then Washington called and his career took off. He was considered a “a tough as nails, determined litigator.” (Washingtonian.com) During the Bush years, he headed up the prestigious so-called “Public Integrity Unit” (or PIN) of the Department of Justice. His star was getting brighter and brighter until he took charge of the trial of powerful Republican Senator Ted Stevens of Alaska in the fall of 2008.
The issues that drew the wrath of a federal judge and resulted in contempt citations for three of his prosecutors, and got the conviction of Ted Stevens thrown out were the same issues that caused a mistrial in the trial of Irving Labovitz back in 1997. Hiding evidence that might have have put defendants in a better light, or evidence that portrayed prosecution witnesses as damaged goods. In the Stevens case he and his prosecutorial team withheld so-called FBI 302s, (written accounts of FBI interviews) from the defense. Then when ordered to come up with the 302s, they produced so-called “summaries” that distorted what witnesses attested to. Eric Holder, Obama’s newly appointed Attorney General, threw out the conviction of Ted Stevens. The judge in the trial, Emmet Williams, cited Welch and his team of prosecutors for contempt. His team was scattered to the winds, one of his brightest lawyers committed suicide, and Welch ended up back in Springfield. He has since left public service and is working for a private legal firm in Boston.
Judge Ponsor said in his memo of June 20, l997, after he had reviewed the tape recording, that “it might contain significant information tending to exculpate the defendant, or at least assist defense counsel.” He agreed with Egbert, but he gave the benefit of the doubt to the prosecution that their behavior wasn’t deliberate; He felt the most appropriate action was calling a mistrial. He scheduled a new trial to start in July. The prosecution had no comment. Mistrials are rare as hen’s teeth. This wasn’t an innocent mistake. A ham-handed attempt had been made by the a phony transcript. And Judge Ponsor turned back an attempt by Lori Loisel, a Gazette reporter, to get a copy of the tape.
After he had reviewed the tape recording, Judge Ponsor said in his memo of June 20, l997, that “it might contain significant information tending to exculpate the defendant, or at least assist defense counsel.” He agreed with Egbert, but he gave the benefit of the doubt to the prosecution that their behavior wasn’t deliberate. He felt the most appropriate action was calling a mistrial. He scheduled a new trial to start in July. The prosecution had no comment. Mistrials are rare as hen’s teeth.
This wasn’t an innocent mistake. The prosecution had produced a phony transcript. And Judge Ponsor turned back an attempt by Lori Loisel, a Gazette reporter, to get a copy of the tape.
The trial began again on August 13, after about two months off. The prosecution unveiled a huge list of forty-one people it was prepared to call as witnesses. There was more boring testimony by bank officers. Weeks went by. Egbert does not mention the 77-page transcript of the Todrin/ Smith meeting, nor does he attempt to introduce it into evidence. Mike Smith goes on the stand, and rattles off the party line. O’Regan and Welch lead him to confess that he had been overawed by Labovitz and lead into sin. He spends long days on the stand in direct testimony and cross-examination. Egbert shows his stuff. Richie Egbert had defended some very tough people in some very high profile cases, He is patient, deliberate, by turns charming and combative.
He brings with him exhibit after exhibit that demonstrate that Smith didn’t need any help from Labovitz to conduct criminal activity. On Friday, September 18th, it is his eleventh day on the stand and Smith is very truculent, his testimony evasive. Egbert pushes him on the fateful comic-opera incident at the Putney Inn, when the tape recorder got put somewhere quiet and then disappeared. Smith admits, finally, that entrapping Labovitz was something he would never do. At mid-afternoon the judge breaks in, gently admonishing both Egbert and Smith, remarking that it was common for nerves to get frayed during a trial. Laurie Loisel, in the Gazette, quotes Ponsor. “We’ve done very well up til now. Let’s everyone just stay calm. ”
On Wednesday, October 9, Egbert attempts to introduce an explosive piece of evidence, a FBI tape recording made of a meeting between Donald Todrin and David Shrair on December 15, 1992. Egbert argues that on the tape recording, Shrair admits to “doing almost all the things Labovitz now stands on trial for doing” The Judge refused to let the defense play the tape for the jury, evidently influenced by prosecution arguments that hearing the tape recording would be unfair to them because Shrair could not be cross-examined because he had evidently taken the fifth amendment when questioned about the case.
When it was all over, Lori Loisel of the Gazette went to talk to O’Regan.
“After the hearing, O’Regan said he cannot comment on what he meant by “unavailable”. However, in a 15 page memorandum arguing that Ponsor allow the tape into evidence, Egbert states that “David Shrair’s assertion of his Fifth Amendment right not to testify at trial” ( is that factor that ) makes him unavailable.
The prosecution had hidden from the public and the jury this particular tape recording and other tape recordings. They had hidden from the public that David Shrair had “taken the Fifth” i.e.: refused to testify at the trial. That would have generated headlines in the newspapers, and focused attention on Shrair’s partnership with Labovitz.
This attack by Egbert seemed to have had its desired effect. Next he attempted, unsuccessfully, to put Donald Todrin on the stand to testify about the recording of the Todrin/Shrair meeting. The wind went out of the prosecution. Donald Todrin may have been on the list of prosecution witnesses, but the prosecution probably dreaded putting him on the stand.
“Let’s get this over,” seemed to be the consensus. Egbert closes his summation without calling any more witnesses, and Welch and O’Regan deliver their summaries the next day.
The judge in his charge to the jurors says, “There is evidence that the government agreed not to prosecute Mr. Smith on other charges in exchange for the witness’ agreement to plead guilty and testify at his trial against the defendant.” He notes that, “a witness who realizes that he may be able to obtain his own freedom, or receive a lighter sentence, by giving testimony favorable to the prosecution has a motive to testify falsely.”
Ponsor told the jury that because of this deal with Mike Smith, they probably couldn’t trust all the things he said in court. If judges told juries this every time we had major drug trials, there never would be anyone convicted. There was some kind of consensus between the government and the defense that cut the trial short. A lot of the other people who were scheduled to appear as prosecution witnesses, including Patrick Goggins and Donald Todrin, wouldn’t have to go to the stand and be shredded by Egbert. The jury had sat through too much of Smith’s testimony on cross. They didn’t need to be told that Mike Smith couldn’t be trusted. One of the two trial lawyers, assistant US Attorney O’Regan said the following at the sentencing hearing for Ira Sutton:
“I think it’s very important to emphasize with respect to Mr. Sutton, as opposed to Mr. Smith, that he was always to our knowledge truthful. We never found him to be untruthful with respect to his debriefings or his cooperation, and you know from presiding in the Labovitz trial that Mr. Smith spent a lot of time not being entirely candid, and in fact at times stonewalling. ”
The jury deliberated 26 hours, and brought in not guilty verdicts on all counts. The trial that ended on 22nd of October, l997 with the acquittal of Irving Labovitz cost the taxpayers millions of dollars. When it was all over and the jury had been sent home, the prosecutors threw all their materials into cardboard cartons, and they went into the storage room on the sixth floor of the Federal Building in downtown Springfield.
The Labovitz trial fit the definition of a classic “show trial” ie: “a judicial trial held in public with the intention of influencing or satisfying public opinion, rather ensuring justice.” When ugly scandals broke to the surface, the subject was changed, the music was turned off, the person on the stand was excused. When it became clear that the trial was not going to convict Irving Labovitz, it was adjourned, for keeps. All the trial really accomplished was to destroy the reputation of a prominent Jewish lawyer, and deal with the public’s outrage by giving them a scapegoat, Irving Labovitz.
“Ah yes,” Bobby McGovern said to me one night, “Buy them, build them, and bankrupt them.” He was sitting in his favorite chair by the front door of Packards, pulling the lever that let people in and pulling the lever to let people go out.
“That was the game in those days. Bank insiders, Kirby. They used to organize these groups of people to go to the FDIC auctions of bank-owned property, to pick up some choice bargains. They’d jump in the car and go to New Hampshire or Cape Cod like you and I would go to a tag sale. The bank insider wouldn’t bid, the straws would bid, and everyone would be rewarded later.”
Some of the biggest businessmen and lawyers in Northampton became millionaires in those brief five years that Heritage burned. There are all these beautiful restored buildings around town that today are offices, restaurants and residences. Places like the James House, Fitzwillys, the Cutlery complex, that odd little office building on Nonotuck Street with solid cement walls, and the Hotel Northampton.
An early indication that things would not end happily was apparent in Dick Covell’s first attempt to rebuild the Hotel Northampton. He trusted the guys from Boston. He didn’t see that when politics and banking mix you get the Whitewaters of this world. He was just a small town banker with a big ego. Here is the heir apparent, a young guy who loves to hang out with mobsters.
The fear that the mob spreads in towns such as Northampton is contagious and corrosive, infecting its politics and the people that run its newspaper. Organized crime did not exist in the Gazette’s Northampton.
When someone robs you with a gun, you’re in fairly good shape if the gun doesn’t go off. People are sympathetic, they look for the guy that did it, and usually put the guy on trial. But if someone robs you with a phony appraisal or an inflated prospectus, things are different. Usually nothing happens, unless you are wealthy enough to sue them in Superior Court.
The l985-l992 period was a terrific time for white collar crime in the valley. The FBI must have interviewed hundreds of people and gathered millions of pages of documentation in their Heritage investigations, but the indictments that were made were carefully selected and inoffensive. This is a law enforcement substation out here, and I doubt if Boston cares what happens out here in the boondocks. All the evidence that the FDIC and the FBI has is useless if the U. S. Attorney’s office won’t indict.
And Springfield didn’t. It is often not clear to a DA that a crime has occurred, especially if the person who did it to you is a lawyer or a well-known person in the community. Maybe you were at fault. Maybe you were too trusting.
Picture of the James House
Caption: The Nw Police Station.
It was my last meeting on the city council, it was November of 1993, and the FDIC had put the James House on the market. The NIS owned this fully restored gem of a building on Gothic Street. I think its style is known as Greek Revival. The bank had completely rebuilt the interior of the building, and even put in an elevator.
Children’s Aid and Family Services put in the winning bid at a foreclosure auction and the FDIC was preparing to sell it to them. And that seemed to be that until the issue blew up with the speed and intensity of a summer thunderstorm. The Federal government had put a priority on local infrastructure projects, and replacing our tiny olf police station fit into their priorites. Suddenly it was page one of the Gazette. The city, invoking an old right of first refusal, had blocked the sale and wanted the facility for a new police station. City Council President Patrick Goggins had run on a law and order platform said it was a “once in a lifetime opportunity. Getting ahold of the old Right of First Refusal and dealing with the disappointed social service agency was Edward Etheredge’s role. City Council President Clare Higgins and Pat Goggins lead the charge to get the City Council to vote it through. The chair of the property committee, John Morrison, had been against it but now he was calling the building “a gem”. He told the Gazette that “Two million dollars’ worth of work must have gone into it. If this comes off it will be a brilliant coup for the city.”
Their initial effort to acquire it failed when the proponents failed to get a two-thirds vote. I was there and voting that night. The whole police force who wasn’t on duty showed up for the occasion and here they all sat, facing us with glum faces. The chief stood up and told us how important having a new station was to his men. Why no animation, why no interest from the rank and file on how the vote was coming? As the night wore on, Pat was working on closing the sale, arguing cunningly and convincingly that the city had to have this building, even if it meant breaking into a sale-in-progress to a highly respected social service agency. It was a once in a lifetime opportunity for us. I remember thinking about it and disagreeing with one of his arguments after another. It seemed to me that the council and the mayor were thinking more like real estate speculators than public officials. They had to have that building with its Grecian columns and its elevator. Would it make a good police station? But then I saw one of Pat’s arguments that I liked. I weakened, and I think I ended up voting for it, to my eternal shame. After the vote, I went back to talk to one of the cops I knew well, and asked him if he was happy now.
“Just thrilled” he said and made a face. I knew then it wasn’t their idea to come to the council meeting. The chief had probably ordered them to show up. This is why good girls get pregnant. Under pressure they forget their resolve and weaken at the critical moment. I should have voted with the old guard, with Bixby and Ish LaBarge. It didn’t matter anyway.
The police at the meeting knew that the powers that be would never give a beautiful building like that to be a police station. Brick buildings make good police stations, not antique wood-frame mansions that can be burnt down. The cops knew it was too nice a building to put cops in, and subsequent events would prove them right. As I was going out the door of city hall, I overheard Clare Higgins talking to a group of councilors in one of these little non-telecast huddles, saying that the building might not work out for the police station, but the building would be “land-banked” by the city for a while. For a while it was empty and then it became the home of the Juvenilte Court.
At the first city council meeting that I attended as a civilian, the appropriation for the James House went through. In the intricate and devious maneuvering that went on during this period, the critical alliance of Pat Goggins and Ed Etheredge were a force to be reckoned with. It was the Heritage era. The town was theirs, the Chamber of Commerce was theirs, the Gazette was theirs.. The state and the judges’ lobby, it turned out, were willing to pay the city a substantial rent check to the city, even if it took a while for them to move in.
 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 after the Synanon organization in California. Synanon started out as a therapeutic group treating both dope addicts and alcoholics, but later disintegrated, becoming a violent cult. The Honor Court was renowned for keeping downtown streets and sidewalks clean, but soon disintegrated after Billy’s death.
 The only surviving narrative written by people who seemed to have read the inquest is found in Death in Deerfield, an article in the Yearbook of the Class of 1979 at UMass.
 Phil was a city councilor for one term, defeating Pat Goggins.
 Heartbreak Hotel: How, in four years , an exciting project became a financial nightmare.”
Paul Dunphy, Hampshire Life, February 15,1985
 Some factor inoculated Midwest bankers, the epidemic of bank failures primarily was a New England phenomena
 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
 Ibid, page 11 He said the committee was comprised of Dick Covell, Bob Mahar, Joe Whalen, Kurt Hertsfeld, Bob Carroll, Bob Gelinas and Dave Bartley
(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
 Formerly a controller of the bank. He would leave Heritage in l989 as Vice President in charge of Accounting
 Among the many legal actions against Don Todrin was an action filed by Robert Shaw and Carol Muzzey of Rochester Vermont who borrowed $190,000 and pledged as collateral their herd of 175 Holstein cows. They lost their herd when he allegedly failed to file a UCC statement in a timely manner.
MAK interview with Edwin Waszkelewicz
 The History of Cummington Farms Realty Trust, Cummington Farms Associates, and Swift River Hills Inc, Robert Costa for the FDIC Viewable on http://www.kirbstone.net/the-fall-guys/costa-report/ You can search it using the italicized phrases in the footnotes.
 Costa, ibid: “Goggins & Pichette were the driving forces for the CF project.”
 A number of people told me that Sackrey joining the project exacerbated the public relations problem. It meant that the County Commissioners had a clear conflict of interest, crippling any county due diligence of the project. .
 Tim Cronin worked at Cummington Farms from October to January, when it closed.
 Costa, ibid, page 91
Costa, ibid, page 95
 Not his real name.
 A Northampton fixture for many years, owner of Raymond Real Estate and Insurance. His office was located .where the upscale restaurant “Oriental Taste” is.
 Brattleboro County registry of Deeds, Book 206, page 104
 In his statement for the court when he was being sentenced, Sutton is suspicously vague about who were the two people who ran the club. No one pushed him for particulars
Memorandum to Mr. Denniston from Ms. Smith, Mr. Tully & Mr. M. Duffy, November 27, 1989
 Hoar Report (memorandum to Mr. Denniston), page 8
 FDIC 1989 audit : other comments, page 023783 “Total Loans increased $682 million in 1988. Of this amount $445 million was acquired through the Community Savings bank merger and $237 million originated at Heritage-NIS. Almost all of the lending deficiencies were found in the Heritage portfolio
 The rate of loan delinquency more than doubled between May and June of 1989
 “Proof of Loss” filed by Stephen N. Graham for the FDIC, 24 pp 1994. This 13 page memorandum was a concise history of Manny Duarte’s misdeeds
 Essex County Civil Action 90-1989, Dartmouth Bank vs The Rostoffs, Eric Gervais and James Harris filed by Daniel S. DiLorenzo, VP.
 See ” The Murder of Joan Andres”. kirbyontheloose.com
 TAPS Inc owned the fifth floor, the major partners in TAPS were Goggins, Pichette and Peter Whelan (75%) Smith had a secret interest of 12.5% Proof of Loss, page 12
 Lessons from the New England Bank Failure, New England Economic Review, May/June 1993
 Blaming Jews for the Financial Crisis,H.T. Braniac, The New Republic, May 13,2009,The New Republic, May 13th,2009, Economic Antisemitism, Wkipedia
 Springfield Republican (Matty Ryan case brought much heat, little light” Brad Smith, March 19, 1995
 Investment Partners membership included Todrin, Goggins,Smith, Pichette,Labovitz and Shrair
 Prosecutor Charged with Drunken Driving” Daily Hampshire Gazette. Jim Danko,
 U.S. Prosecutor Cleared of OUI charge” Daily Hampshire Gazette. Jim Danko, March 29, 1997
 Ponsor’s holdings in Amherst area real estate, references book and page,* indicates Heritage mortage 2552,page 140*,2907, page 319, 3421,page 3*4135, page 284
 The issue was put into law in Brady vs. Maryland, U.S. Supreme Court (1963) In Brady, a jury convicted the defendant of murder after the state withheld a confession by a codefendant who admitted being the killer.
 Williams ordered a thorough investigation of the prosecutions tactics, which resulted in the Schuelke report, a devastating indictment of the prosecution’s tactic
Casualties of Justice, The New Yorkers, January 3, 20