Heritage, What Did They Know and When Did They Know It?
by Edward Shanahan
Ambling downstreet these days, I'm struck by the contrast of the
busy, seemingly robust retail activity and the empty bank building
looming on the corner of Gothic Street across from the courthouse.
Until snapped up at auction by real estate wheeler-dealer Eric Suher,
the former Northampton Institution for Savings, Heritage Bank, and
finally Fleet Bank office had gone begging for many months.
The bank building - no architectural treasure - but a good looking
structure inside and out - stands as a reminder of the holes left
in Northampton by the collapse of the Heritage Bank in the wake
of pell-mell bank deregulation in the 1980s.
Surely, the investors in the bank who lost money when they invested
in their hometown bank, the employees who lost jobs when the bank
failed, the suppliers to businesses which had borrowed money from
the bank, and the taxpayers who helped with the bailout have moved
on in their lives. Nearly 10 years after Heritage failed, Richard
Covell, former bank president and architect of its explosive growth
and eventual self destruction, can be seen tooling around town in
his very large Cadillac.
And his allies in the bank debacle are all but forgotten, if any
of us ever knew who they were - members of the bank's board of directors
who failed in their fiduciary responsibility to the bank's stockholders,
employees, depositors, and the taxpayers. For the record, let's
summon up again those thrilling days of yesteryear.
Let's go back to the 1998 sentencing hearing in U.S. District Court
in Springfield of Michael Smith, former Northampton golden boy,
who got in over his head as a top lending officer of the Heritage
Bank. Caught up in the avarice of the go-go 1980s, Smith accepted
bribes and committed fraud, activities to which he pleaded guilty.
Out of curiosity, I sat in on the sentencing hearing that day when
federal Judge Michael A. Ponsor ordered Smith to serve 18 months
at a federal prison camp for his crimes.
I recall revealing statements made during that hearing - I took
notes - including those by Smith's lawyer, George Kelly, who while
not denying that Smith acted illegally, said his client at the time
of his crimes was inexperienced and lacked supervision. There was
pressure on the bank after its public stock offering of $55 million
"to put money on the street." Those loans, Kelly said, "would have
been made anyway if Mr. Smith had been on another planet." Yet,
others associated with the bank "have essentially walked away from
From the bench, Ponsor agreed: An argument can be made, he said,
that Smith was inexperienced; it is hard to imagine the bank placing
so much responsibility in such a young man. Smith's aggressive lending
practices, the judge said, probably reflected the bank's own goals.
"Where he crossed the line," the judge said pointedly, "was when
he pocketed the cash, when he put the envelope in his pocket."
And I recall Judge Ponsor, a man with a reputation for integrity
and fairness, sharply admonished the bank, saying while it did much
good by contributing to the community, it "had no business" going
public because it lacked the "worldliness, sophistication and competence"
to handle the ocean of money that flooded into its coffers. "In
that sense, the bank itself betrayed the community."
Then addressing the defendant, the judge said: "Mr. Smith you are
not solely responsible."
Thus, at the tailend of a long-running legal ordeal, Ponsor had
raised anew the nagging question who else had responsibility for
the collapse of what was once a well-respected $2 billion financial
Depositors and investors are entitled to have an unshakable trust
in their bank, its employees, and its paid directors, the ultimate
management . According to one respected former banker I talked to
at the time, a bank director's job "is to ask a lot of questions."
The paid directors were not just any old volunteers dragged in off
the street for the monthly board meetings. The board was composed
of doctors, lawyers, CEOs of large companies, top college officials
and administrators - in other words so-called pillars of the community.
Yet they all seem to be missing in action when the going got tough
and everything turned rancid.
For the record, between December, 1986, and Dec. 31., 1991, shortly
before the Federal Deposit Insurance Corp. takeover, the number
of Heritage directors fluctuated between 18 and 25; the cast changed
as mergers expanded the geography of the area served by the bank.
The information comes from reports from the state Office of the
Commissioner of Banks.
Besides Covell, the bank president, some directors - movers and
shakers all - were on the board for the entire six-year period prior
to the collapse: Peter R. Elliott, Charles F. Watters Jr., Donald
J. Southwick, Allen Torrey of Amherst, Dr. Joseph Tarantino and
Lawrence A. Fink of Northampton, and Robert F. Mahar of Florence.
Others who served for several years were Atty. David Fogel and Joseph
J. Whalen of Northampton, Nancy B. Eddy, Douglas C. Elder and Kurt
Hertzfeld of Amherst, and David M. Bartley and Robert K. Steiger
of Holyoke. Other local figures of note on the board for two years
were Charles Bisbee of Chesterfield and Atty. Kenneth B. Bowen of
Some directors who were on board and left were R.C. Peck, J.C. Nettleton,
James D. Watt, J.T. Conlon, L. Nims, and J.C. Manning. They were
replaced by John W. Fridlington, David M. Blair, Atty. Robert A.
Gelinas, Robert S. Carroll, Roy A. Scott, R. Feinstein, Atty. Maurice
J. Ferriter, Jeannette T. Wright and Frederic E. Schluter.
At the conclusion of the sentencing hearing, as the elevator took
us down from Judge Ponsor's courtroom, an official of the FDIC volunteered:
"You can put a C (as in closed) next to the Heritage case."
Maybe we can, even though we still don't know the whole story.