In March of l991 a young FBI agent named T. J. Roberts came out from Boston and started probing into the bank failure. The bank was on its last legs and he threw himself in subpoenaing
everything relevant from the bank. During the 1991 and 1992 period, there was a lot of apprehension that some of Northampton’s leading lights would go to jail from being involved in this
mess. The FBI came to Northampton in force, spending many hours following the paper trails out from the County Registry of Deeds into the offices 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 in 1988, the so-called Hoar report, that found hundreds of violations of State and federal laws and banking regulations. In l989, the FDIC threatened to
fine Covell for his violation of insider trading practices. A lot of people were scared, and it was thought that up to twenty people might be indicted.
Mike Smith by then was working at another bank up in New Hampshire. On November 19, 1990, lawyer Mark Tully of the Boston law firm Goodwin, Proctor and Hoar, hosted a meeting with two executives at the bank, John Fridlington and Jack Patterson. James Scripture of the FBI also attended. The meeting came in the wake of Mike Smith’s departure from the bank the previous August, and the criminal referral filed by the FDIC against Smith. It was back-dropped by ever-increasing losses at the bank. .
During the FDIC audit in August, there had been a slight falloff in the number of delinquencies, but then the chief FDIC auditor Gonzales learned from Heritage VP Fridlington, who was looking into Heritage's operations in Worcester, about finding all Manuel Duarte’s checkbooks. Massive losses were cropping up in the Worcester branch. Concerned that that they might have another Mike Smith on their hands, Gonzales thought that enough was enough. He 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." Covell was particularly apprehensive about the possibility of the FDIC filing a cease and desist order and the required public disclosure that would ensue. Gonzales also filed a report of an apparent crime against Michael Smith, and that brought in the FBI.
When Smith walked out of the bank for the last time, many of the people on his client list stopped paying on their loan packages. Fridlington and Patterson weren’t part of the old leadership clique at NIS, but late arrivals at the bank who got on Mike’s nerves with their questions and challenges. Fridlington wanted him fired a year earlier, but had been overruled by Covell.
James Scripture described the FBI investigation to date. They had gone up to Lake Sunapee looking for his condo, but didn’t find anything suspicious. They didn’t know that the building was held by a corporation. They had looked at the Hoar Report that Tully had co-authored, and talked to some people. Scripture indicated that "an extensive investigation" was unlikely because Tully and his team had conducted an investigation and could find no criminal activity at the bank. The two bank officials had suspicions that with all this smoke, there might be a fire somewhere, but they had little solid to go on.
"So what else do you have?" he asks.
The only evidence that the two bank officers could offer up was a conversation with developer Andrew Ross when they were renegotiating the Saco Island package of loans. The bank had bet the farm on a speculative venture rebuilding an old factory complex in Maine. There was, he 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". Mr. Scripture said he would probably follow this up, and turn his file over to Assistant U.S. Attorney John Pucci who had relocated to the Springfield office from Philadelphia. Later the FBI would find out that Ross had paid a so-called “finders fee” to Mike Smith to secure the financing.
There were $80 million in bad loans that Smith originated. Later Jack Patterson told the FBI that he suspected Mike was getting kickbacks from some of these people he was involved with. He found that there was always a missing partner in these Heritage-funded development groups. If you added up the partners declared interest, it never came to 100%. There was a missing chair there, and who was sitting in it?
In early l991 the FBI started to get more interested in the case when Irving’s brother, Stanley Labovitz, told the FBI that Mike Smith had taken a cash bribe to approve $3.4 million in financing for two of his Cape Cod commercial developments. In July of 1990 John Pucci took charge of the investigation of the Heritage scandal for the U.S. Attorney’s office in Springfield.
To look at his background, it would seem that John Pucci was the impressive litigator the U.S. Attorney’s office needed. He had lead an extensive investigation into the activities of Russian mobsters in Philadelphia that resulted in many convictions. Ahead of him was the complex politically volatile Heritage case and the Matty Ryan affair, a case revolving around allegations that Hampden County District Attorney Matty Ryan had an improper relationship with organized crime elements, including the Scibellis and Adolfo Bruno. When it became public that he regularly played racquetball with Bruno right up to the day he went to prison, it hit the papers and the Boston Globe and the Springfield Union News called for an investigation. Charges against Ryan included doing improper legal favors for, among others, Albert “Baba” Scibelli.
The troubles inside Ryan’s office had also hit the headlines in a bizarre 1989 murder attempt by John Mace, once Ryan’s top state police investigators. Mace stabbed one of Ryan’s prosecutors in the courthouse. (see the Springfield Republican (Matty Ryan case brought much heat, little light” Brad Smith, March 19, 1995) Later after he had resigned, he would tell the press that he came to the area to "be near his father and mother." He said that he was tired of federal service and sick of the bureaucracy and fighting with FBI agents. In a rambling interview with Brad Smith in the Springfield Union News after his departure from federal service, Pucci admitted that "Ryan was never on my radar screen." The statue of limitations ran out with no action from federal prosecutors.
"Sometimes that’s how these things end" said Pucci, "They peter out."
He spun the bank story to the press as a crisis caused by Mike Smith. He says Heritage officials turned to the FBI for help. “Heritage officials privately went to authorities with their allegations. . . that set off an FBI probe.”
The Chief FDIC auditor had triggered the investigation, not anyone at the bank.
The first couple of times Mike Smith talked to the FBI, it was not a threatening business, just two young guys with notepads asking respectful questions. By his own admission during the trial, Mike thought in the beginning he could wear his bankers suit and tie and con them by telling the FBI people stories and playing the big shot.
Time went along. Mike begins to cooperate, although he is not telling the truth and whole truth by any means. He is getting nervous, he is afraid he is going to go to jail, and it seems that the only way he can stay out of jail is to be a rat. The FBI drafts some kind of witness agreement. In a FBI 302 dated August 28, l992 T. J. Roberts indicates (in it) that "Michael Smith was going to be tape recording Mr. Todrin in the next few days. " Agent Roberts showed Mike Todrin’s banking statements, he tells him that those statements were false and tremendously inflated, and he wants Smith to get Todrin to admit that they were false on a tape recording.
On September 3, l992 Smith gets wired up and has two conversations with Todrin. The first meeting was in the morning at his office, the second was for dinner at Brickers restaurant up in Greenfield. And he does that. Then the FBI would call Todrin down to Springfield and give him the first degree. By late l992 it is clear that the FBI’s main target is Irving Labovitz. T. J Roberts, in an article in the Union News that would get him in trouble in Boston, is quoted as saying:
"Mike Smith is 27. He was led around by the nose by other suspects in the case."
In November, Springfield decided that they had enough to drop the hammer on him. They called up Mike’s best friend Tim Sicard. Tim’s neck was out because he was a state cop and he probably wanted to keep his job. They convinced him to call Mike and tell him that he was about to get indicted and it was in his best interest to come down to Springfield and really cooperate with the feds.
Mike got the message, got a lawyer, and on November 10, l992, he appeared at the U.S. Attorney’s office. Five men in suits were across the table. Two men from the U.S. Attorneys office, John Pucci and AUSA Kevin O’Regan, two men from the FBI, T.J. Roberts, Michael J. Smith Jr., and a FDIC examiner, George Lynch.
They gave him the bad news. He had taken bribes, and he was probably going to be imprisoned. He had taken $5000 in bribes from Ira Sutton, who was going to cooperate with the investigation. Sign this memorandum of agreement, and do everything they asked, or you are going to go to jail.
He would cooperate. At least he told them he would cooperate. The kind of cooperation he gave them would lead to a mistrial and dismissal of charges to his friend Irving Labovitz. He would sandbag and blow off his assignments, one after another.
On January 16, Pat Goggins got a proffer letter from Pucci outlining some kind of ground rules for his testimony against Labovitz; he was told he was a "subject and not a target of the grand jury investigation”. On January 27, 1993, Ira Sutton, Mike Smith and Donald Todrin signed agreements to cooperate with Pucci and the FBI.
Shortly thereafter Mike Smith got a phone call from Irving Labovitz. He and Irving, who had been good friends, had been out of touch for some time, But one day Irving called up and said, “Hey let’s all of us get together and have dinner”. So Mike called his new handler and T. J. Roberts said we are going to wire you; we want you to get Labovitz to admit some damning stuff.
Smith met with the FBI at 5:20pm, Jan 17, l993 at the Howard Johnson restaurant in Brattleboro, VT. 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 on the stand at the trial; either the FBI Mike Smith gave the banker Mike Smith a Panasonic micro cassette recorder to place in a pocket in his blazer, or he placed the recorder in a pocket of Smith’s jacket. In any case, Roberts told Smith to attempt 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 approximately 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. I think about this, and I find it a kinda doubtful story. I could see a solicitous Labovitz taking his overcoat, but his suit jacket? 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. Why did it disappear? Nowhere did Richie Egbert, lawyer for Irving Labovitz, find any evidence that the FBI had disciplined or cross-examined Michael J. Smith on what had happened that night. I don’t think they talked to the restaurant staff about what happened. I talked to the manager and he could not recall them ever visiting the restaurant and talking to the waitstaff. It was not the FBI’s finest hour.