Bank officials justify Thomas loan as marketing maneuver

Two bank employees testified in New London Superior Court Wednesday that seeking a "foothold in … Foxwoods" by granting multimillion-dollar loans to Michael Thomas, the former chairman of the Mashantucket Pequot Tribal Nation, was intended to boost Sovereign Bank's visibility in the Connecticut lending market, not improperly steer casino business to the bank.

The bank has sued Thomas for allegedly defaulting on an unsecured $1 million line of credit that grew, with other extensions, to $5.2 million. Thomas' lawyer, Lawrence Rosenthal of the Hartford law firm Rogin Nassau, has alleged in court documents that the bank loaned the money "with the intent to influence or reward an agent of an Indian tribal government," a violation of federal law.

The trial began on July 20.

Testifying before Judge Joseph Q. Koletsky, Kevin E. Flaherty, now an executive at Webster Bank, said that in his role until 2009 as a senior vice president for commercial banking at Sovereign Bank, he signed off on two so-called Sovereign Approval Memorandums written to detail Thomas' financial condition and justify the bank's lending decisions, even though Thomas' credit score was less than 600, which is about average.

The first memo, written April 27, 2004, was for Thomas' initial line of credit, while a second memo written on June 29, 2005, made $3 million available for Thomas to purchase and try to "flip" land known as Boulder Heights in Groton. The land never sold, and the bank secured the mortgage only to have it contested by other alleged owners.

At the time both memos were written, Flaherty supervised Devin Hawthorne, a portfolio manager and financial analyst who develops business relationships with clients for the bank. Hawthorne is still with Sovereign Bank. He testified that he's had as many as seven wealthy clients, including Thomas, with whom he's worked.

The first memo reads, in part: "We are proposing this transaction in order to gain a foothold in the Foxwoods Casino relationship. We are currently trying to win Foxwoods' cash management business and other ancillary business from this casino."

Asked by the bank's attorney, Joseph Burns of the Hartford law firm of Rome McGuigan, about that language, Flaherty said the bank was trying to "build reputation."

"The real intention of this is, we were trying to build relationships throughout Connecticut, and we had no branch presence, no visibility in that market," Flaherty said. "At the time, we were trying to demonstrate that we were easy to do business with."

Hawthorne said the phrase "foothold in Foxwoods" meant that "Mr. Thomas would be able to give introductions to other people in the tribe or in the area and be able to recommend Sovereign Bank."

Asked by Burns if Hawthorne was aware of any impropriety involved in the extension of the loan, Hawthorne replied, "Not at all."

Earlier in the day, Hawthorne testified that "making money" was the main purpose of the extension of a line of credit to Thomas, but that "some of our best referrals" come from high-profile customers.

The second memo describes Thomas' financial profile and the bank's rationale for temporarily increasing the line of credit to $4 million so Thomas could purchase Boulder Heights, which was valued at $4.6 million, "at a discounted price and quickly resell it."

In this memo, the justification for the bank transaction is altered. It reads:

"Michael Thomas is a very influential man in the Southeastern part of CT. Foxwoods Casino presents several business opportunities for Sovereign Bank and this accommodation will go a long way in opening the door for these opportunities."

"I did not know that it would open any doors," Flaherty told Rosenthal under cross-examination, and at another point, noted, "I had no solicitations with the casino. I did not know their business needs."

When asked by Rosenthal if the bank intended to "influence Mr. Thomas in steering casino business to the bank," Flaherty flatly answered, "No." Asked if the line of credit was a "way to get into Foxwoods," Flaherty answered, "There never was any discussion to that effect."

"It was nothing more than demonstrating to any borrower in the state of Connecticut that Sovereign Bank was in business to do business, and we made good quality loans," Flaherty said.

Rosenthal also wanted to know why the memos were "all about Foxwoods" if the bank was just extending a personal loan to Thomas.

"That was his employer," Flaherty said.

Rosenthal also asked Flaherty and Hawthorne separately if they had any training during their work history that might have taught them how to handle deals with elected government officials to avoid the appearance of impropriety. Flaherty said he had no training but he also had no concerns about giving Thomas the loans.

Hawthorne said he did not recall getting such specific training but was aware that trying to get a town's business by lending money to a government official like a mayor would be improper. At the same time, extending a personal loan to a mayor is something that would be considered by a typical lending institution, he said.

Thomas is scheduled to testify at 10 this morning when court resumes.

P.DADDONA@THEDAY.COM