Did Deval Patrick Represent Private Interests?

Governor made call on behalf of lender
Troubled Ameriquest sought infusion of cash

By Frank Phillips, Globe Staff | March 6, 2007

Governor Deval Patrick, who was criticized during the gubernatorial campaign for his involvement with a controversial subprime mortgage lender, called a top official at Citigroup, former US Treasury secretary Robert E. Rubin, two weeks ago to intercede on behalf of the owners of Ameriquest Mortgage as they sought urgent financial assistance from the global financial giant.

In a statement to the Globe, Patrick said he made the Feb. 20 call to Citigroup not in his role as governor but after a personal request to him from a top official at ACC Capital Holdings, the firm that owns Ameriquest Mortgage, which has frequently been accused of predatory lending.

Citigroup, the world's largest financial company, has a host of business interests in Massachusetts, many of which are regulated by the state. A key Citigroup subsidiary handles lucrative bond work for state agencies. In addition, Ameriquest is licensed by the state Division of Banks.

In the conversation, Patrick vouched for the "current management and the character of the company," said Kyle Sullivan, his spokesman. Sullivan said Patrick told Rubin that he was serving as a personal reference for ACC as its owners pushed for the quick cash infusion from Citigroup that would stabilize their struggling lending firm.

"They had a very short phone conversation lasting only a couple of minutes," Sullivan said. "He did not advocate in any way for a deal between Citigroup and ACC Capital. He simply offered himself as a reference."

Sullivan would not elaborate further on what Patrick said. Patrick was asked to make the phone call by Adam Bass, senior executive and legal counsel to ACC Capital, Sullivan said.

Patrick resigned last year from the ACC board after serving nearly two years as a director, for which he was paid $360,000 a year. Sullivan said that Patrick received no compensation for making the call and that the governor has no financial interest in ACC Capital.

But the call to Rubin is highly unusual, in part because of the political sensitivity over his past involvement with the controversial mortgage lender. In addition, if a sitting governor reaches out personally to a top corporate executive, it is typically on behalf of state interests, such as a desire to preserve jobs in Massachusetts.

Pam Wilmot, executive director of the watchdog group Common Cause/Massachusetts, questioned what role Patrick was playing in placing such a call to a corporation with extensive interests before the state. The implied message of Patrick's call, Wilmot said, is that he wants Citigroup to go ahead with the deal.

Wilmot said the governor "must represent the Commonwealth and only the Commonwealth" in such circumstances, rather than private interests.

"When a governor calls a company, particularly one that does business with the state, and asks it to do something, the company is going to feel pressure to act," said Wilmot. "They are going to ask, 'If I do this, will I get a favor?' and, 'If I don't, will there be any penalty?' Those questions should not be on the table at all, and, regardless of the answer, the very questions themselves create an appearance of conflict of interest."

Wilmot said the call puts a company in an "uncomfortable and untenable position."

On Feb. 28, ACC Capital announced it had reached a deal with Citigroup, under which Citigroup would give a much needed cash infusion and credit line to the struggling mortgage firm, which provides high-interest mortgages to high-risk buyers.

In turn, the agreement gives Citigroup an option to buy companies owned by ACC Capital, but not Ameriquest. Patrick, who joined the five-member board in 2004, resigned from the board last July as his candidacy for governor gained momentum.

A spokesperson for Rubin, who is chairman of Citicorp's executive committee, confirmed that the short conversation took place, echoing Sullivan's statement that Patrick offered himself as a character reference for the company. ACC Capital did not respond to a request for comment.

According to the financial press that covered the negotiations, the deal with Citigroup, which has $1.8 trillion in assets, was critical for ACC owner Roland E. Arnall, as Ameriquest confronts dramatic declines in earnings because of increasingly difficult conditions in the subprime lending market.

Delinquencies and foreclosures have jumped in recent months after a hot housing boom, including in Massachusetts where many subprime borrowers, including those with loans from ACC capital's mortgage operations, are losing their homes. In the final quarter of last year, California-based Ameriquest launched foreclosure proceedings on 54 homes in Massachusetts, according to an analysis by Banker and Tradesman.

In making the call, Patrick drew on his ties to Rubin, which developed when both served in the Clinton administration. Patrick was assistant attorney general in charge of the US Justice Department's civil rights division. As treasury secretary, Rubin oversaw the federal Bureau of Alcohol, Tobacco, and Firearms and worked with Patrick on the investigations into Southern church arson cases in the mid-1990s.

Citigroup, through its subsidiaries, is heavily involved in the state's very lucrative public financing system. For example, it was the lead manager for $4.9 billion in bond issuances in 2004 and 2005 in Massachusetts, much of it for work for some of the quasi-public authorities that Patrick now controls or will at some point during the course of his term.

Those agencies include the Massachusetts Water Resources Authority, the MBTA, MassDevelopment, the Massachusetts Port Authority, the Massachusetts Turnpike Authority, and the Massachusetts Health and Educational Facilities Authority.

The public authorities create a list of qualified private financing teams, which would include such firms as Citibank, to use when they issue bonds. It is the authorities' sole discretion to make the selection.

Citigroup's interests also are focused on Beacon Hill, where it employs a well-connected Democratic lobbying firm, Dewey Square Group, to look after its interests.

Citibank, with its huge credit card division, is particularly interested in identify-theft legislation that has been stalled at the State House. The proposal is opposed by the credit companies because, advocates say, it would undercut their efforts to sell identity-theft protection.

Primerica, Citigroup's life insurance company, is licensed and regulated by the state's Insurance Division. Citibank, its banking division, is aggressively expanding in Massachusetts in retail banking, for which the company will face additional state consumer laws and regulations. Citigroup also is competing to serve as a depository for state funds.

Patrick's close working relationship with Arnall, a conservative Republican and one of President Bush's major financial backers, and his former role as a well-paid board member for Arnall's lending company, has caused concern among his supporters and anger among those who have battled the mortgage giant. The firm faced allegations that it has defrauded minorities, the elderly, and low-income people.

Patrick has defended his service on the board of the mortgage company, saying he pushed through changes in the way the company operates. Patrick served as the board's representative to the Ameriquest legal team, as the lawyers negotiated a $325 million agreement with 49 states to settle allegations it had defrauded low-income borrowers.

In 2005, Patrick wrote the Senate Foreign Relations Committee as it considered Bush's nomination of Arnall to be the US ambassador to the Netherlands.

He described Arnal as a man of rectitude. He said Arnall has demonstrated leadership in moving to correct his company's practices and said the nominee would make a "fine ambassador."

Boston Globe