Key Bank of Florida _ the nexus of a 10-agency investigation of fraud, money-laundering and racketeering in Tampa _ isn't the first small financial institution in the region to stumble into trouble by getting cozy with customers.
From Commerce Bank in Tampa to Park Bank in St. Petersburg to Liberty Savings and Loan Association in Port Richey, cronyism and sloppy lending have served as shortcuts to disaster.
The path for all of them started smoothly enough. But after the institutions carved a niche in community banking, relations among bank directors, officers and favored customers grew too friendly and lending got careless.
Paperwork wasn't always filled out. Some borrowers didn't have the money to repay, and the banks sometimes didn't bother to check or didn't want to know the worst about their customers.
Eventually, bank portfolios included risky loans other banks wouldn't touch.
Key Bank shows signs of strength and stability that two other Tampa banks, Commerce Bank and Metropolitan Bank and Trust Co., didn't have when they collapsed in the 1980s.
But some of its problems look familiar.
"Sort of what they had in common is that they seemed to think that they were smarter than these other bankers who have been in the business," said Ron Goff, managing director of Community Bank and Thrift Advisory Services in Tampa. "That's generally the sort of mentality that gets banks in trouble."
A small-town bank
Members of the state and federal task force investigating Key Bank describe a network of friends and business associates who routinely do favors for one another.
"Anybody who's lived in Tampa more than 10 years knows that this is really a small town," Hillsborough Assistant State Attorney Lee Atkinson said at a news conference Sept. 25. "In many ways, it has done business as a small town. People do things for people they know."
Lawrence Fuchs, a deputy to state Comptroller Gerald Lewis, has worked in a variety of investigations of troubled lenders, including CenTrust Savings and Loan in Miami. Never, though, has he seen the kind of bizarre practices alleged at Key Bank.
For instance, Fuchs said he has never heard of a bank officer calling government officials and impersonating a customer. Court-ordered wiretaps show that's exactly what Key Bank vice president Michael Pupello did for Santo Trafficante III.
In June, another wiretap picked up Key Bank president Frank Pupello, Michael Pupello's father, explaining to a customer how regulators cramped his style.
"I gotta walk a straight line with all the paperwork and all the bulls---," he said. "It ain't no more just 'cause we know each other."
Also in June, bank employee Charles Russell, who handles delinquent loans at Key Bank, turned up in wiretapped conversations saying the bank's problems could be traced to "gross negligence and gross stupidity."
"It's because they made (unsecured) loans to good old boys that they didn't have no business making loans to," Russell said. "And they also got collateralized loans on collateral that they didn't even know what the collateral was."
Both Pupellos, Trafficante and a dozen others were charged Sept. 25 with felonies related to bank fraud.
The investigation that culminated in those arrests began last year, but court records show that bank examiners have raised questions about the way Key Bank was run for years.
In 1982, a state bank examiner concluded that Frank Pupello, who was suspended from his job after his arrest, was "not a qualified officer to be running a bank."
The examiner said Pupello made too many loans to builders and developers and told regulators that he let borrowers go past due "in order for them to pick up some strength."
In 1991, according to an investigators' affidavit, Pupello told detectives he had meant to write some loan policies and procedures but hadn't gotten around to it. Asked why he gave two developers a new loan without closing out the old one, he said he "did not want the hassle of additional paperwork," investigators recalled.
When a federal examiner asked why he lent money to a man whose business collapsed while he was in prison, Pupello said he felt the man would "find some way to repay the debt."
"Pretty foolish thinking'
Although Key Bank's deposits took a big hit in recent months, Fuchs said there has been "no indication of a substantial deposit runoff" since the latest round of arrests. Depositors' money remains federally insured up to $100,000.
Fuchs also said Key Bank's cushion of capital and supply of ready cash remains well within state and federal requirements.
"It is still solvent, and it is still liquid," he said recently.
That hasn't been the case for other loosely run area banks.
In 1982, Metropolitan Bank and Trust Co. collapsed after Tampa financier Allen Z. Wolfson took out loans totaling $1.26-million and lied about their purpose.
Wolfson, who had been convicted of defrauding Key Bank in 1977, pleaded guilty to making false statements about the purpose of the two loans. The loans appeared to be for buying or developing real estate.
Actually, the money went to Wolfson and a partner, former bank president Donald A. Regar, who used it to buy bank stock.
Metropolitan was closed after what regulators described as a "silent run" left it too cash-poor to meet its depositors' demands. It had more than $50-million in uncollectible and unsecured loans when it collapsed.
About the time Metropolitan closed, executives at Commerce Bank began struggling with losses caused by problem loans and a management that failed to control the bank's operations. Three years later, in 1985, it was declared insolvent.
When they did a post-mortem on Commerce, regulators put most of the blame for its failure on the "lack of control" exercised by former directors, according to a state examiner's report.
Directors at Commerce, which had catered to Tampa's Latin community, included Edward Giunta, a member of a wealthy Tampa family that once owned a stake in Kash n' Karry Food Stores Inc.; former State Attorney E.J. Salcines; and Richard Barcia, a senior administrator at Tampa General Hospital.
Directors, in response, said they had been misled by the bank's management.
Across Tampa Bay, the 1986 failure of Park Bank was the seventh-largest bank failure in U.S. history at the time.
Park Bank, with $593-million in assets when it went under, was victimized by "rampant misconduct and insider abuse," a congressional report that focused on the bank concluded.
When Park Bank went under, it took with it nearly $2.5-million in loans that tiny Liberty Savings and Loan in Port Richey made to Park Bank stockholders.
As a savings and loan, Liberty operated under a different set of regulations than banks, but it also took risks by lending money to cronies and developers with questionable real estate projects.
As a result, Liberty became the first savings and loan in the nation closed under the federal S
L bailout in 1989.
Although Key Bank's problems are markedly different from those suffered by the other institutions, Florida banking officials say they are closely monitoring the situation.
"To think that we wouldn't be monitoring it closely would be some pretty foolish thinking," said Terry Straub, director of the state division of banking.