State Treasurer Jerome Cosentino and his trucking business borrowed $1.9 million more than previously disclosed through a Chicago bank where he deposited millions in state funds, according to loan documents examined by the Tribune.
The personal loan, which Cosentino did not disclose at a legislative inquiry into his dealings with the bank, is in addition to two publicly-disclosed loans totaling $400,000 to his trucking company from Cosmopolitan National Bank of Chicago.
Cosmopolitan`s top officials arranged the $1.9 million transaction, in which a Schaumburg leasing firm borrowed the cash from the bank in June 1989, and immediately lent that amount to Cosentino, according to documents and attorneys familiar with the transaction.
The suburban firm, Capitol Leasing, effectively acted as a substitute lender for Cosentino, records show. In addition, bank officials agreed to guarantee the loan if Cosentino couldn`t pay the debt, according to documents. Two years earlier, Cosentino`s office began depositing what would eventually total about $33 million in state funds at Cosmopolitan. The bank had not previously received state deposits.
Steve Brown, a consultant for Cosentino`s campaign for secretary of state, acknowledged that Cosentino had borrowed the $1.9 million from Capitol Leasing and used it to pay bills at his cash-strapped trucking company.
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Brown said Cosentino regards it as a ”personal obligation” and not a loan to his business. ”We view this as legal and proper,” he added. He said Cosentino is making payments on the debt.
Brown also said that Cosentino ”has no knowledge” of Cosmopolitan officials` involvement in the loan nor where Capitol Leasing got the $1.9 million. Loan documents, however, outline the role that bank officers played in the transaction.
Cosentino repeatedly has said there was no connection between his deposit of state funds and any loans to his trucking business. He declined to comment on the specifics of this most recent loan disclosure. A transcript of the legislative inquiry shows that Cosentino was not asked directly about the extent of his debts.
Details of the $1.9 million agreement emerged in recent months during interviews with parties to the loan and attorneys and a review of documents outlining the transaction.
According to several of these individuals, a federal grand jury in Chicago is investigating the operation of Cosmopolitan by James Wells, the bank`s former chairman and one of the officials who structured Cosentino`s loans. Wells was ousted as chairman and barred from banking last August by regulators with the U.S. Office of the Comptroller of the Currency for what they called unsound banking practices.
A spokesman for the U.S. attorney`s office declined comment.
According to lawyers, the complex transaction began when Cosmopolitan Bank lent $1.9 million to Capitol Leasing in June 1989. On the same day, Capitol, which had previously leased trucks to Cosentino`s company, lent $1.9 million to Cosentino at an interest rate slightly above the prime rate.
Bank chairman Wells personally co-signed the Capitol loan with Cosentino, and the bank`s holding corporation issued a letter guaranteeing to repay the money should the two men default, documents show.
Last April 19, the loan was restructured, according to documents, and Wells was removed as a co-signer. In Wells` place, Cosentino and three longtime acquaintances co-signed the loan, Steve Brown said.
The new co-signers were two Springfield developers and a Chicago executive whose firm supplies truck parts. The developers, Charles Robbins and Dennis Polk, have state contracts totaling $200,000 annually to provide Springfield office space for the state treasurer`s staff.
Robbins and Polk and their businesses have made frequent contributions to Cosentino`s political committee, giving about $66,000 over the last four years.
Robbins said in an interview that he had been subpoenaed by the grand jury. He declined further comment. Polk could not be reached for comment.
Cosmopolitan`s loans for Cosentino and his company-which total at least $2.3 million-appear to have exceeded the bank`s legal lending limit to a single borrower, a violation of federal banking rules.
”Even though loans may be paid to separate entities, if the money winds its way back” to a bank borrower, federal banking rules may be violated, said Dean DeBuck, a spokesman for the Office of the Comptroller of the Currency, which regulates national banks like Cosmopolitan.
At the time of the loan, Cosmopolitan`s legal lending limit was about $1.9 million.
Gerald J. Denicholas, a Cosmopolitan vice president, declined to comment on the bank`s dealings with Cosentino.
Attempts to reach Wells for comment were unsuccessful. The Office of the Comptroller of the Currency has charged that Wells diverted $230,000 that the bank had authorized for improvements to a branch at 1400 N. Lake Shore Drive, where Wells owns a restaurant. Some of the diverted funds were used to remodel Wells` restaurant, federal regulators contend.
Cosentino has said he is not under investigation, and lawyers for Capitol Leasing, the Schaumburg company, maintain that the firm is not under investigation.
”Obviously there is a wide-ranging investigation of the bank and probably many of its customers,” said Brown, Cosentino`s campaign consultant. The treasurer`s office determines where state funds are deposited. Cosentino told the legislative hearing in June that Cosmopolitan was one of 2,500 Illinois banks that receive state deposits. State funds represented more than 20 percent of Cosmopolitan`s deposits in 1989, according to bank records. Capitol Leasing`s financial help to Cosentino came as Fast Motor Services Inc., a Brookfield-based trucking firm he formed in 1959, was encountering financial difficulties, Cosentino said in an interview last month.
Like many trucking companies, it has been hard hit by deregulation of the industry. According to Brown, the loan was an effort to shore up Cosentino`s business.
Loan documents show the $1.9 million was for working capital for U.S. International Inc., an Indiana firm formed by Cosentino to provide drivers to Fast Motor.
Cosentino said his trucking business began banking with Cosmopolitan Bank at the request of Wells, a longtime acquaintance.
Two months after the state treasurer`s office made its first, $10 million deposit in the bank, Cosmopolitan lent Cosentino`s trucking firm $250,000 in July 1987.
After obtaining the $1.9 million in June 1989, Fast Motor went back to the bank in August and borrowed an additional $150,000, records show.
Cosentino said recently that his trucking firm has paid only interest on the $400,000 in loans and that the principal is due next spring.
Cosentino said the $400,000 was obtained at two or three points above the prime interest rate.
In the September interview, Cosentino was asked about his financial relationship with Capitol Leasing. He said his business had no financial relationship with Capitol beyond an agreement to lease trucks.
During that interview, Cosentino said his trucking business found Capitol after ”shopping” various companies. Documents show Cosentino`s trucking firm began leasing from Capitol in September 1988.
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Cosentino described Capitol Leasing`s then-owner, Terry Brown, as a longtime Cosmopolitan Bank customer whom he had met at parties.
”It just happens to be that he is a big customer of the bank. He runs his business through that bank like I did, and he refinanced some equipment for us, legitimately. We paid it off. That`s the end of the story,” Cosentino said.
Terry Brown, who recently sold the company, declined to comment.
Since the September interview, consultant Steve Brown (who is not related to businessman Terry Brown) has handled reporters` requests for information about Cosentino`s trucking business.
At two hearings last June, the Illinois Legislative Audit Commission questioned Cosentino and his staff about the trucking company`s loans and how the treasurer`s office selected Cosmopolitan Bank as a state depository.
Cosentino said his office began making deposits in the bank as part of a program to link state deposits to financial institutions offering lower interest rates for credit cards.
He told legislators there were no state laws requiring him to disclose where he conducts his private banking.
”There was no special favoritism given to the Cosmopolitan Bank for any loan it made or may make to me,” he said.
Cosentino`s relationship with Cosmopolitan has become an issue in his race for secretary of state against Lt. Gov. George Ryan. Cosentino disputes a Ryan allegation that the state lost $1.3 million in interest on the Cosmopolitan deposits.