A federal bankruptcy judge ruled in favor of OneUnited Bank this week and will allow bank attorneys to question a Bain Capital official about his role in arranging a questionable $1.5 million donation to the historic Charles Street AME church.
According to bank attorneys, the donation was part of a scheme to short-change the bank and eliminate the obligations of the First District African Methodist Episcopal Church as a co-signer on Charles Street’s original $3.6 million construction loan.
Ryan Cotton, a principal at Bain Capital since 2003, first came to OneUnited’s attention in August 2010 when he informed the bank that he represented Bain’s “restructuring group” and that his firm was prepared to buy the church’s outstanding loan for $1 million or the bank would “endure a raft of bad publicity.” The bank rejected the offer.
Cotton’s name emerged again in 2012 when the church was contemplating filing for bankruptcy protection. In a series of emails between Cotton and the church’s attorney D. Ross Martin, the two discussed a proposed letter for Bain Capital’s Managing Director Steven Pagliuca to sign and mail that would pledge “a $1 million donation” to the First District. The specific purpose of the donation was to finish the church’s proposed Roxbury Renaissance Center in Grove Hall.
In an email dated June 14, 2012, Martin sent Cotton an “enforceable pledge agreement” informing the prospective donor that “the proceeds of this pledge shall be used by the [First District] solely for the purpose of funding Charles Street for completion of the RRC…”
OneUnited attorneys asserted in their brief that Rev. Gregory Groover Sr., the Charles Street pastor and chairman of the Boston School Committee, was non-responsive during his deposition when asked about the First District’s alleged donation.
“Rev. Groover offered an abundance of awkwardly phrased testimony of the First District’s ‘generous assistance’ that cannot fairly be characterized, in the language of the oath, as ‘the whole truth,’” a bank attorney stated.
During the July 13 deposition, Groover was asked about his understanding of the donation.
“What is contemplated is that $1.5 million will be raised and [the First District] will have possession of that $1.5 million and will donate it to the church in order to complete construction,” Groover answered. “And once that has been raised and has been turned to the church for construction [the First District] will then be released from being a guarantor.”
A OneUnited attorney then asked: “So it’s your understanding that the donation is coming from the First District, is that correct?” Groover answered: “We [Charles Street] will receive it; that is the church, from the first Episcopal District.”
“So your understanding,” the OneUnited attorney asked, “is that the First District isn’t donating $1.5 million of funds that it currently has but instead it’s going to be the repository of funds that are being donated from others and then turned over to Charles Street to finish the construction…?”
“It will be a donation from the First District because the donations will be sent to the First District,” Groover answered.
But when Groover was asked if he was aware of any active planning by the First District to fundraise for the donation, Groover answered, “I am not aware of any plans.”
In several previous court filings, the First District pledged to “be the lifeline necessary to build the [Renaissance Center]…and has offered to donate the $1.5 million the church believes is necessary to complete [the center].”
In their brief demanding Cotton’s appearance for questioning, OneUnited attorneys alleged that Rev. Groover and his attorneys “contrived a scheme” in which Cotton and Bain would send $1.5 million to the First District’s bank account. That money would then be given to Charles Street as “a First District donation,” the brief alleges.
In exchange, the First District would satisfy its obligation as a co-signer on the loan and receive what OneUnited attorneys characterized as a $3.6 million debt forgiveness.
But during a deposition, Rev. Vernard Leak, the reported chief financial officer of the First District, stated that he was not aware of Bain’s efforts to raise a $1.5 million donation for Charles Street. Leak also testified that he had never talked with Cotton or anyone else at Bain.
When a OneUnited attorney specifically asked Leak what, if anything, has the First District done to advance fundraising for the completion of the center, Rev. Leak responded with a question: “As in an active way of initiating fundraising?”
“Anything,” the OneUnited attorney asked.
“I am not aware of anything,” Leak answered.
Though calling OneUnited’s attempt to subpoena Cotton “entirely harassing” and “a blatant act of retaliation,” they agree that Cotton has played a role in Charles Street’s finances.
According to court documents filed by Charles Street attorney Martin, Cotton provided business advice on the church’s defaulted construction loan and was part of the church’s financial team that offered OneUnited $1 million to buy the church’s outstanding $3.6 million loan.
Martin further explained in his brief that Cotton also helped develop a business plan for the church’s Renaissance Center, and, most important, assisted in raising funds for the First District’s $1.5 million donation to complete the Center.
“Charles Street will not stand idly by when OneUnited tries to harass its charitable donors,” the brief stated.
The First District reportedly had $23 million at the time of the loan. Bank officials have argued that their loan was based on the strength of the First District’s financial statements, not on Charles Street’s reported cash assets of about $105,000.