By now, Pedro Arce expected his dream to be a reality – after slogging through a wretched financial environment and dealing with skittish investors, Veritas Bank, Lawrence’s only community bank, would be taking deposits and making loans to deserving borrowers.

Instead, the FDIC slapped Veritas back mere weeks before it planned on opening its doors last spring. Then, the next few months poured salt on the wounds.

While impoverished Lawrence temporarily lost its shot at its first local bank, wealthy Newton got a gleaming new institution, First Commons, which opened in July flush with investor cash. What’s more: Donald Musso, head of the consultancy that had formerly advised Veritas, was a founder and investor of the Newton bank.

Arce, Veritas’ CEO, says the whole board is still reeling from the rejection. His major investor has pulled out and other investors have been refunded while he considers options for possibly trying again later on. But he’s also dealing with troubling questions from his experience with his consultant, FinPro Financial Services.

Investor, Not A Fund-Raiser

While Arce and Veritas struggled for the kind of dollars that would please regulators, their former consultant put his own money somewhere else as a private investor, and, they suspect, used his considerable contacts to help First Commons meet its fund-raising goals – a favor he didn’t extend to now-bereft Veritas, Arce says.

Musso can put his money wherever he wants as a private investor, according to banking analysts. For his part, Musso says he never raised money for First Commons – that assertion is backed by Tony Nuzzo, First Commons’ CEO.

Veritas’ story incorporates broad issues: the financial meltdown, the difficulties of trying to get investors to bet on a poor city, and, to some extent, a consultant’s role in helping a bank get off the ground.

In early 2009, Veritas seemed on track to open. After losing investors in the financial crash of September 2008, Arce had nabbed Dan Thibeault, president and founder of Graduate Leverage, a Waltham-based student lender, to invest in 51 percent of Veritas’ stock. State regulators, wary of student lending dollars in general, imposed restrictions on Thibeault’s role. Still, he agreed to the terms and the partnership seemed promising.

But the hammer came down in April. FDIC regualtors worried about the quality of student loans, which would have made up 20 percent of Veritas’ loan porfolio. The FDIC refused approval, saying Veritas’ application would have to be sent back to Washington, D.C. for further consideration – meaning, Thibeault says, that they’d kick the appliaction around for months or years and still quite possibly come back with a ‘no.’

He’d already been funding Veritas’ operations for months, but couldn’t justify continuing on with such a negative response from the FDIC.

Then, in July, First Commons opened in Newton, and Arce noticed that Musso, head of FinPro, was listed as a “founder” – meaning he’d donated $100,000 to the bank – and that another member of the company was sitting on the bank’s board.

To a stung Arce, that realization raised questions. Musso had repeatedly told Veritas that it would be next to impossible to raise capital in the current environment, but had then later on expressed his personal confidence in another bank by giving his own money.

A Question Of Fund Raising

What’s more, while Arce had contracted with FinPro to help them navigate the approval and fund-raising process, there was an understanding, he added, that Musso had a list of thousands of possible investors, and could make phone calls to alert them of Veritas’ prospectus. Arce suspects Musso did so for First Commons.

“If they did it for them, and didn’t do it for us, then that doesn’t appear to be right,” he said.

Musso’s defense: As Arce admits, FinPro was never under contract to do such a thing, and Musso says the company cannot, by law, solicit investments for a de novo bank.

But Neal J. Curtin, a partner with Bingham McCutchen, says – within certain boundaries – it’s not uncommon for banking consultants to offer to bring de novo opportunities to investors’ attention.

“There’s nothing inherently wrong with that,” he said.

Pat Rohan, managing director with FinPro, says the company did everything it could to help Veritas. Rohan says he attended meetings with the bank after FinPro officially cut ties with the bank, out of a personal desire to see the idea succeed. But events conspired against them.

“They ran into a real tough market to sell stock, there’s no getting around it,” he said.

Arce also feels ill-used in that Musso was largely negative about Veritas’ prospects for raising money, but Musso says he’s been undiscriminating in his pessimism. He naysayed Veritas, but he initially naysayed First Commons, too.

Nuzzo, First Commons’ CEO, concurrs.

“[Musso] thought we were in a very difficult time to raise funds … he told us in our meetings. We heard him, but we knew that he was wrong.”

Nuzzo also agrees that while he was happy to have Musso on board, he didn’t help raise extra money. Most founders do make calls to raise money or lend their help elsewhere, he said; Musso didn’t.

“Frankly, I don’t know what [Musso] did … I was very disappointed with [his] performance as a founder in terms of raising funds for us.”

Nuzzo also invited a different FinPro employee to sit on the bank’s board.

Both sides said there’s little room for legal action, and Curtin agrees.

Newton and Lawrence are far enough distant – both geographically and economically – that banks in either place can’t be considered to be in competition with each other, he said.

Another obvious question that arises out of the comparison between the two situations: Newton sits in the heart of a well-to-do cluster of towns, while Lawrence suffers from high poverty. Musso indicated Lawrence’s economics likely did hurt its chances of getting investor interest.

“It’s not for lack of trying,” he said. “To [Arce’s] credit, I think he contacted every significant fund known to mankind.”

Sound Management Is Key

But Susan B. Hollinger, a partner with New Hampshire firm Gallagher, Callahan & Gartrell, says investors don’t always flee from imposverished places. If presented with a sound investment plan – a lender who incorproates notably successful ideas like microloans, for example – investors will put money down.

These decisions often have more to do with investors’ faith in the strength of the management team and their business strategy, she said.

Timing is another crucial issue.

Veritas was getting approval from the FDIC at a time of intense institutional nervousness about opening new banks, Curtin said. Seventy-seven banks nationwide have failed thus far this year and regulators are not feeling generous, he said.

Coming on top of the terrible credit market, and then feeling that former consultants had little faith, Curtin said – it’s no wonder Veritas is miffed.

“It wouldn’t be surprising if they felt slightly abused, because they had a very rough path of it.”