A senior executive at Fleet Financial Group Inc. helped raise money for the U.S. Senate run of New York City Comptroller Elizabeth Holtzman at a time when the company's banking affiliate made a controversial loan to the campaign, bank executives and Holtzman officials say.

James P. Murphy, an executive vice president at the Providence, R.I.-based holding company who is in charge of government relations, served on the finance committee for Holtzman's failed U.S. Senate campaign, say legal and campaign officials for Holtzmann

Murphy held the position in August of 1992 when Holtzman's Senate campaign borrowed $450,000 from the group's Melville. N.Y.-based banking affiliate, Fleet Bank, Holtzman officials say.

The campaign, which has had difficulty repaying the loan, still owes the bank $255,400, according to its last Federal Election Commission filing, dated July 29.

At the moment, the city Department of Investigation is examining the loan as it relates to the March 1993 selection of Fleet Securities as a co-manager in the city's bond underwriting syndicate.

Although the selection of New York City bond underwriters is a joint decision between the comptroller's office and the mayor's office, Holtzman's office recommended Fleet's inclusion.

The department is investigating whether Holtzman recommended Fleet for the lucrative underwriting spot as compensation for the loan, which carried an interest rate of 7%, just 1 % above prime.

City conflict of interest rules prohibit public officials from using their office for private gain. Sources with knowledge of the investigation say the DOI is examining what role, if any, Murphy played in the matter. A DOI spokesman would not comment on the matter.

Holtzman has maintained that the selection of Fleet was based on the firm's ability as an underwriter of municipal debt, and that she plated no pat in Fleet's selection as one of 23 co-managers in the city's bond syndicate. The decision to appoint Fleet was made by her finance she said.

Holtzman ha also sad that her campaign has a long relationship with Fleet Bank because of its proximity to the municipal building in downtown Manhattan and because it has had no ties to the government of South Africa.

Murphy did not return telephone calls for comment.

Thomas L. Lavelle, a spokesman for Fleet Financial Group, confirmed firmed, that Murphy was a supporter of Holtzman's failed U.S. Senate effort, but denied that the loan or its provisions reflect Murphy's connection the Holtzman campaign. "The loan was judged on its own merits," Lavelle said. Holtzman placed fourth in the Democratic primary for the U.S. Senate seat currently held by Republican, Alfonse D'Amato.

For public-policy watchdog groups, Murphy's roles as fund raiser and banking executive at a time when Fleet was considering a loan for the Holtzman campaign are further proof that a mutually beneficial relationship exists between politicians and powerful business interests.

"This is very common," said Josh Goldstein, a policy director for the Center for Responsive Politics, an organization in Washington that tracks campaign contributions to Political candidates. "In this case, you are seeing in a very real way how a business delivers money to a politician with an eye toward influencing the politician's action. And win or lose, [the contributors] know Holtzman is going to be influential."

Murphy's name, officials in the campaign say, appeared on a list of 150 to 200 supporters comprising Holtzman's campaign finance committee. Holtzman officials say Murphy remained on the committee until Holtzman placed fourth in the Democratic primary for a U.S. Senate seat, but they say they did not know when he began fund-raising for her.

Lavelle said Holtzman campaign officials approached Murphy when seeking the loan last year. Lavelle said Murphy forwarded the inquiry to loan processing officials at Fleet Bank. "It is not surprising," Lavelle said, that Murphy would be approached by Holtzman campaign officials because he is the bank executive in charge of government relations.

"Murphy is not a lender, he did' not do the credit analysis, the underwriting, nor did he approve the loan," Lavelle said. "The loan met all the credit standards and legal requirements. "

Holtzman campaign officials, now working on her re-election as city Comptroller, did not return telephone calls regarding the repayment of the loan. Lavelle would not comment on the loan.

Murphy was hired by Fleet in 1989, after serving for 13 years as executive vice president of the New York State Bankers Association, a banking lobby group.

A May 1989 article in American Banker, a sister publication of The Bond Buyer, said Murphy "Will coordinate Fleet's lobbying efforts, its public finance and municipal finance business, and develop special programs for housing and education." Lavelle said Murphy's responsibilities today are largely the same.

Lavelle said Murphy was on Holtzman's campaign finance committee by virtue of being on a list of Holtzman supporters. But he said Murphy "had no recollection" of being directly involved with Holtzman's fundraising committee.

Lavelle said Murphy co-sponsored a May 1992 fundraiser that generated $3,000 to $3,500 for the Holtzman campaign.

For their part, Holtzman campaign officials, while confirming Murphy's involvement in Holtzman's Senate fund-raising efforts, said his role in the campaign's fund-raising efforts was minimal.

"If you're trying to look at this guy as an active fund-raiser, you're way off," said campaign spokesman George Arzt.

According to Federal Election Commission records, the Fleet Financial Group Inc. Federal Political Action Committee contributed $3,000 to Holtzman's failed Senate campaign. Records show a $2,000 contribution on Oct. 11, 1991, and a $1,000 contribution on May 15, 1992.

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