ON THE MORNING of Nov. 1, 1990, a Rhode Island bank examiner telephoned his boss. For two weeks, state auditors had been encamped at a small bank in Providence; now, said the examiner, they had determined that some $13 million was missing. The suspected embezzler was the bank's president, Joseph Mollicone Jr.

On this Indian-summer morning, most Rhode Islanders had never heard of Joseph Mollicone or something called RISDIC. The news of the day was a looming war in the Persian Gulf and, at home, the sagging fortunes of Gov. Edward D. DiPrete. The three-term governor, now beset by the economy and questions of ethics, was trailing in the election polls.

With five days till the election, Governor DiPrete went to Cranston, his hometown, to dedicate a new part of the state prison. He acted upbeat.

As DiPrete toured the prison cells, whispers of embezzlement and Mollicone flashed through the upper offices of Rhode Island government.

THAT MORNING, a little-known Rhode Island prosecutor was looking into the case of a priest who had allegedly stolen from his flock.

A North Providence pastor was suspected of skimming from the collection plate and looting the bingo fund -- spending some of the $200,000 on lottery tickets and Virgin Islands vacations.

The prosecutor was J. Richard Ratcliffe. At 34 he was one of the first members of the Rhode Island attorney general's office to have been assigned to the Special Prosecutions unit.

Atty. Gen. James E. O'Neil had just created the unit, to focus on white-collar crime. O'Neil, a former federal prosecutor, was fascinated by public corruption, and he lamented to colleagues that Rhode Island seemed incapable of cleaning its own house. Acknowledging that the state's prosecutors -- busy with murders, rapes, and other violent and drug-related crimes -- lacked the resources of their federal counterparts to pursue financial crimes, O'Neil conceived the Special Prosecutions unit.

The suspected embezzlement by Joseph Mollicone -- and Mollicone's subsequent disappearance -- would soon thrust the unit into the news.

That morning of Nov. 1, 1990, Richard Ratcliffe was summoned to the office of Attorney General O'Neil. The lanky O'Neil stood in front of his desk as he talked to the deputy attorney general and a state-police detective.

The state banking superintendent had just called with the news of the missing $13 million at Joseph Mollicone's bank. The Heritage Loan & Investment Co., on Federal Hill, was a shambles; the state auditors had been able to find no documentation for millions of dollars in loans. The concern now was that Mollicone not be permitted further access to the bank's funds. The men in Attorney General O'Neil's office discussed stationing state troopers at Heritage, but abandoned the idea, fearful of panicking depositors.

That afternoon, at an emergency meeting of bank regulators, O'Neil confronted an ashen Mollicone with his unorthodox banking practices. Then O'Neil ordered a grand-jury investigation.

A week later, on Nov. 8, Joseph Mollicone vanished.

The following week, the first publicity broke about the problems at Heritage; a few days later, Governor DiPrete closed the bank.

The collapse of Heritage drained its insurer, the private Rhode Island Share and Deposit Indemnity Corp. And the draining of RISDIC imperiled the savings of several hundred thousand depositors at a total of 45 Rhode Island banks and credit unions.

The failure of Heritage would ultimately reveal a corrupt banking system that, during the go-go '80s, had been propped up by an incestuous political system. As criminal investigators tugged at the loose thread of Joseph Mollicone's embezzlement, a Rhode Island tapestry began to unravel.

As it did, another thread caught prosecutors' attention. While crisis teams huddled at the State House to rescue RISDIC, and insiders quietly began withdrawing their money, a curious tip came into the attorney general's office:

The state Department of Employment Security was about to sign a lease to rent additional office space in a building owned by Joseph Mollicone. The tipster, who worked for that department, complained of having been pressured to sign the lease by people close to the governor.

Prosecutor Richard Ratcliffe was assigned to check out the lease.

THE JESSE METCALF Building occupied an entire city block just a few steps from the attorney general's office, in downtown Providence.

Within its red-brick walls and high-arching windows, immigrants from Europe and Canada had run the machines that powered the American Industrial Revolution. But by the late 20th century, most Rhode Island mills had moved south, and the Jesse Metcalf Building -- named for a 19th-century textile magnate who had manufactured Union Army uniforms and also invested in The Providence Journal -- had fallen into disuse.

Then, in 1988, the entrepreneur Joseph Mollicone Jr. breathed life back into the building.

Mollicone, a son of Providence's Federal Hill, grew up hearing his father preach family and frugality. It was the 1950s, and the senior Mollicone owned a small bank on Atwells Avenue that catered to working people -- and underworld figures. Every morning, Mr. Mollicone would walk down the street to the Coin-O-Matic Distributing Co., to confer with his best-known client, Raymond L. S. Patriarca, boss of the New England Mafia.

Joseph Mollicone Jr. attended La Salle Academy, the Catholic private high school in Providence, and Boston College. After he graduated, his father set him up in his own neighborhood bank. But the son was looking beyond Federal Hill; the Heritage Loan & Investment Co. became his launching pad.

The younger Mollicone invested in a car dealership, a travel agency, a pizza company, a health club, jewelry manufacturers, and real estate. He bought a house on elegant Blackstone Boulevard. He traveled in Italy, skied in Switzerland, treated friends to golf and gambling in Bermuda and Las Vegas.

He acquired powerful friends, served on civic boards, and cultivated people who could expand his empire.

Long before the Providence "renaissance,'' Mollicone ventured into downtown development. He bought, renovated, and rented out office buildings. By the end of the 1980s, he had managed to place state agencies in several of his buildings, guaranteeing him millions of dollars in rent.

The cornerstone of Mollicone's enterprise was the massive Jesse Metcalf Building.

In 1988, the state Department of Employment Security agreed to move into the Metcalf Building, signing a 10-year lease for $1 million a year. A newspaper story at the time said that the move would double the rent paid by the department. DiPrete-administration officials called it a good deal.

Now, in 1990, in the wake of Mollicone's disappearance, prosecutors were intrigued by two of his partners. One was Henry W. Fazzano, Governor DiPrete's chief of staff; the other was Rodney M. Brusini, DiPrete's long-time friend and former chief fundraiser.

PROSECUTOR RATCLIFFE, assigned to investigate the state's Metcalf lease, grew more interested in Rodney Brusini when he heard a story told by Paul Valliere.

Valliere was the finance director of the Department of Employment Security -- the agency that had rented space in the Metcalf Building. In late 1990 he went to the attorney general to describe how the lease had been arranged:

Back in 1988, when the agency was searching for a new home, Valliere arrived for a meeting with his boss, John S. Renza. Renza was a Cranston associate of DiPrete's whom the governor had named to head the Department of Employment Security.

Valliere was surprised to find two unfamiliar men with his boss. Renza introduced them: Joseph Mollicone and Rodney Brusini, two of the owners of the Metcalf Building.

Valliere was further surprised, he told the attorney general's people, when his boss asked him to describe what the department needed in the way of office space. Brusini then asked a lot of questions. Afterwards, Renza said to Valliere: "Paul, I'd like you to keep this meeting confidential.''

It was all unorthodox, Valliere told the prosecutors -- revealing the state's rental requirements to potential landlords before the need for space had been put out to bid.

And, said Valliere, six months after the confidential meeting, the state agreed to pay the landlords more than the amount originally settled upon.

Then one day, recalled Valliere, he joined his boss for lunch with Mollicone and Brusini. In Toscano's Restaurant, on Federal Hill, the two landlords handed the two state employees a $350,000 bill: for building renovations that the state had never authorized. Still, the state picked up the tab.

When Valliere argued with his boss about the arrangement, Valliere told the prosecutors, Renza scolded him for not being "a team player.''

After the state agency had moved into four floors of the Metcalf Building, in early 1990, the landlords began pressing the state to rent the fifth -- the top -- floor, too. The state didn't need the space, Valliere recalled, but the landlords said that they had to have the whole building rented in order to nail down a multimillion-dollar bank loan.

Despite resistance from Valliere and others, the state's rental of the top floor moved forward. It fell through only after Mollicone disappeared, when Paul Valliere went to the attorney general.

Valliere's story convinced the investigators that the lease warranted a criminal investigation.

TWO DAYS BEFORE Joseph Mollicone's Nov. 8, 1990, disappearance, Edward DiPrete had become a lame-duck governor. Nevertheless, he took an active interest in the Mollicone case, ordering his own state-police investigation of Mollicone's Heritage Loan & Investment Co. -- to the dismay of Attorney General O'Neil.

Although the state police answer to the governor, they typically work with the attorney general. O'Neil fretted that DiPrete could become privy to confidential grand-jury information and jeopardize the case.

Even before Mollicone's disappearance, the attorney general had voiced unease about two DiPrete advisers' being co-owners of a building that had won a profitable lease from the state. Now O'Neil's concerns were heightened by the fact that the two advisers, Rodney Brusini and Henry Fazzano, figured into the investigation of the lease.

Soon after the 1990 election and Mollicone's disappearance, Attorney General O'Neil went to the governor's State House office to confront him on the matter.

The head of the state police backed O'Neil up: If DiPrete obtained any sensitive grand-jury information, said Col. Edmond S. Culhane Jr., the governor could be viewed as obstructing the criminal-justice system.

"I have a responsibility to the people of Rhode Island,'' DiPrete responded. "I don't see the conflict of interest.''

Leaning back in his chair, the governor ordered the state police to continue updating him on their investigation.

O'Neil spoke more bluntly. Eying Henry Fazzano, DiPrete's chief of staff, O'Neil said that DiPrete did indeed have a conflict of interest, because of "people in this room.''

DiPrete refused to back down. Until he left office, in January, the governor received weekly reports from the state police. But Colonel Culhane said that DiPrete never received sensitive material or made any attempt to control the investigation.

ON DEC. 30, 1990, two days before Governor DiPrete left office, the directors of the now-drained Rhode Island Share and Deposit Indemnity Corp. voted themselves out of business. RISDIC's president, popping heart pills, went straight from the meeting to pull his money out of a RISDIC-insured bank before the vaults slammed shut.

On New Year's Day the new governor, Bruce Sundlun, declared the state's first "bank holiday'' since the Great Depression. The closing of the RISDIC-insured banks cut several hundred thousand Rhode Islanders off from their savings.

Bewildered and angry, the depositors held candlelight vigils outside the State House, and swarmed inside. "We want our money!'' rang through the marble halls.

Citizens cried out for justice. The authorities were swamped in hundreds of suspicious loans to trace and dozens of players to investigate -- bankers, developers, politicians, mobsters.

But the Mollicone case remained at the top of the list.

THREE INVESTIGATORS focused on Joseph Mollicone's state leases: a prosecutor, a paralegal, and a state trooper.

Richard Ratcliffe, the prosecutor, had been in the attorney general's office for only two years, handling mostly minor drug cases. While many prosecutors lived for the adrenaline rush of courtroom battle, Ratcliffe's patient, studious nature was well suited to the dry, tedious investigation of financial crime.

When he needed real-estate expertise to translate the jargon of Mollicone's leases, Ratcliffe turned to a bright young paralegal he'd befriended while in the attorney general's narcotics unit: Peter Blessing, a Princeton graduate who had previously worked in New York City commercial real estate.

The two teamed up with Lt. Robert P. Mattos, a detective with 20 years in the state police.

Mattos was an anomaly among cops: he relished financial investigations. Since the early '80s, he had worked on just about every big white-collar case in Rhode Island -- preferential state mortgages, taxation cases settled over power lunches, favoritism at the Registry of Motor Vehicles.

Draped in his shapeless raincoat, the tall, dour Lieutenant Mattos evoked Sgt. Joe Friday -- "Just the facts, ma'am.''

His ability to turn the screws on a reluctant witness inspired fear among his targets and loathing among their lawyers, who would complain to his superiors.

His colleagues called him the Cobra.

IN JANUARY OF 1991, as banking chaos reigned in Rhode Island, Peter Blessing was combing through Joseph Mollicone's bank records. He came across a check that piqued his interest: $875 made out to Anjoorian Carpets, with the notation "Renza's rug.''

John Renza had headed the Department of Employment Security, the state agency that rented space in Mollicone's Metcalf Building.

A few days before Blessing discovered the check, Richard Ratcliffe had questioned Renza before a grand jury about Renza's decision to move his agency into Mollicone's building. Renza was hazy on details of the lease, and denied having spoken to Mollicone or Rodney Brusini before the agency put its rental requirements out to bid.

Now the investigators summoned Renza back to the grand jury, where prosecutor Ratcliffe planned to ask him about the rug: if Renza lied about it, the state could threaten him with a perjury charge in the hopes of making him more cooperative.

In the grand-jury room of the Kent County Court House, Ratcliffe began slowly. He led Renza through a leisurely accounting of the personal items Renza had removed from his office when he left, with the rest of the DiPrete administration. Pictures of Paris, Renza testified; a couple of flags. Citations, a clock-radio, a refrigerator . . . a rug.

Ratcliffe asked Renza to describe each object, and tell how he had acquired it. Eventually he got to the rug.

It was a gift, said Renza.

"From whom?'' asked Ratcliffe.

"The building's owners.''

"How did it come about that you were given a rug by the building's owners?''

"I guess in appreciation of having completed the building -- just that they wanted to get something for the office. You know, as a completion of the project.''

Ratcliffe kept pushing.

Renza, a large balding man in his 60s, said that Joe Mollicone had taken him to a rug store and told him to pick out a rug, then paid for it.

Beads of sweat glistened on his pale face as Renza now said that he didn't know how much Mollicone had paid.

Suddenly he slumped forward. His head landed on the desk in front of him. Several grand jurors shouted for someone to call an ambulance.

Renza was rushed to Kent County Memorial Hospital. In the emergency room, he looked up and saw Lieutenant Mattos, who had followed the ambulance from the courthouse.

Over a nurse's objections, Mattos got Renza to sign a release allowing the state police to search his house.

Mattos and another detective drove to Cranston and searched Renza's house. They found an ivory Pande Cameron Chindia rug, rolled it up, and carried it away.

The police also seized another rug and a quartz mantel clock, according to court records -- more "gratuities'' from Joseph Mollicone to John Renza.

A WEEK LATER, John Renza was invited downtown for a meeting at the attorney general's headquarters.

He seemed to have recovered from his collapse. The investigators found him polite.

It was time to get serious.

According to notes on the interview, Richard Ratcliffe went down the list of crimes that the former director of Employment Security was suspected of: perjury, bid rigging, obtaining money under false pretenses.

Renza protested.

Ratcliffe cut him off and Lieutenant Mattos read him his rights.

Renza said that never, in his 46 years in public service, had he been treated so shabbily.

Ratcliffe and Mattos hammered at Renza's inconsistencies. The meeting went on for hours.

Renza admitted that he had discussed the Metcalf Building lease with co-owners Joseph Mollicone and Rodney Brusini before the state advertised its need for office space. Brusini was pushy, Renza recalled; both he and Mollicone had smugly predicted that their bid would be the lowest.

Renza also told the investigators that after his state agency had moved into the Metcalf Building, he was pressured to rent more space, on the top floor.

When he refused, Renza now said, he received a phone call from an angry DiPrete aide.

" 'God damn it,' '' Renza recalled the man's shouting, " 'I'm telling you to sign it!' ''

The caller was Mathies Santos.

MATHIES J. SANTOS was seen by many as a loyal soldier in the DiPrete administration.

Besides serving as a top aide in the state Department of Administration, Santos was a long-time National Guardsman who functioned as the governor's military aide-de-camp.

In full military dress, Santos would accompany Governor DiPrete on ceremonial occasions, such as inaugurations and parades. Around the State House, Santos had a reputation for zeal in handling administrative details and political errands.

Santos was the rare member of a minority group to have achieved prominence in Rhode Island government.

Grandson of Cape Verdeans and son of a longshoreman, Mathies Santos grew up in Providence's working-class Fox Point. Quiet and industrious, the young man joined the Air Force and later attended Brown University, where he struck up a friendship with a state legislator he'd met while taking a course in Rhode Island politics, Frederick Lippitt.

Lippitt, an East Side millionaire whose forebears included two Rhode Island governors, wooed Santos over to the Republican Party. In 1982, Santos managed Lippitt's unsuccessful campaign for mayor of Providence.

After Edward DiPrete was elected governor, in 1984, Lippitt recommended Santos, then working in the state Department of Education, for a job in DiPrete's policy office. The following year, when Lippitt became DiPrete's director of administration, he asked Santos to be his executive assistant.

Santos, in his early 40s, was proud of his status. He counted powerful people among his friends, golfing and dining with DiPrete confidant Rodney Brusini and socializing with Dennis L. DiPrete, the governor's son. When the Department of Administration moved into the marble building across from the State House, in 1990, Santos took the spacious corner office designated for the deputy director, who had retired.

A friend came upon Santos one day in his new office, showing it off and admiring the view of downtown Providence. Santos was a "straight arrow,'' the friend recalled; he wasn't a traditional political insider.

The DiPrete-case investigators believed that Santos had been involved in "this overall scheme,'' as a prosecutor would later refer to the state's rental of Joseph Mollicone's building. But they regarded Santos as merely a messenger -- someone who did the DiPretes' bidding.

JOHN RENZA, pressed by Mathies Santos to rent more space in Mollicone's building, wasn't the only state official to feel Santos's wrath.

Memos written in early 1991 by prosecutor Richard Ratcliffe describe what investigators were hearing about Santos's actions regarding several leases signed by the state.

Santos served on the state Properties Committee, a little-known but powerful board that approved millions of dollars' worth of leases and other state real-estate transactions.

According to the memo, Santos had pressured not only Renza but also the head of another state agency to occupy space on the vacant top floor of Mollicone's Metcalf Building.

Henry S. Woodbridge Jr., the director of another job-training agency, told investigators that Santos had screamed at him to move his agency into the building. When Woodbridge refused, he told investigators, he received a phone call from Henry Fazzano, DiPrete's chief of staff and another Metcalf Building co-owner. Fazzano ordered Woodbridge to move into the building, but Woodbridge still refused. Fazzano has denied doing anything improper.

Meanwhile, the state fire marshal told investigators that Santos had pressured him to move into a South Providence building owned by car dealer Jake Kaplan, a DiPrete-campaign contributor. Fire Marshal Everett Ignagni said that after he had repeatedly refused, he received a phone call from a union official close to Governor DiPrete, telling him that Jake Kaplan and Dennis DiPrete were irate.

In addition, investigators found that Santos had helped arrange the state's leasing of office space that went unused, even as the state was paying for it.

Santos had also helped the owners of the Metcalf Building obtain hundreds of thousands of dollars from the state for renovations not previously approved. During the same period, investigators discovered, Santos had received a $142,500 loan from Mollicone's bank, despite a bad credit history.

Santos applied for the loan from Heritage Loan & Investment in April 1990, after Fleet Bank had turned him down. The investigators questioned the absence from Santos's Heritage loan file of updated credit reports and other personal financial information. They also, according to court records, questioned whether Mollicone's bank had made some of Santos's loan payments -- a suspicion that Santos denied and that the investigators apparently never confirmed, according to court testimony.

By early 1991, as investigators were focusing on Santos, he was behind on his loan payments, according to court records. (Santos recently told The Providence Journal that he had fallen behind only because of the confusion following Heritage's collapse, and that he subsequently repaid all he owed. "It was not a gift,'' he said.)

A judge would later conclude that the state's evidence "indicates Santos's involvement as a state official in various schemes to benefit Joseph Mollicone Jr., who had given Santos a substantial loan despite his poor credit.''

The judge would rule that the state had knowledge of possible criminal activity involving Santos, ranging from conflict-of-interest violations to "possible bribery and/or extortion."

The prosecutors would dispute that, saying that they had never turned up evidence of any criminal conduct by Santos, and that his Heritage loan was legitimate. What Santos did -- pressure state officials on various leases, acting in his government capacity to help Mollicone and Brusini -- was "certainly bad,'' one prosecutor conceded; but it wasn't criminal.

ONE EVENING in the winter of 1991, Lieutenant Mattos asked prosecutor Richard Ratcliffe to come with him. They drove to a tree-lined street on Providence's East Side and knocked on Mathies Santos's front door.

Lieutenant Mattos told Santos of the investigation of the DiPrete administration. The state trooper then made his pitch: Santos was not a target of the investigation, but the investigators believed he knew things -- they wanted his help.

Shortly thereafter, Santos's lawyer called to arrange an interview. The investigators told Santos that nothing he told them would be used against him.

Santos's lawyer, Frederick Cass, later said that he received oral assurances from the investigators, but that he never sought formal immunity or a written promise of non-prosecution for his client.

"This was a situation where Matt [Santos] had no liability,'' said Cass.

IN SUBSEQUENT MEETINGS with investigators, according to court records, Mathies Santos described his role during the DiPrete administration in arranging leases for the state.

He said that he had taken direction from Rodney Brusini, the governor's adviser. He also said that both Brusini and Henry Fazzano, the governor's chief of staff, had told Santos they wanted to get out of the Metcalf Building partnership; to do so, they needed the building fully occupied. Santos did what he could to help the partnership, according to court records.

Santos defended his actions. He said he'd worked hard to fill the Metcalf Building because it was "good policy'' -- it made sense, he argued, for the two job-training agencies to share office space, since they had similar objectives.

Santos acknowledged having talked to Brusini about construction bills for which the state reimbursed the Metcalf Building owners. But Santos said the bills were legitimate.

As for Santos's loan from Mollicone's bank, Santos told the investigators that it never came up during his discussions with Mollicone or Brusini about state office space. (In a recent interview with The Providence Journal, Santos said that he mentioned his refinancing problems one day to Brusini, who referred him to Mollicone. Santos said he met at Heritage with Mollicone, who told him that the loan "shouldn't be a problem.'' Mollicone, according to court records, told investigators that he had approved the loan because he knew Santos was a state employee and believed Santos could be "helpful.'' Mollicone said he did not communicate his motive to Santos.)

Questioned by the investigators about a particular lease, Santos said he didn't know why the state had rented the building. Lieutenant Mattos, according to investigative notes, informed Santos of the seriousness of the matter; Santos said that he was "never told to make anything a done deal.''

Santos told The Providence Journal that he would have lunch or dinner with Rodney Brusini at the Cape Cod restaurant, in Cranston, to discuss state leases. He took direction from Brusini, he said, because he viewed him as part of the governor's "kitchen cabinet'' -- he assumed that Brusini discussed the leases with Edward DiPrete.

DURING SANTOS'S MEETINGS with Ratcliffe, Mattos, and Blessing, according to court records, Santos talked mostly about state leases.

Then, in March of 1991, he delivered a bombshell.

In an interview at his lawyer's office, Santos mentioned to the investigators that he had also been involved in choosing architects and engineers for state construction projects.

Santos said that Dennis DiPrete, the governor's engineer son, would tell Santos whom to hire for projects. Although Dennis DiPrete held no government position, said Santos, Santos followed his instructions because he assumed that the son was communicating the father's wishes.

The investigators scribbled Santos's words in their notebooks.

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