Independent gubernatorial candidate Eliot Cutler is sparring with a rival and the Democratic Party, saying an upcoming ad campaign will criticize him for his involvement in a bankrupt mortgage company.

Cutler was on the board of directors of Thornburg Mortgage Inc., a New Mexico-based firm that specialized in “jumbo loans” — generally more than $400,000 — to “super-prime” borrowers with strong credit. The firm went bankrupt last year and is liquidating its assets.

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Eliot Cutler

In a media advisory, Cutler’s campaign manager, Edward “Ted” O’Meara, said one of Cutler’s supporters was called as part of a survey “by Libby Mitchell’s campaign or a group working on her behalf.” Mitchell is the Democratic nominee for governor.

O’Meara said the caller presented negative information about Paul LePage, the Republican candidate, and about Cutler and his affiliation with a “failed mortgage company that went bankrupt.”

The caller also said Cutler accepted $22,000 in director’s fees after the bankruptcy, O’Meara said.

Cutler said Wednesday that “every piece of evidence that we have, or have heard, points in the direction of the Democratic Party.”

“If it’s not (Mitchell) and the coordinated campaign, if it’s the Democratic Governors Association,” he said, “same barn, different stall. As far as I’m concerned, she’s responsible for whatever anybody does.”

Mitchell was not available for comment Wednesday. Her spokesman, David Loughran, said he would not comment on campaign strategy, including polling.

But Loughran said the Thornburg issue is important to get before voters. Cutler has touted his success in business, Loughran said, and Thornburg’s collapse doesn’t support that.

“It’s clear there is a choice between Elizabeth Mitchell and Eliot Cutler,” said Loughran. “He’s a Washington insider, a lobbyist for Chinese interests, and according to the information he put out yesterday, he also sat on the board of a failed mortgage giant.”

Arden Manning, the coordinated campaign manager for the Maine Democratic Party, also said he wouldn’t discuss strategy. “It does seem like it’s an issue,” said Manning. “It’s the ninth-biggest bankruptcy in the country in the last 30 years. Eliot Cutler sat on the board of this company while people lost their jobs, and he continued to get paid.”

Representatives from the Democratic Governors Association didn’t return a call for comment.

Thornburg was the country’s second-largest independent mortgage company, after Nationwide. It was described as a “prudent” lender in New York Times articles. In 2007, it was valued at $3.2 billion and had $57.5 billion in assets.

Most of the company’s mortgages were in California, New York, Colorado, Florida and Georgia, according to papers filed with the Securities and Exchange Commission.

Cutler said Thornburg had made $165 million in loans in Maine, and as of several months ago, none had defaulted. The Foreclosure Diversion Program in the Maine court system said there was no record of Thornburg as a plaintiff in any foreclosure actions.

The financial crisis that crippled the U.S. economy was Thornburg’s downfall, said Gerard Cassidy, managing director of bank equity research for RBC Capital Markets in Portland.

“They got caught in a classic liquidity trap,” said Cassidy, who reviewed and corroborated Cutler’s account of the collapse of Thornburg in his media advisory.

Thornburg, said Cassidy, would buy long-term assets, fund them with short-term liabilities, and live off the spread. That worked until the funding evaporated.

When the value of Thornburg’s assets declined, investors refused to lend it money. The business model collapsed. The companies that had loaned Thornburg money wanted their investments back, but the firm couldn’t liquidate its assets and pay them.

A decade ago it was a sound business model, said Cassidy, but “this type of model doesn’t work in the middle of a crisis.”

Cutler was on the mortgage company’s board for about five years. He is still on the board of Thornburg Investments, a separate company that has the same founder as Thornburg Mortgage.

When the mortgage company got into trouble, Cutler said, he flew from China to help negotiate an infusion of capital from a New York investment firm. But efforts to keep the company afloat eventually failed.

As the company filed for bankruptcy, Cutler and other directors still received fees of $22,000. That wasn’t out of the ordinary, said Cassidy. “You still have to pay attorneys, executives, the dishwasher and the board members,” he said.

Although Cutler didn’t have an exact number, he said he and his family lost “hundreds of thousands of dollars” in Thornburg’s collapse.

Besides investments he made in the company, he had “phantom stock,” which could be exercised only when he retired as a director. The investments and phantom stock became worthless.

Staff Writer Matt Wickenheiser can be contacted at 791-6316 or at:

mwickenheiser@pressherald.com