Banker Smith Co-Signed Howell Notes

Richard T. Smith, chairman and CEO of Smith Associated Banking Corp. (SABCO) of Hot Springs, helped the late M. David Howell Jr. of Little Rock line up investors and even co-signed some of the promissory notes that Howell issued in return.

Howell was a former Springdale and Fayetteville banker.

Unlike Howell, who died last month in a Beverly Hills hotel room, Smith has not been the subject of a cease-and-desist order by the Arkansas Securities Department, nor is he known to be the defendant in any lawsuits related to the promissory notes.

However, a lawsuit that Bank of America filed against Howell’s estate and his family trust concerning $2.15 million worth of overdraft checks the bank honored early last month does ask the Pulaski County Circuit Court to determine whether any of the funds disbursed from Howell’s account should be repaid. Smith, SABCO and known associates received more than $1 million of those disbursements. (See table of investors).

Bank of America has declined to comment on its lawsuit and has a Little Rock lawyer Judy Henry of the Wright Lindsey & Jennings firm, handling the complaint. Bruce Bokony, chief counsel for the Securities Department, said the Howell case is still under investigation. He would not comment on Smith’s involvement.

Smith has not responded to repeated calls, and his attorney, David J. Wood of Little Rock, declined comment.

State Bank Commissioner Frank White repeated last week that his department is satisfied that the soundness of two banks owned by SABCO — Stephens Security Bank at Stephens (Ouachita County) and the Bank of Salem in Fulton County — and was not threatened by the fact that they made loans to individuals to invest with Howell.

“Whatever happens to (Smith) personally, and if people decided to go after his assets, that’s a whole different matter. He does own these two banks,” White said.

White said he was aware that Smith was co-signer on some of the promissory notes.

Edward H. Cherry, a Jonesboro banker, said that Smith, a longtime friend, approached him earlier this year about lending money to Howell. And, Cherry said, Smith co-signed the promissory note that he received in return.

Cherry wouldn’t reveal the amount of money he gave Howell nor the interest rate that he received. (The Securities Department has said that the promissory notes carried annual rates of 10-50 percent). Cherry said Howell made the monthly interest payments like clockwork until his death.

“Up to the point that Mr. Howell died, they certainly did exactly what they said they would do,” Cherry said.

Cherry strongly disputed the Securities Department’s decision to label the promissory notes as unregistered securities.

“My understanding was it was a promissory note signed by Richard Smith and David Howell. As far as I’m concerned, it was a loan. There’s no doubt in my mind,” he said. “[Securities regulators] can call it whatever they want to, but I know what I had. Never was a security mentioned.”

Cherry said he never actually dealt with Howell on the promissory note and didn’t know exactly what Howell planned to do with the money.

He said, however, that he had known Howell for “many, many years and his father before that.” Howell, Cherry said, “was a very brilliant man,” and he decided to make the loan “on the strength of some other people’s recommendation.” He would not identify the other people who vouched for Howell and the promissory notes.

Probate Files

Cherry is among more than a dozen individuals and business entities who have filed demands for notice of Pulaski County Probate Court proceedings concerning Howell’s will. Like most of the others, Cherry listed his interest in the estate as collection of promissory notes. No dollar amounts were included in any of the filings.

Although Smith co-signed some of the promissory notes, he also filed a demand for notice in probate court, as did SABCO, Smith-owned Market Aircraft LLC and at least three other known associates:

• Karen Smith of Hot Springs, who gave the same business address as Richard Smith.

• Duncan Grayson of Stephens (Ouachita County), a director of SABCO-owned Stephens Security Bank. That bank’s president, Carol Reeves of Stephens, cashed a check for $115,000 from Howell in early October.

• Mark Montgomery of Elizabeth (Fulton County), president of SABCO’s Bank of Salem. His is the only demand for notice that doesn’t list collection of a promissory note as his interest in the estate; instead, he listed “collection of a check.”

• G.R. “Buck” Smith of Hot Springs, a SABCO employee who cashed two checks totaling $116,500 from Howell.

Demands for notice filed by Laura P. “Patsy” Hiett of Hot Springs, Michael and Jeannie Spruell of Memphis and Courtney B. Miller of Lake Village all appear to have been filled out in the same handwriting as those of Richard, Karen and Buck Smith and the Smith business interests. Whether Hiett, Spruell and Miller have connections to Smith is unknown.

Howell, a former bank executive in Springdale, Fayetteville and Little Rock, was found dead in his room at the luxurious Peninsula Hotel in Beverly Hills on Oct. 23, four days after being released from the Betty Ford Center, a substance abuse rehabilitation center in Rancho Mirage, Calif., and two days after checking into the hotel. There were no indications of trauma on the body, according to the Los Angeles County Coroner’s office, but a cause of death determination has been delayed pending the results of toxicological tests. A coroner’s spokesman said the results probably won’t be available until sometime after Thanksgiving.

Howell was the subject of a cease-and-desist order issued the previous week by the Arkansas Securities Department, which accused him of selling at least $15 million in unregistered promissory notes to at least 16 investors in Arkansas, Tennessee and Texas. The total invested in Howell’s operation is believed to be at least $60 million and rumored to be much more than that.

According to the Securities Department’s order, the notes were sold “by Howell or on his behalf for the purported purpose of pooling the proceeds thereof to invest in the public securities and commodities markets.”

Howell’s will, which was filed in Probate Court on Oct. 30, was drawn in December 2000 — well before his September marriage in Las Vegas to Jan Toler Howell. It bequeathed his household furnishings and personal effects to his grown children, Mace David Howell III of Aruba and Martin Dane Howell of Sarasota, Fla. The balance of his estate was bequeathed to the Howell Family Revocable Trust to be administered under the terms of the trust, which were not included with the will.

Both sons declined to act as executors of the will, so Circuit Judge Mary Spencer McGowan appointed Howell’s sister, Linda Howell Bailey of Memphis, as administratrix.

Howell’s Bankers

The lawsuit originally filed by Bank of America before Howell’s death was later amended to include a request for a temporary restraining order to prevent surviving relatives from emptying three safe deposit boxes Howell rented in Bank of America branches in Little Rock and Springdale.

Bank of America asked that the contents be frozen to offset the $1.9 million overdraft in Howell’s checking account as well as an unsecured loan of $400,000 that was due. The bank told the court that one of the boxes, which Howell accessed as recently as early October, is believed to contain cash.

Pulaski County Circuit Judge John Ward has not scheduled a hearing on the restraining order because one had not been requested, his case coordinator said.

A subpoena subsequently filed in the case indicates that Bank of America believes Howell also may have maintained at least one checking account at Regions Bank in Little Rock.