Civil and criminal charges mount against former Arvest banker

by The City Wire staff ([email protected]) 205 views 

The Bank of Fayetteville won’t likely be the last one to file suit against H. Dennis Smiley Jr., who owes more than $4.5 million to about 20 Arkansas banks. The big question is who else may be liable for Smiley’s debts?

Bank of Fayetteville officials believe Smiley’s former employer, Arvest Bank, should pay, claiming the bank allowed Smiley to reportedly pledge the same stock/options plan as collateral. That’s what the bank said it in an April 7 response/countersuit filed against Smiley and Arvest for defaulting on nearly $480,000 in loans made and renewed over the past seven years.

Roughly $215,000 of that debt comes from loans made to HDS Holdings LLC, a business entity of Smiley. H. Dennis Smiley Sr., bank chairman at First State Bank of DeQueen, also is implicated in this case. The Bank of Fayetteville claims he borrowed $50,000 in March 2013 and owes $42,000 of that amount.

There are 20 banks named in Arvest’s interpleading filed with the Benton County Circuit Court on April 2. The Bank of Fayetteville was the first to respond to the interpleading and file a counter complaint against Arvest Bank, Henry Dennis Smiley, HDS Holdings LLC, and H. Dennis Smiley Sr. as trustee of a revocable trust.

The Bank of Fayetteville claims it had secured the loans made to Smiley over the years and produced a Control Agreements to the court as evidence. The Control Agreements list interests in Arvest Bank shares worth an estimated $299,811 and signed by Euva Phillips, senior vice president of Arvest operations on 1/10/2012, 11/09/2010

There was also a Jan. 9, 2012 signed letter by Phillips addressed to the Bank of Fayetteville confirming that the bank held a first and primary assignment of the stock account belonging to Henry Dennis Smiley Jr. These and other documents were included among the 195 pages filed with the court this week.

Jason Kincy, spokesman for Arvest, told The City Wire the bank cannot comment on pending litigation. He said he’s not aware of any further resignations related to the Smiley situation.

"Euva Phillips is currently an active Arvest associate," Kincy noted.

Shortly after Dennis Smiley’s resignation, the Bank of Fayetteville said it asked Arvest to repay the debts owed and backed by the collateral assigned at underwriting. Arvest declined request for payment and filed the April 2 interpleading with Benton County Circuit Court asking the court to decide who gets paid given there are more claims than there is money, according to court records.

The Arvest interpleading placed $552,000 — the value of Smiley’s stock —with the Benton County Court and noted in the filing that Arvest bank stock and options were never to be pledged as loan collateral, something Smiley and other bank officials knew.

However, the Arvest response does not explain the signature of an Arvest official produced by the Bank of Fayetteville that suggests the options were pledged as collateral.

Legal experts told The City Wire that the fastest way to repayment under state law is a “race to the courthouse” – to be the first to get judgments against the debtor’s assets. If that holds to be true, more banks may file suit in the coming days, especially now that Circuit Judge John Scott granted Arvest’s interpleading request on April 4.

Other sources told The City Wire that federal criminal charges are likely to be filed. If a guilty plea is made, and sentenced is passed, fines and restitution could be also ordered. The restitution order would provide a means of repayment of funds received in a fraudulent manner.

A personal bankruptcy filing also is not out of the question given Smiley’s financial insolvency. The bankruptcy courts are an organized way for debtors to liquidate assets for a fresh start or work out a restructuring of those debts. But, debt occurred through fraudulent means cannot usually be discharged by bankruptcy. That was the case in the Brandon Barber bankruptcy proceedings. Barber, a Northwest Arkansas real estate developer, subsequently faced criminal charges after fraud was uncovered during his bankruptcy proceedings. 

Legal sources said it’s more likely banks seeking money from Smiley will get pennies on the dollar after considering what their legal costs will be during what may be a lengthy recovery phase. The Bank of Fayetteville asked the court for full payment from the Arvest bank stock fund or judgments against the debtors until the bank is repaid in full.

• Bank of Fayetteville loans to H. Dennis Smiley Jr.
July 2009
$38,500 loaned to H. Dennis Smiley Jr.

October 2010
$125,000 loaned to Smiley Jr. (refinance, more money loaned)

March 2011
$75,000 loaned to Smiley Jr. (extended in November 2011)

January 2012
$170,000 loaned to Smiley Jr.. (extended to January 2014)

January 2014
$264,847.15 loaned to Smiley Jr. (refinancing the prior loans)

April 2014
Pending status: $263,869.23 owed and payment demand made

• Bank of Fayetteville loans to HDS Holdings
May 2007
$50,000 loaned to HDS Holdings

June 2007
$42,000 loaned to HDS Holdings

October 2007
$100,000 loaned to HDS (refinancing one loan, added funds)

September 2008
$45,393 loaned to HDS (refinancing one loan, added funds)

February 2009
$250,000 loaned to HDS (refinancing prior loans, extended twice)

April 2014
Pending status: $152,507 owed by HDS Holdings and payment demand made

• Bank of Fayetteville loans to HDS Holdings (secured by a Trust)
August 2012
$37,500 loaned to HDS

March 2013
$75,000 loaned to HDS

March 2014
Pending status: $62,503.94 owed and demand made

• Bank of Fayetteville loans to H. Dennis Smiley Sr. (Dennis Smiley’s father)
March 2009
$50,000 loaned to H. Dennis Smiley Sr.

March 2013
The loan maturity extended to 2016

March 2014
Pending status: $42,005 owed and payment demand made.

Source: Benton County Circuit Court records