Judge extends filing deadline to May 30 in Smiley loan fraud case

by The City Wire staff (info@thecitywire.com) 12 views 

Bank of the Ozarks and Summit Bank, now merged, but separate defendants in the Arvest interpleading, were granted two additional weeks to file their answer with Benton County Circuit Court regarding funds owed by Henry Dennis Smiley Jr. and his business ventures.

Benton County Circuit Judge John Scott this week granted another motion extending the filing deadline for the petitioning banks through May 30 and the docket grows longer each day. It’s been nearly three months since Arvest filed its interpleading asking the court to determine which of the 21 creditors get paid from the $551,754.58 it deposited with the court on April 2.

Judge Scott will have plenty to sort out in the gnarled litigation between Arvest and 21 banks owed some $4 million by former Arvest exec Dennis Smiley. All, but Bank of the Ozarks and Summit have filed a response with the court. The claims of these various banks — large and small — are very similar. They loaned money to Smiley, which they believed was secured by stock in Arvest Bank Group, held for the benefit of Smiley. 

The banks produced security control documents signed by agents of Arvest Bank and Smiley and several also filed UCC Financing Statements to ensure they had claim to collateral in case of default.

Marshall Ney, a lawyer with Mitchell Williams, explained that lenders can take possession of the securities that are pledged as collateral to a loan, and filing a UCC Financing Statement is also an option. He said a UCC Financing Statement is not required, but failure to file could result in someone else possibly getting priority by filing first.

Arvest Bank noted in a May 1 response to the counter claim by Bank of Fayetteville that  “Arvest, nor any of its authorized agents signed the control agreement presented to the court.” The bank also said the control agreement was signed on behalf of Arvest Bank, and not Arvest Bank Group, which is the entity that held the bank stock.

Ney, whose firm represents Arvest, said determining liability is complicated.

Arvest also said the stock was never an assignable asset and Smiley knew it when took out the loans.

Producing signed documents of three Arvest employees – Jeb Mills, Chad Evans and Euva Phillips – several of the banks claim these agents had the authority to sign for Arvest. Jason Kincy, spokesman with Arvest Bank, told The City Wire this week that all three of the Arvest employees continue to work in their respective positions at the bank. He said there has not been any reassignments or disciplinary actions among Arvest employees in relation to the Smiley situation, and he cannot foresee any personnel assignments as a result.

Arvest Bank noted in a May 9 response to the counter suit by First National Bank of Fort Smith that it denies any knowledge whatsoever of a Control Agreement or letter issued by Chad Evans as executive vice president. The bank also said the securities entitlement control agreement in question provided access to an account ending in 586, an account Arvest says does not exist.

Arvest also said the agreement was signed on behalf of Arvest Bank, not Arvest Bank Group, the true holder of the stock.

No one envies Judge Scott who will hear the consolidated lawsuits in Benton County Circuit Court. A hearing date is expected to be filed in early June, once this recent extension expires. The docket posting is cluttered with summons to 21 banks, answers from most, counter suits from four other banks and the answers to those complaints by most of the 21 lenders and Smiley as well as his father Henry Smiley Sr., who is a defendant in at least three of the suits.

At the end of this twisted pile of litigation the banks will likely only recover a small part of what is owed, especially when considering legal costs of collection, according to banking consultant John Dominick. Dominick is a banking professor at the University of Arkansas and a director at Signature Bank, one of those with unpaid loans to Smiley.

“Bankers did not follow adequate due diligence when they signed off on these loans to   Dennis Smiley. They loaned to him because they knew him,” Dominick said. “It’s a costly mistake for this banking community as a whole.”