Former Arvest banker Dennis Smiley, who soon faces sentencing for fraud, believes the banks that loaned him money are not victims in his crime. He says they should have known better and had they followed standard lending protocol, the fraud perhaps could have been detected much earlier.
Smiley also called upon his friends and family to loan him $6 million over a 12-year period. It was money he used to live beyond his financial means, according to recent sentencing memorandums filed in federal court ahead of Smiley’s formal sentencing to bank fraud slated for Friday (Jan. 29) in Fayetteville.
W.H. Taylor, Smiley’s attorney filed a pre-sentencing memo Jan. 7 that gives details into how quickly Smiley rose up through the banking sector while also attempting to show the court how this crime could have happened. At the core of the 28-page filing Smiley shared that while he is remorseful for his actions, he is not sympathetic with the banks who loaned him the money.
It’s an interesting statement by Smiley who, according to his prosecutors, used his position of power and stature in the community to defraud his friends and even his own father in order to support his out-of-control spending.
When Smiley graduated from the University of Arkansas in 1985, he planned to attend law school, according to Taylor’s memorandum. He was accepted into law schools at the UA and Vanderbilt. But Smiley instead took a full-time banking job offered by Buddy Philpot at the First State Bank in Springdale. Smiley noted he had taken part-time teller work for Philpot at First State Bank after he married his high school sweetheart, Cynthia during his sophomore year of college.
Smiley took the new job offer from Philpot to become a commercial loan officer at the bank and decided to pursue a master’s degree in business at the UA, ending his plans to attend law school.
Smiley likely shared his biographical background with the court in hopes of showing a strong work ethic. The filing noted that Smiley worked full-time, completed his master’s degree classes at night and also completed a program with the Stonier Graduate School of Banking in Delaware during the summer months. During those same years, Smiley and his wife had son Joseph in 1988, and daughter Jessica in 1990.
Smiley in 1990 moved to the Arvest-owned McIlory Bank in Fayetteville as a loan officer. The next year Philpot lured Smiley back to Springdale for what is now Arvest Bank Springdale. Smiley said he began as a loan manager, a job he held 10 years before his promotion to vice president-sales manager. By 2001, Smiley was named president of Arvest Bank Springdale.
Philpot, who was an early mentor for Smiley, would later manage the Walton Family Foundation for 15 years, a position from which retired in 2015.
Smiley said during his 21-year tenure for Arvest Springdale he helped the bank grow from $40 million in assets with two locations to $600 million with nine locations. The filing also noted Smiley’s public service, including board of director seats at Arts Centers of the Ozarks, Jones Center for Families, Ozark Guidance, the Care Foundation, Endeavor Foundation, NorthWest Arkansas Community College as well as Rotary Club and Chamber of Commerce leadership roles.
While at times overseeing millions of dollars held at Arvest for these organizations, Smiley said he never used his position, or access to information to benefit himself. In 2012, Smiley was promoted to president of Arvest Bank Benton County, with roughly $2 billion in assets under his watch.
By the time Smiley was promoted to Arvest Bank’s flagship post in Bentonville, he had already spun a web of loans around the state using his Arvest Bank stock – a restricted commodity – as collateral on multiple occasions, and knowingly committing bank fraud.
Smiley held the position as president of Arvest Bank Bentonville from 2012 to his forced resignation in March 2014. He was earning roughly $400,000 a year when he left his job at Arvest Bank. But his filing indicates that for many years before, Smiley lived beyond his means dating back to his college days. Smiley said he made a terrible mistake in judgment. He went on trips he could not afford, bought his kids cars he could not afford, and paid his children’s college and living expenses, which he could not afford.
“Smiley simply lived above his means in all aspects of his life. Despite his ever-increasing debt, he always thought, almost until the end, that he would be able to pay it back,” the filing noted.
Under oath, Smiley said he will tell the court he cannot say exactly when he realized he could not pay all of the debt.
“Yet by 2012, it is clear that he was living in serious denial. He knew that he had done too much wrong, had too much debt, and that there would not be a good ending,” Smiley’s filing noted.
That said, Smiley continued to borrow money after 2012. Arvest Bank lent him roughly $800,000, using Smiley’s home as collateral. When the Smiley home was sold in 2015, there were three mortgages from different banks on this single asset.
Smiley said he juggled the rising debt more than 12 years, and even through he was in over of head, bankers continued to give him loan extensions and credit limits were raised. He claims that after the economy crashed in 2008, bankers became more eager to collect on debts which was why he turned to fraudulent means to keep his house of cards standing.
While Smiley fully admits that he committed fraud costing around 20 Arkansas banks some $6 million in total, according to the court documents. He also said the banks involved in his activity were by no means “vulnerable victims,” but instead were particularly sophisticated and armed with all the knowledge and understanding – had they chosen to put it to use– that would have alerted them to the fraud.
Smiley claims the lending banks didn’t bother to check to see if the stock he was pledging as collateral was an unencumbered asset. He admits having a poor credit score and said that didn’t stop the banks from extending and making him new loans. That said, the prosecution reminds the court that Smiley also presented fraudulent financial statements to banks and other creditors, grossly under reporting his debt levels.
“Using fraudulent collateral is nothing new. It can happen when banks don’t do their homework and follow through with the proper protocol for loans,” said John Dominick, banking consultant and professor of finance at the University of Arkansas. “This won’t be the last time.”
Smiley admitted to the court that he got around the guaranty letter requirement by coercing three people working for him at Arvest to fraudulently sign documents related to the collateral.
Banking experts have said Smiley likely bypassed standard bank protocol because of his position of power at Arvest Bank and his stature in the community. This is why the prosecution asked for and received a two-level increase in Smiley’s criminal sentencing formula.