UPDATED: Howell Associate Richard Smith Changes Plea to Guilty

by Gwen Moritz  on Wednesday, Apr. 22, 2009 11:32 am  

Richard Turner Smith of Hot Springs Wednesday morning entered a conditional plea of guilty in federal court to one count of filing a false federal income tax return.

Richard Turner Smith of Hot Springs entered on Wednesday morning a conditional plea of guilty in federal court to one count of filing a false federal income tax return.

Smith admitted before U.S. District Judge G. Thomas Eisele that he signed his tax form for 2000 knowing that it did not include income from his dealings with M. David Howell of Little Rock.

The plea is conditional on Eisele agreeing to the sentence jointly recommended by the federal prosecutors and Smith's defense team: probation, house arrest or time in a halfway house. Eisele does not have to agree with that recommendation, but if he doesn't, Smith has the right to withdraw his guilty plea and take his chances before a jury.

An earlier version of this story incorrectly said the parties left it up to Eisele to determine how much, if any, federal income tax Smith owes. Instead, Eisele will receive briefs from both parties concerning their differing opinions on the tax liability to use in deciding whether to accept the plea and sentencing conditions, but he will not determine Smith's actual tax liability.

Assistant U.S. Attorney Pat Harris told the judge that the government believes Smith owes $345,775; the defense believes he owes none. In fact, days before he was indicted in September 2006, Smith filed his own civil suit claiming that, rather than evading taxes, he had overpaid them by almost half a million dollars.

"We still think that," defense attorney Greg Hopkins of Little Rock told ArkansasBusiness.com on Wednesday afternoon. "The amount that we're owed in that suit is now somewhere over $600,000."

That civil suit has been stayed pending the outcome of the related criminal charges, which were set to go to trial on May 4. But last week a hearing that Eisele had scheduled to hear pre-trial motions was quietly converted to a change of plea hearing.

The kind of conditional plea that Smith made is "very rare," Hopkins said, "and it's typically a situation in which both parties think there's about to be a watershed moment in the case that could either go very much in their favor or very much against them."

The government charged Smith with three counts of failing to report millions of dollars of income received from M. David Howell of Little Rock, who died of a drug overdose in October 2002, just as his multi-million Ponzi scheme was unraveling. Smith had two kinds of income from Howell: returns on his own investments and fees paid for his help in attracting other investors.

Smith was also charged with one count of defrauding the Federal Deposit Insurance Corp. because two banks owned by his Smith Associates Banking Co., the Security Bank of Stephens and the Bank of Salem, made unsecured loans to people who then invested the money in Howell's scheme. According to the indictments, the minutes of the banks' loan committee meetings did not reflect the fact that Smith would be paid fees by Howell on the proceeds of those loans.

If Eisele accepts Smith's plea and the no-prison condition, the other tax charges and the charge of defrauding the FDIC will be dismissed, according to prosecutor Harris.

Hopkins told ArkansasBusiness.com that Smith had settled all but one of the lawsuits filed against him by holders of promissory notes from David Howell, some of which Smith co-signed. "Richard Smith paid about $12 million of what should have been David Howell's primary responsibility," Hopkins said.

And those costs, reflected in amended tax returns, mean Smith never actually made any money on the Howell investment plan, his lawyer said.

Only two lawsuits remain against Smith. One was filed by a group of Howell investors in West Memphis who included Smith as a defendant even though they never met him or had any dealings with him, said Hopkins, who expects that case will eventually "go away." The other is a lawsuit filed by Bank of America against Howell's estate and against several investors, including Smith, whose checks from Howell were honored shortly before his death even though his account was overdrawn.

A bright spot for Smith, Hopkins said, is that "after six years and a massive investigation," there has been no allegation "that Richard Smith had [any] knowledge or participation in David Howell's wrongdoing." 

"He went and borrowed a million and a half dollars 45 days before David Howell blew up and put it into David Howell's investment [plan]… because he thought it was the greatest thing going. He put his family in it, he put his best friends into it. He thought it was the real deal."

 

 

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