10 Years Later, Case of M. David Howell's Ponzi Scheme Nears End

by Gwen Moritz  on Monday, Oct. 29, 2012 12:00 am  

M. David Howell Jr.

"Several people said this was one of the longest-running Ponzi schemes they had ever seen," Mays said. "Usually they crumble much earlier. And I think that if Jerry Jones hadn't done what he did, it might still be going on."

With total claims of $84.1 million, Howell's classic Ponzi dwarfed that of Kevin Lewis, the former Little Rock lawyer who pleaded guilty last year to cheating banks out of more than $40 million in an irregular Ponzi that used loans secured by phony improvement district bonds to pay interest on earlier phony bonds and loans.

"Sir" Allen Stanford's $7 billion Ponzi involving bogus Antiguan bank CDs is believed to have cost Arkansas investors about $54 million, according to state securities regulators.

The Litigation

Howell's family trust - ultimately, his two sons - was the beneficiary of a $19.5 million life insurance policy, but carrier Reassure Insurance Co. refused to pay, claiming Howell lied on his application. The trust sued but settled for $6.5 million in February 2005, giving Howell's victims assets to pursue.

Rather than fight the Howell trust separately, in 2006 the estate and many of the larger victims entered a pact to pursue insurance proceeds together and to allow the estate to prorate any recovered funds to all claimants based on the size of their approved claims.

"I have to give the greatest credit in this thing to [victim] Robert Vogel's lawyer, John Calhoun," Mays said last week. "He figured out the dynamics of everything that could possibly happen and how it might happen. Plus, he had a much better memory than the rest of us. He's very quiet, very methodical and very bright.
"He approached us and said, ‘It's crazy for us to fight each other. Let's get together and all of us go after the trust money.' He presented it in such a way that made such sense."

Calhoun declined comment.

The claimants and the estate together pursued several legal avenues for getting at the life insurance money. It took until January of this year for a settlement to be approved by the probate court: The Howell family trust would pay $2.79 million to the estate for distribution and an additional $85,000 to Richard T. Smith of Hot Springs, whose $18.5 million claim against the estate had been rejected. (Smith, who had cosigned many of Howell's promissory notes, pleaded guilty in 2009 to filing a false tax return for the year 2000 and was sentenced to two years of probation.)

The settlement took 72 percent of the life insurance proceeds that the Howell family trust had left after legal expenses, according to the March 13 probate court order approving attorneys' fees in the case. More than $340,000 was paid out to the attorneys, including Calhoun, who represented the claimants in the pact.

"The lawyers would still get paid off the top, which was more than fair," Mays said. "They were going to do all the work so that the estate didn't have to, but the money would have to come through the estate." That way, she said, approved victims who couldn't afford to pay for a legal fight still shared in the recovered funds.

In the End

 

 

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