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Family Feud in Bankruptcy Case a Tale of Murder and FraudLock Icon

6 min read

A long-running family dispute in northwest Arkansas over a small fortune in Walmart stock entered a new arena for courtroom contention: bankruptcy.

The Chapter 7 filing by Sheila McCutcheon in July put a hold on a string of lawsuits by Kenneth Middleton attempting to recover an investment portfolio once worth $2.5 million.

The disagreement pits an uncle serving a life sentence for the murder of his wife in Missouri against a niece who was forced from public office in Arkansas for felony theft of property.

Mutual accusations of fraud have colored the conflicting narratives in Middleton’s cases dotting the Newton County Circuit Court docket. The specter of fraud also has risen in McCutcheon’s bankruptcy case, where Middleton has staked a claim as a creditor.

Middleton alleges that McCutcheon defrauded him by cashing in his Walmart shares for her and her family’s benefit. Along the way, she forged the signature of her mother, Francis Lorene Smith, who Middleton alleges was safeguarding the stock for him in a secret unrecorded trust arrangement.

He portrayed this as a confidential and fiduciary relationship between siblings that was more akin to a son and his mother.

McCutcheon alleges Middleton lost any ownership claim to the stock and dividends by removing his name from the joint investment account at the Harrison office of Edward D. Jones & Co. in October 1990.

Middleton claimed the joint arrangement with Smith was made with the intention of by-passing probate in the event he predeceased her, so she could pass the assets to his son, Cliff Middleton.

According to court filings. “I transferred the assets (to Smith) to protect them for my appeals and other expenses,” Middleton said during a deposition.

McCutcheon alleges the move that left her mother/his sister as the sole name on the investment account was made to reflect a gift to Smith as Middleton headed to trial for murdering his wife, Kathy, and/or hide the assets from creditors.

The creditors included the siblings of Kathy Middleton. They filed a wrongful death suit against Kenneth Middleton in July 1990, five months after she was killed by a single gunshot in the couple’s home in Blue Springs, Missouri.

Middleton has maintained his innocence while alleging incompetent legal representation that should have exposed a botched police investigation.

Hidden Account

His wife’s family landed a $1.3 million judgment in May 1992 against Kenneth Middleton after his murder conviction 15 months earlier but were unable to fully collect on it. Her three sisters and brother settled with Middleton in June 2015, unaware of the hidden investment account he didn’t disclose when questioned in their court-fueled collection efforts in Missouri and Arkansas.

During the search for assets to collect toward the $1.3 million judgment, Middleton was found to have fraudulently transferred real estate assets in Newton County to his brother, Lynn Carl Middleton. The brothers later clashed in court over other held/hidden assets. (See Brother vs. Brother below.)

Kenneth Middleton didn’t publicly claim an interest in the Walmart investment account until September 2015, three months after settling with his sisters-in-law and brother-in-law. That’s when he first sued McCutcheon and her sister, Leshia Case.

McCutcheon and Case were added to the investment account at some point prior to the death of their mother/his sister on June 22, 2014.

Sheila McCutcheon

McCutcheon pled no contest two years ago to perjury charges for denying that she signed her mother’s name on checks, stock orders, sales directives and transfers of money from the investment account to her personal account.

The dozens of documents endorsed by McCutcheon extended to signature cards to open new accounts in the name of her mother, Francis Lorene Smith. The perjury occurred while McCutcheon was under oath during a deposition on Feb. 11, 2016.

Her pre-bankruptcy shuffling of assets to family members has drawn scrutiny from her court-appointed trustee, who wants to dig deeper into her financial affairs.

The litigious storyline incorporates her quickie divorce three years ago.

At an August meeting of creditors in her bankruptcy case, McCutcheon said she didn’t receive any assets from the divorce and retained all her liabilities.

George Stone, her oft-employed lawyer of choice, is undergoing examination by McCutcheon’s bankruptcy trustee for his role in orchestrating the one-sided property settlement.

Instead of representing McCutcheon in the divorce, Stone represented her husband, Rockie. She had no lawyer in the divorce.

Filed by her husband on June 20, 2016, the case ended 36 days later when a divorce was granted.

The dissolution of the marriage resembles a divorce of convenience as part of a defensive move to shield assets from creditors, along with Middleton.

In deeds prepared by Stone, McCutcheon transferred her ownership of Newton County real estate to family members days before the divorce filing.

On June 13, 265 acres were conveyed to Kevin McCutcheon, her husband’s brother.

On June 17, 99 acres were gifted to Travis McCutcheon and Amber Smith, her son and daughter.

On June 17, 19.7 acres that included a house and outbuildings were given to Amber Smith and her husband, Joshua.

In other 2016 deeds prepared by Stone as part of the divorce, McCutcheon relinquished ownership of a 20-acre parcel on Aug. 10 and a 58-acre property with a house and outbuildings on Aug. 15 to her now ex-husband.

Although Stone didn’t represent her in the divorce case, he is defending her in two of Middleton’s lawsuits regarding the controversial Walmart investment account. The Jasper attorney also represented McCutcheon in her 2017 perjury case and an earlier criminal case.

When Assessors Stray

McCutcheon resigned as Newton County assessor on June 17, 2016, after she and her daughter-in-law, Desiray McCutcheon, were arrested on felony theft of property charges.

According to a state audit, the two used county-issued Walmart credit cards during 2010-15 to buy $11,504 worth of personal items instead of the intended office supplies.

Their shopping list on the county dime included beer, cigarettes, rib-eye steaks and a lawnmower. Among the items was Grecian Formula 44, a hair coloring product for men to get the gray out.

In a mid-trial plea deal on April 18, 2017, McCutcheon pled no contest and was sentenced to five years’ probation and ordered to pay $10,400 in restitution and court costs. The case against her daughter-in-law also was dropped as part of the deal.

Also wrapped into the plea agreement, McCutcheon pled no contest in the perjury case in Boone County, with the felony charge reduced to a misdemeanor. She received 12 months’ probation and a $1,000 fine plus court costs.

In an electoral twist, McCutcheon had to resign from office again after her plea deal because she was re-elected as assessor. Her re-entry as county assessor occurred because she was the only candidate for the post on the Nov. 8, 2016, ballot.

McCutcheon listed assets of $5,327 and liabilities of $57,073 in her bankruptcy petition.

Nearly all of the liabilities are labeled as unsecured debt. Among the biggest are $13,152 owed to Lending Club Corp., $11,509 owed in total on two credit cards associated with Home Depot and $5,312 owed on credit card debt held by Midland Funding.

McCutcheon also lists the court-ordered restitution as an unsecured debt in her bankruptcy. Before trial, she repaid the county more than $11,000 to cover her personal charges but was still assessed restitution to cover the state’s cost to detail and prosecute her crime.


Brother vs. Brother

Kenneth Middleton won a judgment in April against his brother in Newton County Circuit Court, sort of.

Middleton, who is serving a life-plus-200-years sentence for the 1990 murder of his wife, reclaimed control of assets held for him by Lynn Carl Middleton.

His brother didn’t dispute ownership of $123,000 worth of personal property dominated by farm equipment and tools. But he sought $12,300 for storing 41 items for nearly 30 years in response to his imprisoned brother suing him over additional property.

Kenneth Middleton didn’t have to pay any storage fees because his brother testified that he never expected payment. Lynn Carl Middleton claimed he held the items all these years to help his brother successfully hide assets from his dead wife’s family.

Kathy Middleton’s three sisters and brother obtained a default judgment of $1.3 million against Kenneth Middleton for her wrongful death.

His case against his brother dates back to Aug. 15, 2016, 14 months after Kenneth Middleton settled with his wife’s siblings.

Judge John Putman ruled that Lynn Carl Middleton wasn’t financially responsible for a farm equipment-dominated list of 25 other items his brother claimed should be in his possession. At the heart of the brotherly dispute was a missing Masonic ring that Kenneth Middleton claimed he gave to his brother for safekeeping after his 1990 arrest. It carried an appraised value of $14,600.

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