An apparent loan fraud scheme that imploded in northwest Arkansas has drawn a criminal investigation, and lawsuits have also started to flow.
In the middle of it all is H. Dennis Smiley Jr. of Rogers, who resigned March 13 as CEO of Arvest Bank’s operations in Benton County.
The federal probe is examining allegations that Smiley repeatedly pledged the same collateral, worth hundreds of thousands of dollars, to help borrow $4.5 million or more from a list of at least 18 banks.
One of the banks is First State Bank of De Queen, where Smiley’s father, Henry Dennis Smiley Sr., is chairman of the board.
“His mother and I are brokenhearted about it,” the elder Smiley told Arkansas Business last week. “I don’t know everything that’s happened, and I’m not sure if I could talk about it if I did.
“That’s about all I can say.”
Based on interviews with multiple sources, Arkansas Business first reported the fraud investigation on Wednesday.
Later that day, Arvest Bank filed an “interpleader” in Benton County Circuit Court saying it was holding almost $552,000 from Smiley’s participation in the bank’s stock and option plans. Arvest asked to deposit the money with the court so that the creditor banks could fight it out and Arvest could be released from any liability.
According to Arvest’s filing, Smiley wasn’t authorized to pledge or encumber the shares of stock held in the Arvest Bank Group Inc. Stock Purchase Plan and the ABGI Stock Option Plan.
But he did anyway, as at least nine banks listed the stock as collateral on Uniform Commercial Code financing statements filed with the Arkansas Secretary of State.
One of Arkansas Business’ sources, who all spoke only on condition of anonymity, said the scam dates back to at least 2010. It was discovered only recently when a scheduled loan payment didn’t clear because a Smiley account had insufficient funds to cover the draw.
This bounced payment ap-parently happened during the week of March 10, three days before Smiley resigned from his position at the state’s largest bank. Arvest officials have not explained the sudden departure of Smiley, a long-time Arvest employee.
“Mr. Smiley’s reasons for resigning his position are personal in nature and we are not going to comment on his personal situation,” Arvest spokesman Jason Kincy said in an email on Tuesday afternoon.
Smiley had worked for the company since 1989, was CEO of Arvest in Springdale for about 11 years and was the top executive for the Benton County operations for almost two years.
Smiley did not respond to a message left on what was believed to be his home phone, and a Fayetteville lawyer believed to be representing him did not respond to a call for comment.
Delta Trust & Bank, chartered in Parkdale (Ashley County) but based in Little Rock, filed suit on March 25 against Smiley and his father for defaulting on a $245,126 loan.
The loan at issue in the civil suit, made through the Bella Vista branch of Delta Trust, is also part of is part of the criminal bank fraud investigation.
The loan to HDS Holdings LLC was personally guaranteed by Dennis Smiley and his father, according to Delta’s complaint filed March 25 in Benton County Circuit Court.
The Delta Trust loan was made Feb. 20, and the Smileys failed to make the first monthly payment due on March 20. “Defendants have confessed that they are either unable or unwilling to pay the obligations owed,” according to the complaint.
Delta Trust, which is being acquired by Simmons First National Corp. of Pine Bluff, appears to be the last in a line of lenders that were lured into making loans to Dennis Smiley.
The Delta debt is among a roster of similar loans secured by HDS Holdings and Dennis Smiley’s stake in an executive compensation account tied to the value of Arvest Bank stock.
Uniform Commercial Code financial statements show the same stock has been pledged in similar loan agreements with eight other lenders besides Delta Trust.
Sources familiar with the case have told Arkansas Business that Smiley’s loan fraud scheme included approximately nine additional banks whose identities have not yet been revealed in public records.
The banks understood that Smiley’s Arvest collateral was not literal stock but a type of “uncertificated” stock. These phantom shares were contrived by Arvest Bank Group as an incentive to reward top executives based on the appreciation of real Arvest shares held by the Walton family.
Executives holding these phantom shares could, upon leaving the company, cash in the stock for a price tied to the book value of Arvest.
However, until recently, the banks did not know that Smiley pledged the same collateral over and over again with multiple lenders.
The alleged scheme allowed Smiley to use an asset valued at more than $393,000 in the Delta Trust loan documents to help borrow more than $4.5 million through a series of fraudulent loans.
Delta Trust is among nine lenders to file UCC financial statements in connection with loans to Smiley secured by uncertificated Arvest stock. The other banks are:
- First National Bank of Fort Smith;
- First State Bank of Northwest Arkansas in Huntsville;
- First Western Bank of Booneville;
- First State Bank of De Queen;
- Integrity Bank (formerly First National Bank & Trust) of Mountain Home;
- Chambers Bank of Danville;
- The Bank of Fayetteville; and
- First Security Bank of Searcy.
According to sources, other banks made similar loans but did not make UCC filings. Such filings aren’t mandated.
Arvest’s interpleader filing lists 10 additional banks as having potential claims on Smiley’s phantom stock money:
- BOKF of Tulsa;
- Bank of the Ozarks of Little Rock;
- Benefit Bank of Fort Smith;
- Centennial Bank of Con-way;
- First Bank of Hampton (Calhoun County);
- First Federal Bank of Harrison;
- First State Bank of Lonoke;
- First State Bank of Rus-sellville;
- Legacy National Bank of Springdale; and
- Summit Bank of Arkadelphia, which is being acquired by Bank of the Ozarks Inc.
The nature of the claims not listed in UCC filings is unknown. Arkansas Business’ sources say the loans secured by the stock were generally in the $200,000 range and that Smiley also received unsecured loans from some of the banks.
The probe also is looking into allegations that Smiley used stakes in limited liability companies as part of the loan fraud scheme, according to sources.
Signature Bank of Arkansas in Fayetteville filed a UCC financial statement tied to a 20 percent stake in HDS Holdings LLC used as collateral on a September 2009 loan.
No other UCC filing is on record in connection with his ownership of HDS Holdings. Such filings aren’t mandated for this type of collateral either.
Arvest spokesman Kincy said the company expects to name a replacement for Smiley later this month:
“We are in the process of selecting a replacement president for Arvest Bank, Benton County, and will make an announcement sometime in April.
“Arvest has many talented individuals and we’re confident our new president will be a good leader, sound banker and someone who understands and lives the Arvest culture of serving the needs of the local community.”