Arvest Bank Group Inc. told the Benton County Circuit Court on Wednesday that it’s holding nearly $552,000 in stock option proceeds and stock plan checks to H. Dennis Smiley Jr., a former bank executive who’s under a federal criminal investigation for bank fraud.
In an interpleader filing with the court (PDF), Arvest cited 19 banks that might have a claim on the proceeds, which Smiley used over and over again for collateral on loans. Arkansas Business sources indicate that he owes at least $4.5 million.
In the filing, Arvest asked the court to allow it to deposit $551,754.58 into the court’s registry and “be discharged from all liability.”
“Because of the claims that have been or may be made by Mr. Smiley and the Bank Defendants, [Arvest] cannot determine without hazard to itself which, if any of them, is legally entitled to the proceeds of the Option Plan Check,” Arvest said in its filing.
“[Arvest] should not be required to make this determination because by doing so, [Arvest] may subject itself to double or multiple liability,” the bank said.
The filing came the same day Arkansas Business reported that Smiley, the former CEO of Arvest Bank’s operations in Benton County, was under investigation for loan fraud. Smiley resigned suddenly from Arvest on March 13.
Multiple sources allege, and Uniform Commercial Code filings with the Arkansas Secretary of State’s office indicate, that Smiley pledged repeatedly a type of Arvest Bank Group stock incentive to get the loans.
Among the creditors is Delta Trust & Bank of Little Rock, whose Bella Vista branch loaned Smiley $245,126 in February. On March 25, Delta Trust filed a lawsuit against Smiley and his father, H. Dennis Smiley Sr., for defaulting on the loan.
UCC filings identified Delta Trust, which is being acquired by Simmons First National Corp., and eight other banks that loaned Smiley money:
- 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, where Smiley’s father, Dennis Smiley Sr., is chairman of the board;
- Integrity Bank (formerly First National Bank & Trust) of Mountain Home;
- Chambers Bank of Danville;
- The Bank of Fayetteville; and
- First Security Bank of Searcy.
Other than the Delta loan, which was detailed in the civil complaint, the size of the loans associated with the UCC filings is not known. Arkansas Business sources say most were in the $200,000 range.
Arvest’s court filing lists 10 additional banks as having potential claims against Smiley’s money:
- BOKF N.A. of Tulsa;
- Bank of the Ozarks Inc. of Little Rock;
- Benefit Bank of Fort Smith;
- Centennial Bank of Conway;
- First Bank of Hampton;
- First Federal Bank of Harrison;
- First State Bank of Lonoke;
- First State Bank of Russellville;
- Legacy National Bank of Springdale; and
- Summit Bank of Arkadelphia, which is being purchased by Bank of the Ozarks.
The nature of the other potential claims is not known.
As collateral, Smiley used a type of phantom shares contrived by Arvest 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.
The banks understood that the collateral was not literal stock. But they didn’t know until recently that Smiley pledged the same collateral over and over again with multiple lenders.
Only nine lenders filed UCC financial statements in connection with loans secured by uncertificated Arvest stock. According to sources, other banks made similar loans but did not make UCC filings, which aren’t mandated.