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As Sentencing Approaches, Dennis Smiley Attorney Says Banks Share Responsibility

5 min read

(This article has been edited for clarity. See end for details.)

H. Dennis Smiley Jr., the former president of Arvest Bank’s Benton County market, expects to go to federal prison after he is sentenced Thursday for bank fraud.

All he and his defense attorney, W.H. Taylor of Fayetteville, have asked for in a sentencing memorandum is a shorter prison sentence — say, two years rather than five or more, as contemplated by federal sentencing guidelines — followed by a longer term of supervised release.

“Dennis Smiley is fifty-two years old and has about a twenty-five-year work life left,” Taylor wrote. “If he is not incarcerated for a long period of time, he should be able to pay a substantial amount of restitution over his work life. In fact, he may be able to pay the majority of the restitution owed.”

He apparently expects to be a high-income ex-con. When Smiley pleaded guilty in August to a single count of bank fraud, he agreed that he defrauded 23 banks out of $5.3 million ($6.3 million including accrued interest) through a combination of forged signatures and fraudulent collateral.

In seeking a lenient sentence, Smiley and his lawyer present a two-pronged argument:

  1. Smiley is a good guy who simply could not control his lavish household spending, and
  2. His victims should have known better.

The federal prosecutor doesn’t see it quite that way. Instead, Acting U.S. Attorney Kenneth Elser of Fort Smith encouraged U.S. District Judge P.K. Holmes III to hold Smiley accountable for using a sophisticated scheme and for abusing a position of trust, both of which call for a longer sentence under the guidelines.

The Shakes

As Arkansas Business was the first to report in April 2014, Smiley amassed millions in debt spread across virtually every bank operating in northwest Arkansas by repeatedly pledging the $500,000 worth of phantom stock contained in his Arvest retirement account, assets that couldn’t legally be pledged at all.

Smiley had suddenly resigned from Arvest a couple of weeks earlier, after a check for payment on one of the many loans bounced, triggering a collapse of his scheme.

While Smiley’s fraud was believed to have started about 2009, Taylor’s sentencing memorandum said that Smiley’s debt problems date back 30 years.

“He would tell you,” Taylor wrote, “that obtaining credit and living beyond his means has been a problem since he first got married and was in school on a part-time income.”

Smiley lived beyond his means his entire adult life, even as those means became more and more substantial.

“He went on trips that he could not afford, bought his kids cars that he could not afford, and paid his children’s college and living expenses, which he could not afford. Smiley simply lived above his means in all aspects of his life. Despite his increasing debt, he always thought, almost until the end, that he would be able to pay it back.”

Taylor emphasized that Smiley had served on numerous boards of directors, often with access to their bank accounts, yet never stole or “even had a temptation to do so.”

Instead, he borrowed and borrowed and borrowed, which required fraudulent means as banks tightened their lending standards after the financial crisis of 2008.

He ultimately ensnared three co-workers, Jeb Mills, Chad Evans and Uva Phillips, in his fraud by having them sign paperwork that he used to obtain loans from other banks. This, his lawyer wrote, was “unforgivable.”

“He asked them to sign it and they did it because he asked them, not because they were going to realize anything from their actions.”

(Mills was moved from Arvest Asset Management to a job with Arvest Bank and was fined $15,000 by FINRA for signing documents for Smiley.)

Even when Smiley realized that he could never dig out of the hole, “his pride, greed and fear of failure got the best of him,” Taylor continued, describing Smiley’s state of mind as “hopeless,” “completely delusional” and “total denial.”

Smiley never told his family the truth. Twice in the memorandum Taylor describes Smiley waking up shaking each morning.

In 2011, he didn’t seek the Benton County presidency until Arvest CEO Kevin Sabin personally asked him to apply because he was afraid his debts would be discovered during the hiring process.

They weren’t, Smiley got the job, and his problem got worse.

“As a bank president, by design, he ran with a more affluent crowd, which increased the pressure on him to spend and do more. Over time, Smiley found himself unable to say no when it came to money. He could not say no to himself, his family, or to his friends.”

Not ‘Vulnerable Victims’

Arvest was not alone in placing unwarranted faith in Smiley. In his memorandum in support of a lenient sentence, Taylor suggests that the victim banks share some of the responsibility for facilitating Smiley’s fraud.

“The circumstances of the crime are somewhat curious as the offense would have never taken place if the victim banks had exercised basic due diligence in these transactions,” Taylor wrote.

The lenders “relied solely on Smiley” and didn’t communicate with his father, H. Dennis Smiley Sr. of De Queen, and his wife, interior decorator Cynthia Smiley, even when they supposedly co-signed for loans. Those signatures were forgeries.

Standard credit checks “were clearly ignored by all of the banks,” Taylor wrote. If they had checked, they would have found that Smiley’s credit card debt exceeded $100,000 and his credit score was below 700.

Furthermore, eight of the banks employed former Arvest officers, who “should have known that stock pledges from the Arvest Employee Stock Purchase Plan were prohibited.”

Elser, the prosecutor, countered that Smiley took advantage of his position and of other bankers.

“Smiley, with his extensive knowledge of [the] banking business, correctly calculated that the loans would much more likely be approved and would receive far less scrutiny if each bank believed that its loans were, in large part or wholly, collateralized with Arvest stock.”

(Clarification, Jan. 26, 2016: Jeb Mills, who facilitated some of Smiley’s borrowing, was moved from Arvest Asset Management in April 2014, shortly after Smiley’s fraud was discovered, to a business development role with Arvest Bank. The original article did not make his employment status clear.)

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