Trust but Verify (Editorial)

Dennis Smiley, as a trustee of the Jones Trust of Springdale, participated in the March 2013 groundbreaking ceremony for the Webb Memorial Children Park on the campus of the Center for Nonprofits at St. Mary's in Rogers. Smiley resigned from the trust's board last month.

We don’t pretend to be bankers here at Arkansas Business — or lawyers, for that matter. We’re just journalists, paid to tell our audience information we can glean from events, statements, documents, interviews and direct observation.

We know that Dennis Smiley Jr., the former CEO of Arvest Bank’s Benton County market, has not been charged with any crime, although he is the subject of a criminal investigation by federal authorities. We know that a growing list of banks — eight at this writing — have been filing civil claims saying Smiley borrowed money from them by using his shares in an executive incentive fund at Arvest as collateral, even though the asset was only worth a fraction of the amount of debt that it secured.

We know that 19 banks are believed to have made loans to Smiley in the past five years or so, that only nine of them filed Uniform Commercial Code claims on the collateral with the Secretary of State’s office. Worse, it seems none of them actually searched the UCCs before lending to Smiley and filing (or not) their own UCCs.

We know that a lawyer specializing in banking said this:

“You’re crazy if you don’t do a UCC search. You’re reckless if you don’t do a search.”

We know that Joe Edwards, CEO of Benefit Bank of Fort Smith — one of Smiley’s creditors — said this:

“We all feel like we’ve all been held up and robbed by a friend. We also feel ashamed that we couldn’t figure it out. We were so emotionally stunned by all of this it took us 24 hours to come to grips with it.”

We’ve observed in the past (see Lewis, Kevin) that trust is sometimes misplaced, especially when the trusted person is in a position to know and exploit weaknesses in the system. The system can’t work when it is circumvented. We’re reminded of the old Russian proverb adopted by an American president: Doveryai no proveryai — trust, but verify.