He was a global businessman who traveled extensively--he prized a photo of himself as a young man with Albert Schweitzer in Africa--and had a long history of developing property in California. You might think that with such an obviously rich life, Smith would be arrogant and haughty. Yet those who've met this former Methodist of the Year say he was well-spoken, courteous and polite.
He was, in short, the sort of fellow who engendered the deepest trust.
He was so trustworthy that loan officers for Arizona's largest bank believed him when he said he controlled three different corporations, had no liabilities and was personally worth $12.7 million. His own financial statement showed much of that wealth was in mysterious trust funds and exotic foreign corporations with strange names like "Chisau" and "Sauchi," located in faraway places like Hong Kong and Rotterdam and Curacao. The precise functions of these global enterprises were never quite explained, but Smith's personal financial statement was one reason Valley National Bank gave a Smith corporation a $12 million line of credit in 1983. The easily disbursed money was intended to build "Torres Blancas"--an RV park and housing development complete with a Lee Trevino golf course--in Green Valley, just outside Tucson.
VNB wasn't alone. In two industrious years, from 1982 to 1984, Smith persuaded seven other banks and savings and loans in California and Arizona to trust him enough to lend his various corporations another $43 million to develop three swanky real-estate projects in Arizona. Besides the Green Valley project, Smith unveiled plans to build a Bullhead City complex that included an RV park, classy condos, a ritzy marina and a shopping center, as well as a country club-like RV park in Apache Junction for oldsters with discriminating tastes.
A dashing Englishman named Harry Bidwell helped market Smith's plans, touting them to the press as "land-based yacht clubs for RV lovers with an income over $50,000."
The grandiose visions of these developments were enough for most of the banks, which based their loans on the projected value of the various properties after completion. What's more, some banks accepted Smith's personal guarantee for a few of the loans.
Now they wonder if the silver-haired gentleman might instead be a silver fox.
In 1985, having repaid only a fifth of the loans--about $11 million--Smith and all three of his companies filed for bankruptcy. The unfinished Arizona projects were abandoned. Smith turned around and sued Valley National Bank, claiming it caused his businesses to fail because it hadn't given him enough money. The bank countersued, alleging among other things that Smith defrauded it with a bogus financial statement. Even so, the bank maintains it checked Smith out as best it could and was perfectly justified making the loan.
That's not how it is seen by the building contractors who lost their shirts on Smith's projects. They've filed a flurry of lawsuits to try to get their money. One of their contentions is that VNB made such a stupid loan, it should stand in line behind them when Torres Blancas is liquidated to cover its debts.
THE BANKS LEARNED, belatedly, that both Harvey Keith Smith and his businesses had a lousy record of paying back debts. And the details of those poor debts were no secret--they'd already been logged in California and Arizona public records: Smith's failed real-estate development ventures in California resulted in forty judgments--including fraud judgments--against him, according to the Federal Savings and Loan Insurance Corporation. Mesa police in 1979 investigated and charged Smith with fraud and embezzlement in connection with a bankrupt RV resort in Mesa. The police report detailed how Smith falsified a financial statement in order to get money from a Mesa bank. He was not prosecuted by the Maricopa County Attorney's Office because he agreed to return about $300,000 to tenants who had paid their rentals in advance.
Roadhaven Resorts, Smith's major corporation that borrowed millions from banks, had failed to file federal income tax returns from 1981 through 1983.
At least one official wonders over and over why the banks seemed so careless. "I continually ask myself why the banks made those loans, why the banks didn't check into Smith's business history," says a befuddled John Ahearn, who was appointed trustee of the Roadhaven bankruptcy by the United States Bankruptcy Court.
"There are so many cases around the country like this," Ahearn adds. "Smith is very much like others who have taken advantage of the economic situation in the past ten years and exploited savings and loans and banks. It's very difficult for the government to go after them because the assets are so hard to find."