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."
BY THE TIME the banks discovered the darker side of Smith's financial enterprises, he had disappeared from Scottsdale. And he left behind more than just unpaid bank loans. He left real estate in Bullhead City and Green Valley and Apache Junction that would jointly require millions more dollars to complete, a gaggle of unpaid contractors and tens of thousands of dollars' worth of delinquent bills related to the businesses and Smith's personal life. In all, Smith's companies owed at least $78 million and owned assets of about $107 million, court records show. Unfortunately, the assets--including a private jet, yacht and the real-estate projects--were already mortgaged to the hilt, bankruptcy records show. In his wake, Smith also left behind a labyrinthine paper trail that has stymied every official who has tried to figure out what happened to all the money the banks loaned. Checks had whizzed dizzyingly back and forth among Smith's various corporations, according to corporate records reviewed by New Times. And loans had crisscrossed back and forth from his corporations to trust funds he was linked to.
Officials are bewildered by Smith's relationship to various trust funds scattered around the world, all of which are shielded by law from public scrutiny. "We don't know what's in the trusts or who's behind them," says Charles Lowe, the attorney for trustee Ahearn.
Smith himself isn't very helpful in explaining the trusts he lists in his financial statement. For instance, in 1982 he listed a $2.5 million "market value" for his interest in Hemet Properties Trust, a trust fund he'd apparently set up in California. But when he was questioned about the value of his interest in that very same trust four years later, he explained in a deposition that he didn't know.
Smith, who in 1983 claimed he had $12.7 million, testified in a 1987 deposition that he had "zero" assets and that Dixie Lowe, his long-time companion, "handed" him money to survive. Smith said he not only spent his money trying to salvage his failing real-estate developments, but he claimed he'd lost $5 million worth of assets in the Falkland Islands War. He testified those assets, which had something to do with a "technology" for harvesting kelp, were stored in a box in somebody's garage that was blown up in the Falklands, where he'd been negotiating kelp-bed leases with the government prior to the war.
Even though the bankruptcy trustee spent about $100,000 for professional investigators to trace what happened to the money the banks had loaned, nobody could figure out where it all went or why so much money passed among Smith's three companies. Roadhaven Resorts borrowed much of the bank money and held title to the Arizona properties. But Roadhaven frequently wrote checks to Smith's Altamira Development Service Corporation, which was supposed to oversee construction of the projects and pay the contractors. Although Altamira handled millions of dollars, the company's president was an inexperienced young San Diegan who'd once worked on Smith's yacht, a former Roadhaven accountant later testified. Bend Marine Distributors Incorporated, the third Smith corporation, owned Smith's yacht and allegedly distributed marine products in Oregon, but it also received money from Roadhaven. When Smith was later asked about the relationships among the three corporations, he was vague. He testified in a deposition that he wasn't sure about the exact duties Altamira performed for Roadhaven, for instance. "Oh, I don't know, you're asking about the day-to-day operation," he testified. "As to the specificities of those services, I don't have any knowledge of them." When asked why Roadhaven would write checks to Bend Marine, Smith contended it was to repay loans--an answer he had often given when queried about specifics.
When pressed for other financial details, he referred lawyers to the records of his bankrupt corporations. "I'm not an accountant," he testified, "but it would be in the records." Lawyers for banks and unpaid contractors all say those "records" are far from complete and are extremely confusing. And officials trying to sort through the financial maze are hard-pressed to find documentation for the spate of loans Smith so often referred to. What's more, Smith himself never signed the business checks withdrawing money from various accounts, says Paul Corradini, an attorney for Valley National Bank.
The records do show money was withdrawn from business accounts to pay for huge American Express credit-card bills that could run as high as $30,000 a month. "We know from the pattern of his credit-card statements he and his girlfriends took numerous trips and ate at the best restaurants. They stayed at the best hotels," Ahearn says. During Smith's days in Arizona, two women--Susan Grimm and Dixie Lowe--repeatedly drew money from Roadhaven accounts for "repayments" of loans, court records show. Susan Grimm was Smith's secretary. Her company, "Golden Unicorn," also drew money from Smith's various corporate checking accounts. Grimm earned $35,000 a year from Roadhaven. County records show she now owns two houses in the Paradise Valley-Scottsdale area. One home on Ironwood Drive is valued at over $500,000, Ahearn says. "We are puzzled by the fact a secretary can afford such a home," notes Lowe.
Dixie Lowe is a middle-aged former real-estate seller who masqueraded as Smith's wife. (She is not related to attorney Charles Lowe.) Although Lowe was an officer in Roadhaven and drew thousands of dollars from its accounts, she couldn't recall much about the company finances in her deposition last year. She also couldn't recall much about the trust fund that named her as one of the beneficiaries. Neither Grimm nor Lowe could be reached for comment. Harry Bidwell, the former president of Roadhaven Resorts and an officer of Altamira, says he knows nothing about the loans either. "They had nothing to do with me," he tells New Times. Bidwell, who now lives in the upscale Arcadia district, says he's retired and hasn't seen Smith for "ages and ages and ages." Bidwell, who once sold properties for Gulf Oil Company, had gained a reputation as a successful marketer of RV resorts by the time he hooked up with Roadhaven as a "consultant" in 1979--the same year Mesa police investigated Smith for embezzlement and fraud. Five years later, Bidwell retired from Roadhaven. Yet despite the long association with Smith, Bidwell says he can't really remember much about him.
ONLY SMITH'S New York lawyers know where he is today, and they're not telling. New Times made repeated telephone calls to the New York law firm representing Smith beginning in early May, requesting interviews with the developer. But attorney Mike Silverberg refused to put the newspaper in touch with Smith. Silverberg also declined to comment himself, saying he couldn't "drop everything for an interview in the next couple of days" but noted he might consent to an interview in late June. The skein woven by the bankruptcies of Harvey Keith Smith, Altamira, Roadhaven, and Bend Marine is so complicated that it is difficult to say who owes whom, and how much has been paid. However, Charles Lowe, the attorney for bankruptcy trustee Ahearn, put together a list of loans made by banks and savings and loans to Smith corporations from 1982 to 1984.
MDSD
MDNM "There are substantial amounts that are still unaccounted for," says Lowe, who admits he's not even sure how much is unaccounted for because "we have some pieces of the puzzle but not all of it. We know what the raw land cost and how much was paid for it, but records showing how much was actually spent for improvements are much more difficult to trace."
Smith personally guaranteed several of the loans, but the banks relied heavily on the future value of the developed land as collateral. Two banks, Southern California Savings and Loan and Valley National Bank, also relied heavily on the appraisals of raw land that Smith handed them, without ordering independent appraisals. (Federal regulators later concluded that the appraisal accepted by the California S&L was inadequate.)
Smith also frequently arranged the mortgaging of bits and pieces of one development to different lenders, and at least one piece of property was used as collateral for two different loans, Lowe notes.
Among the institutions who lent money to Smith companies, says Lowe, were: Southern California Savings and Loan in Los Angeles, $10.6 million for the Bullhead City project. $275,000 was repaid. The savings and loan foreclosed on the condo development in Bullhead City for an undisclosed amount. The institution has since become insolvent and was taken over by federal regulators. In a 1985 lawsuit in United States District Court in California, the federal regulators charged that the S&L's officers "utterly failed properly to investigate the character and creditworthiness" of the loans they made to Roadhaven. The feds charge the officers "disbursed millions of dollars of loan funds . . . with minimal or no precautions to assure that the funds were applied to construction of the related project."
Merit Savings Bank in California, $18.25 million for the Bullhead City project. $4 million was repaid. Merit foreclosed on part of the project for an undisclosed amount.
Pima Savings and Loan in Tucson, $6.325 million for the Bullhead City project. $270,000 was repaid. Pima foreclosed on part of the project for an undisclosed amount.
Southwest Savings and Loan in Phoenix, $6.325 million for the Apache Junction project. $5.185 million was repaid.
Great Western Bank in Phoenix, $1.1 million. The loan was completely repaid. It is unclear why this money was borrowed. Century Bank in Phoenix, $1.037 million. $121,987 was repaid. This loan was made to Bend Marine. The collateral was a yacht. Century foreclosed on the yacht for an undisclosed amount.
National Bank of Arizona in Phoenix, $50,000. No money was repaid. It is unclear why the money was borrowed.
Valley National Bank in Phoenix, $12.3 million for the Green Valley project. $630,000 was repaid. The bank is expected to sell the property to recoup its money.
Lowe tells New Times it is unlikely that the banks which managed to foreclose on the properties got their money back. Bullhead City was far from completed at the time of the bankruptcies. Some condos had been built, but the glitzy marina and shopping center on the banks of the Colorado River were missing. The Apache Junction RV park, Apache Gardens, was in a little better shape. At the time of foreclosure, a clubhouse, a golf course and the RV hookups were finished. Unfortunately, it also had thousands of dollars' worth of unpaid maintenance and utility bills.
The fate of Torres Blancas, the 500-acre Green Valley project, is still being debated in Arizona courts.
So today the pretentious Spanish-style gateway to Torres Blancas, just off the Nogales Highway, beckons visitors into a wasteland of half-finished buildings and a weed-infested, partially graded stretch of dirt that was supposed to be a golf course designed by Lee Trevino.
THOSE HURT THE most by the Torres Blancas debacle were the unpaid contractors, who began filing liens on the land when they didn't get their paychecks back in 1984. The subcontractors sued the general contractors for nonpayment; the general contractors sued Altamira for not paying them. By 1988, individual lawsuits filed throughout Arizona were consolidated into one case in La Paz County Superior Court. The consolidated suit hoped to prove that Valley National Bank lent Roadhaven millions without bothering to check out thoroughly either Smith's background or the progress of work in Green Valley. Should the contractors prove that point, state real-estate law could put them first in line, before the bank, for any proceeds from the sale of the Green Valley property. Contractors allege in court that if "VNB conducted even a cursory examination, it undoubtedly would have discovered the trail of fraud, deceit and financial destruction that characterized the history of Roadhaven and its chief executive, Harvey Keith Smith."
They also say the bank "facilitated" a "massive fraud" perpetrated by Roadhaven upon the Green Valley contractors. If the bank had checked out Smith, they allege, "it is difficult to imagine that VNB would have extended a $12 million line of credit for a speculative real-estate venture such as an RV resort in Green Valley, Arizona." They also allege that Valley National Bank gave Roadhaven millions without checking the progress of the Green Valley development. VNB lawyer Paul Corradini denies the bank improperly lent the money to Roadhaven. Yet in a lawsuit against Smith in Maricopa County Superior Court, Valley National Bank alleges that Smith defrauded the bank of millions by submitting a bogus financial statement.
Mike and Peda Pruett, the owners of a Chandler grading company called Central Arizona Contracting, still remember how astonished they were when they were "laid off" the Green Valley job without getting paid.
In March 1983, Peda quit her job as a medical receptionist so she could move down to Green Valley with her husband while he contoured a Trevino golf course for Siemens Environmental, another contractor who worked directly for Altamira. Six months later, the Pruetts had been paid $50,328 for their work but were owed an additional $67,000. They say they were suddenly "cut off like water" by Siemens, who had not been paid by Roadhaven or Altamira. (As it turned out, only Lee Trevino got the money owed him.)
The Pruetts returned to Chandler. They were broke. They nearly lost their house. And ironically, Valley National Bank, the very bank that lent millions to Roadhaven, repeatedly contacted the Pruetts about delinquent installments on their heavy-equipment loans. "You beg and plead" with the bank, recalls Peda Pruett, "and somehow you make it through." (VNB officials say they will not comment on their relationship with customers.)
When it looked like Central Arizona Contracting would go bankrupt itself, Mike Pruett's father, who started the business in 1969 for his family, decided he wasn't about to watch it die. He loaned $66,000, most of his life savings, to the failing company. Another Phoenix earthmoving contractor, Aarid Construction, eventually did go bankrupt. Aarid had been owed about $1 million by the Smith real-estate companies. The Roadhaven and Altamira bankruptcies "started a chain of events that eventually led to Aarid's bankruptcy," says Aarid's Phoenix attorney, Mike Rubin. "In my opinion," Rubin says ruefully, "Smith is a smooth and fast talker who uses the trust people have in him to take advantage of innocent people."
"I'M AMUSED BY Mr. Smith," says John Ahearn, the bankruptcy trustee. "He's very slippery in many ways. He's very clever.
"The first time you meet him you'd think of him as kindly, almost grandfatherly," notes Ahearn. "My only reasons for having grave suspicions about him are that I know we can't account for a large amount of money. My common sense leads me to believe Mr. Smith is very good at manipulating finances and people." Ahearn says he still can't picture the conservative Smith, who's now in his sixties, in a cushy yacht. Smith just doesn't appear to be a "stereotypical high flyer," Ahearn says.
But records show Smith's corporations not only owned a yacht but two Jaguars and two jets that Smith used occasionally to fly loan officers to projects. Plus, Smith loved nautical antiques and art, which his companies frequently paid for. He once boasted in a deposition that one painting of a boat cost about $650,000.
Corradini, VNB's attorney, recalls that Smith "dressed to the nines" for a deposition about two years ago. Corradini remembers the "high-tech briefcase" that looked "very, very expensive" the developer carried with him. "For all I know," the attorney says, "it had a portable telephone in it."
But for all that apparent finesse, Corradini also recalls that Smith once orchestrated a somewhat inelegant escape scene. The lawyer remembers Smith bolting through a bankruptcy judge's private chambers on a day the bank had a process server in the courtroom ready to serve papers on the developer. "Let me make this clear, it was my personal observation and not the bank's, but this was a Keystone Kops sort of thing," he says. "He ran out, and the judge said, `Where is he going?' and by that time Keith was gone. Some basic survival instinct probably told him to go out the back door."
THE FIRST TIME Harvey Keith Smith made the news, the press clippings were favorable. He was written up because he had a great idea that would help out the United Methodist Church.
In 1953, when Smith was in his late twenties, he talked the church hierarchy into sponsoring his idea to sell West German tractors to farmers in Africa. While he was there arranging the deal, Smith managed to get photographed with the famed missionary-physician Albert Schweitzer. According to a Tucson newspaper, the project failed and the Methodists had to spend $100,000 to settle a legal claim. This apparently didn't upset the church elders. In 1962, they named this affable, enterprising young California native their "Methodist of the Year." And they pointed him out to Los Angeles Mayor Sam Yorty, who appointed him to the city's Human Relations Commission.
MDSDMDNM In 1966, one of Smith's companies landed a multimillion-dollar contract from the Los Angeles Harbor Commission to build a trade center. But the project was nixed, press reports say, after Smith and several city officials were indicted by a grand jury for perjury and bribery. Smith was acquitted in 1970. One harbor official who allegedly took money from Smith was found dead in Los Angeles Harbor, news reports say.
Smith and Dixie Lowe, who then sold and leased real estate, hooked up in California in 1972, Dixie testified last year. They lived together in Newport Beach, and she became a beneficiary of Smith's Hemet Properties Trust. But in a recent deposition, she said she didn't know how much money was in that trust or where it came from.
In 1978, Smith moved to Arizona with another woman friend, Deana Cardiff. He rented Cardiff a house in Sun City and bought 45 acres in Apache Junction with money from yet another trust fund, records say. A year later, he'd built an RV park on the property called the Sundance Resort. The resort collected about $325,500 in deposits from renters, saying the money would go into an interest-earning account. Instead, police discovered, the money was diverted into a slew of other accounts.
By this time, Mesa police say, Smith had an "intricate system of foreign and domestic trusts" in connection with Sundance.
In April 1979, Smith allegedly falsified financial statements and forged the signature of a business associate in order to obtain a $100,000 loan from Mission Bank for one of his companies, Real Property Management, according to a 1979 Mesa police report.
The cops say Smith "made up" a financial statement of a business associate, Don Christopher, forged Christopher's signature and presented the statement to the bank. What's more, the report says, Smith taught Cardiff how to falsify her statement and told her "never to submit a financial statement with a net worth less than a million dollars." According to the report, he changed the $257,600 statement she had intended to give the bank into one listing her assets at $1.6 million. The bank granted the loan.
Sundance went bankrupt in 1979 and was eventually taken over by another company. The Maricopa County Attorney's Office agreed not to prosecute Smith for forgery, fraud, theft and embezzlement if the renters were returned their $325,500. The depositors got their money back.
Despite local newspaper articles trumpeting the Sundance disaster, just three years later Arizona banks were lending Smith's companies millions of dollars for new real-estate ventures.
SMITH MAINTAINS THAT his troubles began when Valley National Bank pulled the financial rug out from under him. In 1988, Smith sued VNB in Maricopa County Superior Court for at least $650 million, alleging that the bank caused his and Roadhaven's financial demise by not lending him more money. Smith alleges the bank defrauded him by going after his business, and then cutting him off before it gave him enough money to complete Torres Blancas. Smith said a flood in the San Pedro River caused him to spend unexpected funds to rechannel the riverbed. He needed the bank to lend him more money to replace the money he spent on the channeling, he said, but the bank cut him off. (Lawyers say documentation of the river construction bills has not been obtained.)
VNB countersued Smith for at least $45 million, alleging the developer intentionally "defrauded" the bank and intended to use the loan money "directly and indirectly for his benefit." Oddly enough, about a year ago Ahearn joined Smith in the suit against Valley National Bank. He tells New Times that if Smith wins, there is a chance Ahearn, as trustee, can collect money from the bank and funnel that money to the creditors in the Roadhaven bankruptcy. The case is pending.
One of the central figures in the VNB controversy is William Haugen, who in 1983 managed the bank's commercial loan center in its main office in Scottsdale. Haugen had worked for Valley National Bank since 1966 and had a lot of experience issuing loans. But at least one VNB staffer testified he was "shocked" when he discovered how Haugen handled the Roadhaven loan.
Haugen now works for Security Pacific Bank in Scottsdale. He refused comment to New Times. However, the story of the VNB loan unravels in Haugen's 1988 deposition. He testified that in the fall of 1983, he was introduced to Smith by "one of our managers." He also admitted he and another bank loan officer had "cocktails" perhaps "five or ten" times after work in Smith's Scottsdale office. Haugen also testified that "Keith Smith delivered a picture to my place" of an "Indian sitting in the woods somewhere." He didn't recall telling his supervisors about the gift, and he'd never had it appraised. (VNB won't allow its loan officers to accept customer gifts worth more than $25.)
Haugen testified that the bank checked out Smith prior to approving the loan but got only "sketchy" information. However, he said, another loan officer told him that reports from other banks were "favorable." What's more, Haugen himself noted he'd been impressed by the quality of Roadhaven's Apache Junction RV park when he visited it. Haugen also testified Smith had presented an appraisal of $25 million on the Green Valley property. The bank did not order its own appraisal but trusted Smith's appraisal and secured the loan with the Green Valley land. In November 1983, Roadhaven received a $12 million line of credit from Valley National Bank.
The first payment was due in the summer of 1984, but because Haugen had allowed Roadhaven to waive its first payment, VNB didn't realize the loan was in trouble until late in the summer of 1984, when a Green Valley newspaper reported on the unpaid contractors.
In April 1984--a month before Roadhaven owed its first installment to Valley National Bank--Haugen quit his job at VNB and joined Century Bank. And only three months later, at about the time Mike and Peda Pruett were wondering why they weren't getting paid down in Green Valley, Haugen authorized a $1 million loan from Century Bank to Smith's company Bend Marine. Bend Marine defaulted on that loan in 1985. Haugen testified he was "encouraged to resign" from Century. "I was the one held responsible for a less than satisfactory audit," he added.
After working on private banking deals and managing a local resort, Haugen recently joined Security Pacific.
Haugen's former supervisor at VNB, Clayton Hakes, investigated the Roadhaven loan. He later testified in a deposition that he was one of the upper-level staffers who okayed the loan, but he based his approval on the "assumption" that funds would be advanced by Haugen according to the progress of the work in Green Valley. But Haugen simply handed over the money when Roadhaven asked for it, without checking to see if any work had been done, Hakes found. "I was shocked when I learned that we hadn't done that," says Hakes. "That they had just come and asked for the money and we'd given it to them."
Today, bank attorney Corradini maintains the bank carried out the loan in a perfectly businesslike fashion. He now says the bank wasn't obliged to follow progress in Green Valley since the loan was a "line of credit." However, he acknowledges the loan might "appear weird" to any man on the street who has had to jump through hoops to get even a small loan at VNB.
Corradini insists the bank appropriately lent the money "because Mr. Smith presented a real-estate appraisal for the Roadhaven property which showed the value on the Green Valley land was considerably more than the total dollars he was asking to borrow." Plus, he says, Roadhaven's president, Harry Bidwell, "had a good track record in developing these types of communities." He admits, however, that the personal financial statements "showing considerable net worth" of Keith Smith "consisted of items that were difficult to value." But he says there "was less reliance" on the financial statements than on the track record of Bidwell and the value of the Green Valley property. "This was a Roadhaven loan, not a Harvey Keith Smith loan," he says. And he adds: "We thought he had every intention of doing what he said he would do. He had architectural plans, he hired subcontractors, he sold some lots, he built some models, he had purchased the land."
"Who cares if it's Peter Rabbit? That's obviously very, very facetious, but if there is a track record, if there are finances, pre-sales, a history in development and the security is good, eventually you stop doing your checking and eventually you make the loan."
Yet in court documents, Valley National Bank appears to contradict itself. In its countersuit, the bank contends that Harvey Keith Smith "submitted a financial statement declaring his net worth to be $12.7 million when in truth and in fact as Smith all the time knew, his net worth was substantially less." The records say the bank was "justified" when it "relied" on the statement.
SMITH'S LEGAL tangle with VNB and other litigation has cost the developer at least $300,000, says John Ahearn. Yet in 1987, Smith claimed a net worth of zero. One lawyer asked Smith how he could afford his lawyers. Smith answered in a deposition: "I borrowed money from friends and relatives." But he refused to name those relatives, explaining indignantly: "I'm not going to have you harassing my mother."
Mike and Peda Pruett of Central Arizona Contracting say they also have huge legal fees, but they're determined to keep battling for the $67,000 they were never paid. While most of the smaller contractors have given up on ever getting their money back, the Pruetts are still fighting Roadhaven and Altamira. "We are honest people and we never tried to rook anyone out of anything," says Mike Pruett. "I'd just like to see somebody get something out of this whether I get anything or not.
"We will fight just as a matter of principle."
Harvey Keith Smith was the sort of fellow who engendered the deepest trust.
At least one official asks himself over and over why the banks seemed so careless.
Officials are bewildered by Smith's relationship to various trust funds scattered around the world, all of which are shielded by law from public scrutiny.
The records show money was withdrawn from business accounts to pay huge American Express credit-card bills as high as $30,000 a month.
Contractors allege even in a cursory examination, VNB "undoubtedly would have discovered the trail of fraud, deceit and financial destruction . . . "
"I'm amused by Mr. Smith," says John Ahearn, the bankruptcy trustee. "He's very slippery in many ways. He's very clever."
VNB's attorney acknowledges the loan might "appear weird" to any man on the street who has had to jump through hoops to get a small loan.
