A Man Named Smith and the President
Baker, George L.
Not even the White House could save the corporate empire of one of Richard Nixon's best friends A Man Named Smith and the President GEORGE L. BAKER Even in the scandal-ridden Nixon...
...The key was Smith's role as a banker...
...Another variation of the money-making process involved the sale of securities...
...The people who have supported the President the last eight years are targeted and singled out by these damned bureaucratic agencies," he said...
...There were two little noted incidents at the time that involved relatively unknown White House officials who have since been rescued from obscurity...
...And Smith's wife could later say that while chatting with the Nixons at the 1968 GOP convention, the Nixons "were telling us that we would be their first guests in the White House...
...For his services, Roberts was rewarded with an almost unlimited tap at the bank—nearly $100 million, according to the FDIC...
...A lot of Federal agencies must have held similar views, because it was not until Nixon and his power brokers were awash in Watergate last spring that the trap door sprung open beneath Smith...
...Along with the companies moved cash and lots of it...
...And he was eagerly awaiting the 1972 Republican Convention in San Diego (the site picked personally by Nixon, but later changed to Miami) that would hopefully turn his grotesquely ornate Westgate-Plaza Hotel into a money-maker...
...But it studiously avoided picking up $398.6 million in questionable loans and letters of credit backed by the bank, which were left for the FDIC to collect...
...Under Smith's tutelage, Alessio graduated from shining shoes to running a Mexican bank and eventually various gaming enterprises in the nearby Mexican border town of Tijuana...
...He bought the broken-down U.S...
...What took the Justice Department so long to move, when three years ago a member of its criminal strike force had evidence that Westgate subsidiaries were channeling corporate funds into Federal political campaigns, a violation of the Corrupt Practices Act...
...Alessio was an immigrant's son whom Smith had befriended in the late 1920s...
...They did this, the SEC added, by camouflaging these self-dealings with fictitious profits...
...But by 1966, the stench of this political-business combine no longer could be ignored...
...He had personally contributed $250,000 to Nixon's election in 1968 and raised another $800,000...
...All around Smith and Alessio, friendly faces smiled on their business-as-usual attitude...
...The agency's vice president was Frank Thornton, a Smith lieutenant, but more importantly, Nixon's 1968 campaign chairman in San Diego county...
...Gambling is legal in Mexico, but tax evasion in the United States is not, as Alessio would find out in the mid-1960s...
...When the scandal subsided, Smith bought back the stock...
...National Bank's books earlier in the year...
...SEC officials say they were unaware of any chicanery until tipped off by a reporter in November 1971...
...It was not unusual for land values to increase five-and six-fold in the process...
...His wife had already made some money on the hotel, billing it nearly $2 million for her decorating services...
...That the company's president, James R. Russell, later complained in a court deposition that Smith had literally stolen it from him while Russell lay in a hospital bed only served to set the scene for some of Smith's more ambitious undertakings...
...I remember looking at that annual report, at that pattern of self-dealing, and it was almost like somebody saying, 'Hey, stupid, there's something going on here...
...West-gate, for example, appeared to be making money when, in fact, it was being drained...
...I just can't believe it would happen in this country...
...He never did, an oversight for which he was only slightly reprimanded by then acting Attorney General Richard Kleindienst...
...Soon thereafter he went to work at the Bank of Italy (now the Bank of America) where he rose to the post of regional vice president...
...Smith passed the transaction through another of his companies, British Columbia Investment Company, thus concealing the fact, the SEC said, that Westgate had paid some $4 million more than it should have to a Smith-owned company...
...For like two formidable blocking backs, Smith took care of Republicans while Ales-sio, not encumbered by ideology, managed to placate Democrats...
...The SEC has said that by using loans from the bank, Smith and his cronies "capitalized on their positions as managers and controlling persons of USNB and Westgate to systematically appropriate the assets" of the two public companies...
...One was White House counsel John W. Dean III...
...With friends in high places, Smith, Alessio, and other Westgate nabobs moved with considerable ease...
...This special relationship lasted until March 1972, when Life magazine blew the lid off the Justice Department's tampering with an investigation centering on corporate political contributions from Smith-controlled companies that ended up in Nixon's campaign...
...Where was the Comptroller of the Currency when it was obvious that there was more than a disinterested relationship between Westgate and the United States National Bank...
...By this time he had acquired one business associate, John Alessio, and would pick up more as business improved...
...In a January 18, 1971 letter to the San Diego district attorney, written "on behalf of the President," Dean denied a request that IRS investigator Stutz be allowed to testify at the bribery trials...
...This seemingly small item was a $2,000 payment from the coffers of the cab company to Nixon's campaign fund, the $68 added to disguise it...
...Steward has been conspicuously absent from the current grand jury proceedings...
...Curran and all but one of the other officials were later acquitted...
...His hefty stockholdings in his own companies are virtually worthless...
...Then, in April 1972, Smith suffered the ultimate indignity...
...His peccadilloes were far more esoteric...
...For instance, why did the SEC fail to discover until 1971 that most of the financing for Smith and his related companies was done at his own bank, often with loans in excess of Federal lending limits...
...For a man whose tainted dealings date back several years, the timing would seem to be more than coincidence...
...IRS agent David Stutz, who investigated the case then, today believes the payment was just part of a much larger scheme in which corporate money was channeled into Federal elections, a violation of the Corrupt Practices Act...
...and the vice president of the Westgate tuna firm, Rear Admiral Leslie Gehrens (Ret...
...Thus, Smith was on all sides of the deals: obtaining the loans, lining up nominees to hold dummy corporations, passing loans through them to other corporations, and raking off a profit in the process...
...One need not indulge in hindsight to see a pattern at work...
...Unperturbed, Coen went into business with a number of Kansas City civic servants, including the former lieutenant-governor of Missouri, William Morris...
...In the meantime, Smith had picked up a couple of other playmates who would play a crucial role in what Federal investigators have called a "game of musical corporations...
...Roberts fronted for Smith on a number of deals and bailed him out of several scrapes with Westgate auditors...
...A tall, silver-haired, aristocratically-mannered man with the smile of a Cheshire cat, Smith is a one-time grocery clerk who clawed his way to the top, amassing a personal fortune variously estimated at $50 million to $100 million...
...He was "Mr...
...National to one company after another...
...One is not quite moved to tears by Smith's protestations...
...He still controls fifty-four per cent of the bank's stock, thirty-six per cent directly and eighteen per cent through his family...
...It was an uncomfortable position for Smith...
...If the story of his playing Monopoly with the Westgate-California Corporation and United States National Bank has been underplayed, it is because his shenanigans are of a richness and variety that only the connoisseur can fully appreciate...
...He sees himself as a victim of a sinister plot...
...Not even the White House could save the corporate empire of one of Richard Nixon's best friends A Man Named Smith and the President GEORGE L. BAKER Even in the scandal-ridden Nixon Administration, San Diego financier and businessman C. Arnholt Smith is enough to give law and order a bad name...
...Deputy Comptroller of the Currency Justin T. Watson estimates that $45.4 million is uncollectable and another $98 million is doubtful...
...In 1960, Smith went public and founded Westgate...
...Smith's legal counsel and Westgate board member, Douglas Giddings, was on the parks and recreation board...
...The overpriced land would be sold again, with the aid of another USNB loan...
...In the 1950s, Coen had occasionally run into trouble with the National Association of Securities Dealers, which fined him twice and once suspended his broker's license for shady business dealings...
...They are trying to untangle the web of loans that revolved among the three men...
...In most cases, the financing role of USNB was concealed from Westgate's auditors and the investing public by channeling the borrowings through numerous corporate entities . . . and the sales were carefully structured to appear as arms-length transactions...
...Federal investigators, including Stutz, were ready to bring Thornton before a grand jury...
...Their concern was how much trouble was Smith in...
...And he is fighting a $22.8 million Internal Revenue Service tax lien...
...What gives this tale an extra dimension is the political clout Smith could muster from all levels of government...
...National Bank building in mid-town San Diego, assorted Federal officials and investigators are poking through financial ledgers...
...In 1970, Sovereign States sold 652,000 shares of Golconda, Inc., a mining company headed by Coen, to Westgate for $12 a share on a day when the market price was $5.75...
...USNB would lend money to a Smith nominee who used land, often overvalued, as security...
...Smith, of course, was no ordinary businessman...
...So it must have appeared...
...One companion was Michael J. Coen, a rangy Kansas City financier who, like Smith, had threadbare bootstraps...
...Federal banking officials have told Congressional committees that despite warnings as early as 1968 that there were problems at Smith's bank, nothing was turned up until a routine audit in June 1972...
...A cattle ranch once held by Smith was moved back and forth between him and Roberts...
...he simply presided over one of the nation's rankest political and business scandals, all within an hour's drive of the Western White House where Smith used to dine...
...It was not until June 1972 that examiners began finding "problem loans" that were put on the U.S...
...As investigators poked through the agency's books they found some suspicious billings, including one for $2,068...
...how embarrassing was it...
...Stutz, now an investigator for the San Diego District Attorney's office, said there were "attempts to get bank examiners to look into" political payoffs three years ago, but to no avail...
...In all, Stutz recalls, "we found $200,000 going to local, state, and Federal officials...
...The Committee to Re-Elect the President returned his personal contribution, estimated between $50,000 and $300,000...
...I must be on somebody's enemy list...
...Only by agreeing to turn the company over to a receiver did Smith and several associates, including his number two man, Philip A. Toft, avoid a trial on the SEC's civil suit alleging massive fraud...
...The picture ahead is bright...
...What now remains of Smith's once stately empire which sprawled the length and breadth of California is under attack by a phalanx of government agencies...
...As a fund raiser, confidant, and adviser of Richard Nixon for a quarter-century, Smith would seem to be above the kind of piracy practiced by the likes of Billie Sol Estes and Bernie Cornfeld...
...Financing for these purchases would be arranged by C. A. Smith through borrowings at USNB...
...a USNB vice president, Lou Lipton, was a member of the city planning commission...
...Attorney, Harry Steward, who got his job with the help of the ubiquitous Smith, said he would serve the subpoena himself...
...It was the nation's biggest bank failure ever...
...Despite a last-minute visit by Smith to the White House in 1970 to plead his friend's case, a Federal grand jury indicted John Alessio, his son, and three of his brothers for evading $929,000 in taxes and not reporting $1.2 million in income from 1963 to 1966...
...Both Coen, a one-time Westgate director, and a brokerage he took over in 1970, First California County, were named in the SEC fraud suit...
...He made sure that they got a slice of the action...
...Consider, for example: The cornerstone of Smith's empire, the United States National Bank, the nation's eighty-first largest with assets of $1.2 billion and $920 million in deposits, was declared insolvent in October 1973 by the Federal Deposit Insurance Corporation...
...Through a series of complicated dealings, most of the bank's cash had been depleted when the FDIC stepped in, soon enough to spare the depositors but probably too late for the stockholders who stand to lose $30 million...
...He accepted a consent order by the SEC, relinquishing control of his Westgate-California Corporation in which he held 53.1 per cent of the voting stock...
...Crocker National Bank bought the bank's good assets for $63 million...
...Soon it was discovered that Yellow Cab was funneling thousands of dollars to San Diego police officials, city councilmen, county supervisors, and political candidates...
...These three men held upwards of 150 corporations, and if it was difficult to keep track of them all, it was equally difficult to follow the flow of money from U.S...
...The subsidiaries pledged the real estate as security for $5 million in loans and immediately lent the proceeds to other companies...
...A short while later he acquired National Iron Works, a small San Diego steel and ship-building company...
...If pure dollar figures are a criterion, Smith ranks with some of the slickest, shrewdest robber barons ever to file a Form 10-K with the Securities and Exchange Commission...
...The money was piped through the Barnes-Champ Advertising Agency, a Smith-controlled company, although at the time Smith denied any affiliation...
...He was a member of the exclusive Orange County Lincoln Club, a group of wealthy businessmen whose common trait was their affection for Nixon...
...Smith, one of those self-made millionaires President Nixon so admires, never conspired to bomb the Pentagon or pass state secrets to a foreign agent...
...The question is not whether Smith and his friends will be indicted, but when...
...But the U.S...
...Get going,'" recalled Irving Pollack, chief of the SEC's enforcement bureau...
...National Bank that was trying to ride out the Great Depression...
...Going is the San Diego Padres baseball team, being sold to raise cash...
...Greed, it would seem, got the best of Smith, who had every reason to believe that his finagling, even if detected, would not lead to prosecution—his Washington friends would see to that...
...Of the bank's loan portfolio of $595 million, nearly two-thirds was in loans to companies owned by either Smith, Coen, or Roberts...
...The Westgate subsidiary never received payment for the real estate...
...But that was before he had pyramided one too many bank loans, funneled too much corporate money George L. Baker is an investigative reporter for a West Coast newspaper chain...
...The pyramiding of loans was a sure-fire way to make money...
...As he piled up his millions, doing business with an odd assortment of hustlers, wheeler-dealers, and gold-plated con-men, Smith did something equally important: he insulated himself from the nuisances of government circumspection by building a tight political machine and making the acquaintance of the then obscure Congressman from Whittier, California...
...In the basement of the U.S...
...He watched the 1968 election returns with Nixon in his New York Waldorf Towers suite...
...This mini-conglomerate, which grossed $190 million, dealt in such disparate activities as tuna fish canning, airlines, taxicabs, real estate, hotels, farming, and insurance...
...into political war chests, and run his several score corporations with the help of some inventive bookkeeping...
...In Westgate's 1971 annual report, Smith wrote, "We have weathered storms within our first decade and proved our durability...
...It was then that he was figuratively jerked out of the Westgate boardroom where he sat as a director, and deposited in a Federal prison...
...Much of the story is told in the nearly 100,000 pages of documents and testimony filed in the San Diego Federal courthouse where a Federal grand jury sits, probing the pillaging of public companies that makes the Penn Central fiasco look like a corporate panty raid...
...Meanwhile, the Feds were on Alessio's trail...
...Smith saw that his friends were well placed in community affairs: His daughter, Carol Smith Shannon, sat on the city library board...
...Even before the bank failed, Smith received another blow...
...Golden West Airlines, Inc., of Newport Beach was owned successively by Smith, then Coen, and now Roberts...
...His telephone calls to the White House went unanswered—a new experience for him—and the regulatory agencies moved ahead, unmoved by political heat...
...At one time, the seventy-four-year-old Smith could move with the ease of a man who had prepared all the exits...
...A Justice Department strike force began looking at the books of gamblers John Alessio and his brother, Angelo...
...In one case, a Westgate subsidiary ostensibly sold two parcels of land to subsidiaries of Sovereign States Capital, Inc., a private investment company allegedly owned by Smith's daughter, Carol Smith Shannon, but in fact controlled by Smith, according to the SEC...
...Alessio, however, was comforted by such political potentates as then Los Angeles Mayor Sam Yorty and former Governor Pat Brown, who used to stop and visit Alessio in his cell at the Lompoc Federal Prison...
...From 1962 to 1967, a Smith-controlled company owned thirty-two per cent of the Yellow Cab stock, until the stock was sold to the cab company...
...Another of Smith's colleagues was Hollis B. Roberts, a robust wheeler-dealer who bills himself as one of the nation's biggest farmers, operating out of California's rich San Joaquin Valley...
...When they went to the Westgate file, they found a revealing document filed by Westgate's auditors, Haskins and Sells, saying that Westgate had at times borrowed beyond the legal limit from USNB and had profited from deals with Coen and Roberts...
...As a teenager, Smith dropped out of high school to clerk in a San Diego grocery store...
...was chairman of the San Diego Republican Central Committee...
...Aside from the indecently high income they had not bothered to report to the IRS, the investigation led into other areas...
...Not satisfied, he struck out on his own and made a key investment...
...I declined to go because it became apparent he wanted this for a political decision," Stutz recalls...
...But Curran had one consolation: Nixon, he later said, called and congratulated him for beating the rap...
...Though everyone involved, including the White House and Smith, denied the charges, the San Diego tycoon's political clout was severely wounded by the exposure...
...An advertising agency once owned by Smith is now in the hands of Coen...
...From at least 1969, Westgate assets were sold to companies owned or controlled by the defendants . . . or to nominees selected by them," the SEC unit stated...
...For example, investigators found out that the San Diego police chief was driving a car owned by the Yellow Cab Company of San Diego...
...Until earlier that year, Smith had served as board chairman and president...
...He had seen the Yellow Cab books and had information essential to the case...
...It was only after Smith, as one official said, "felt he was a sacred cow, that he was above it all," that his house of cards collapsed...
...Republican" in Southern California, the man to see about fund raising, political appointments, and the like...
...C. Arnholt Smith, who has always worked behind the scenes, is not seen too often in San Diego these days...
...Even before that, Stutz has said, a "friend" attempted several times to arrange a meeting with Jack Caulfield, one of John Ehrlichman's White House aides, to discuss the IRS situation regarding Smith and Alessio...
...West-gate, having been checked over by four auditing companies in four years, should have raised someone's eyebrows...
...The prosecution considered Stutz's testimony vital...
...In October 1970, a San Diego grand jury indicted Mayor Frank Curran and seven public officials for accepting payoffs from the cab company in return for a city-approved twenty-two per cent rate increase in 1967...
...As far back as 1969, The Wall Street Journal had exposed some of these inter-company dealings...
...The full story of Smith's machinations may not be known for several years, but enough detail is available to raise questions about the vigilance of certain government agencies...
Vol. 38 • February 1974 • No. 2
