Brother Testifies Defendant Tricked Europeans Out Of $6 Million Using Investment Scheme
By Bill Lodge Staff Writer of The Dallas Morning News Published June 25, 1997
For more than a week, a jury has listened to a tale of two brothers, including reports of financial and personal failure that contrast with their status as scions of a prestigious old Dallas family.
Now, that jury must decide whether one brother should be branded a convicted felon, a silver-tongued con man who tricked European investors out of $6 million.
James Wadsworth “Jim” Smith II, 51, is fighting federal charges of conspiracy and wire fraud. He contends that his younger brother, Hoke Smith, seeded his indictment with lies that threaten to suffocate any dreams of a dignified old age.
Hoke Smith, who cooperated with authorities, is not charged with any offense in the case. He testified that he and his brother fabricated business records that caused huge losses.
That testimony provoked an outraged response from Jim Smith.
“I had nothing to do with it,” Jim Smith said of a series of phony purchase orders from Hoke Smith’s foam products company, Floral Foam Inc., that were used to attract investors to a separate firm controlled by Jim Smith.
Jim Smith’s company, Capitalcorp Financial Inc., was a factoring firm that bought discounted accounts receivable from Floral Form and a number of other firms in Texas and Arkansas.
Success in the risky business can be huge, because factors frequently charge a monthly interest rate of between 4 percent and 5 percent for the use of their money. Those payments are in addition to whatever the factoring firm can collect on the accounts.
Assistant U.S. Attorney Michael Uhl told jurors that bogus purchase orders and inflated lists of accounts receivable can ruin investors in firms such as Capitalcorp.
“That’s fraud,” Mr. Uhl said.
Mr. Uhl noted that Jim Smith told investors that his brother’s firm was solid, but did not check Floral Foam’s records or demand a financial statement from his brother until after other Capitalcorp investors and employees raised questions. By then, both firms were headed for failure.
Jim Smith also did not initially reveal $750,000 in payments that were made by Floral Foam to his wife’s account, Mr. Uhl said, or the fact that his three children had invested in Floral Foam.
Early disclosure of the children’s investments could have triggered alarm among investors concerned about a conflict of interest for Jim Smith.
“Those investors sent over millions of dollars, and he took them,” Mr. Uhl said. “Hoke did, too. ” Assistant federal public defender Clint Broden, Jim Smith’s attorney, blamed all losses on Hoke Smith.
“He lied, cheated and stole money,” Mr. Broden said.
Mr. Broden said that Jim Smith lost more than $175,000 in loans that he granted his brother to keep Floral Foam afloat in 1991 and 1992 and that Jim Smith’s three children lost more than $270,000 that had been invested from their trust funds.
“He [Jim Smith] got nothing,” Mr. Broden said.
“I think we all know Hoke Smith would lie about his own name if he thought it would help him,” Mr. Broden told jurors. “Hoke Smith purchased his freedom” by testifying against his brother.
Mr. Uhl recalled that another family member and Capitalcorp officer also accused Jim Smith of deceiving investors.
Mark Blinn, an attorney and nephew of Jim Smith’s ex-wife, was executive vice president and general counsel at Capitalcorp.
Mr. Blinn testified that he became concerned in 1992 when an employee advised him that the cash Capitalcorp paid one month for Floral Foam’s accounts receivable was about $180,000 more than the value of the products Floral Foam shipped.
In November 1992, Mr. Blinn testified, “I started going through the files,” adding that he found wire transfers from Floral Foam to his aunt’s account.
“I was shocked,” Mr. Blinn said. “It was an embezzlement. It was fraud. ” He confronted Jim Smith after Christmas that year.
“I guess I had become disgusted,” Mr. Blinn testified. “I called him a crook. He was upset. He didn’t even respond to me. He just left. ” In his testimony, Jim Smith said that the wire transfers his nephew discovered were nothing more than repayment of funds he and his ex-wife had lent to Floral Foam.
Mr. Broden, Jim Smith’s attorney, repeatedly returned the focus of his final arguments to Hoke Smith, alleging that the younger brother had duped Jim Smith, Mr. Blinn, FBI agents and prosecutor Uhl.
“The only way you convict Jim Smith is if you believe Hoke Smith,” Mr. Broden told jurors.
Mr. Uhl urged jurors to adopt Mr. Blinn’s rebuke of his uncle: “Jim Smith, you’re a crook! ” Jurors reached no verdict Tuesday. U.S. District Judge Sidney Fitzwater directed them to resume their deliberations Wednesday.
The criminal trial has exposed embarrassing financial problems for both the defendant and his brother.
They are grandsons of Dallas architect Hoke Smith, who designed a portion of University Park’s City Hall to resemble the Governor’s Palace in Williamsburg, Va., more than half a century ago.
The elder Hoke Smith’s success led to the naming of Hoke Smith Drive in Oak Cliff in his honor.
His son, the original James Wadsworth Smith, served on the staff of Gen. George Patton during World War II before returning to Dallas and becoming a successful architect and developer. He also served as president of the Oak Cliff Chamber of Commerce.
The senior James Wadsworth Smith died in November 1990.
By that time, his son Jim Smith had forged a marriage of more than 20 years, acquired a comfortable home in Highland Park, blossomed into an international traveler and become accustomed to spending weekends on his $4 million ranch in Gunter, Grayson County, Texas.
Today, the ranch and marriage are gone.
And the brothers are accusing each other of lying about the loss of $6 million acquired from European financiers.