News Column

Former Smith Advertising clients react to alleged fraud scheme and loss

May 9, 2014

By Michael Futch, The Fayetteville Observer, N.C.

May 09--Despite filing litigation once claiming a loss of $720,000 to the former executives of Smith Advertising & Associates, who are accused of fraud, Fayetteville businessman Ron Matthews says he continues to pray for them.

"I just considered it ... a bad business endeavor. It was really unfortunate," said Matthews, an owner of Family Foods Inc. "We have known them so many years.

"Whatever happened, things just fell apart," Matthews said. "I just said to the good Lord, 'I pray for them,' and we lost some money."

In 2012, Matthews and his wife, Sharon, filed four lawsuits against Smith Advertising and its principals, Gary and Todd Smith, claiming they had been defrauded through short-term loans, bad checks and unfinished work. The Matthewses later dropped their suits but left open the option to refile.

"I was told that just about everybody in Fayetteville had some sort of business dealings with Smith Advertising," said Ron Matthews, whose business includes 31 Taco Bells in southeastern North Carolina.

A two-year-long federal criminal investigation found that at least 74 victims -- private individual and business investors in North Carolina, Florida and other parts of the nation -- are claiming losses from Smith Advertising exceeding $55 million.

Gary Smith, the former chief executive of Smith Advertising & Associates, and his son, Todd, the former chief operating officer, could face federal charges for allegedly conducting a Ponzi-style scheme involving unsuspecting investors. A criminal complaint against them was filed Monday in U.S. District Court in Tampa, Florida.

If convicted of fraud, the Smiths could each face a maximum 30 years in federal prison.

Gary and Todd Smith turned themselves in Wednesday in Tampa for an initial court appearance, and they were let out on their own recognizance. Early on, after Smith Advertising closed, there was speculation that the Smiths were eluding authorities.

"I don't believe at any time there was any fear that we could not get ahold of them," said John Joyce, special agent in charge of the U.S Secret Service's Tampa office. "Their attorneys have been in contact with the U.S. Attorney's Office here in the Middle District of Florida. We were confident they would eventually turn themselves in when that time was appropriate."

During the court appearance, Gary Smith was advised to retain counsel before the next hearing or advise the court if he was unable to do it, clerk minutes said. Also, per court orders, clerk minutes said, "Defendants shall continue mental health treatment as directed by physician."

According to the complaint, Gary Smith, 69, and Todd Smith, 45, were involved in a fraud scheme that involved borrowing money, called bridge loans, for Smith Advertising to purportedly pre-purchase advertising space. At the same time, they borrowed money on outstanding invoices, called factoring, for their advertising firm.

Each loan, to the extent that it was repaid, was repaid by new loans, the charging document said.

The underlying collateral for the loans were, where produced, fake invoices, according to the document. Smith Advertising maintained a real and a false set of record books, prosecutors said.

On the date the company ceased operations, according to its "real books," Smith Advertising was $63.7 million in the red.

The case was investigated by the Secret Service and the FBI.

In their lawsuits, Ron and Sharon Matthews allege that they were duped into a Ponzi scheme by the Smiths, who were their close personal friends and business associates. On Thursday, Ron Matthews said he had reached the conclusion that Gary and Todd Smith lacked good financial advice.

"They had an impeccable record. They were probably one of the -- or, the -- best ad agencies in the Southeast," Matthews said. "They had superb people. Very creative people.

"A friend of mine had this to say: 'I'm sorry that happened to you, Ron. But in my mind, they were extremely strong on the creative side and ad agency side, but not strong on the business management side.'"

Joyce said their investigation determined that the Smiths were engaged in a scam, bilking investors out of millions of dollars.

"It appears that they had a great reputation prior to this episode, or these instances," Joyce said. "I don't have an answer for as far as why they turned down that road (of alleged deceit).

"Like most crimes of this type -- where you're taking money from one group in order to repay others in Ponzi-like fashion -- eventually, it's going to crumble," he said. "The economy definitely played a part in that it accelerated their losses."

According to federal prosecutors, Smith Advertising's financial problems started to surface in 2009, around the height of the nation's economic recession.

Joyce said Smith Advertising came to the attention of his office in 2012, through Regions Bank.

In 2012, Regions Bank filed a civil lawsuit in Sarasota, Florida, against developer Marvin Kaplan. The bank alleges in the pending lawsuit that the Smiths and Kaplan used fraudulent checks and wire transfers to make at least $22 million for themselves.

The affidavit states that Regions Bank was owed more than $9.7 million because of the alleged scheme.

"I believe the trigger on that were the checks being returned for having insufficient funds. Numerous checks," Joyce said.

On March 6, 2012, Smith Advertising shut down.

In the weeks before the firm closed, the Smiths talked John Rives into moving to Fayetteville from Athens, Georgia, Rines said Thursday by phone. After years of working for Smith Advertising as a subcontractor, he joined the agency as a Web developer.

When media reports started coming out about Regions Bank suing the firm and Kaplan, Rives said, "Todd and Gary were both there. You could tell they were concerned, but they kept saying it was a misunderstanding and it would all be fine."

The day before Smith Advertising closed, employees were told to work from home by email, he said.

"About 11 o'clock that morning," he added, "they said the business had closed.

"They were real nice guys. I liked them both," Rives said. "It's a shame that happened. They had a long-time business."

But Joyce said there was obvious wrongdoing at the agency, on the part of its top executives.

"What was their intention? Was it purely greed, or pure business decisions that spiraled downward?" Joyce said. "That I don't know. That's something that would have to come out later on."

Staff writer Michael Futch can be reached at futchm@fayobserver.com or 486-3529.

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(c)2014 The Fayetteville Observer (Fayetteville, N.C.)

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Source: Fayetteville Observer (NC)


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