Failed Bank’s Holders Get $12.6 Million

SAN DIEGO — Twelve years after U.S. National Bank collapsed amid massive fraud and mismanagement, a federal judge Tuesday ordered the payment of more than $12.6 million to nearly 4,300 of the bank’s former shareholders.

The shareholders, who had sued former bank Chairman C. Arnholt Smith and members of his family, will start receiving the funds today, according to Joseph Cotchett, attorney for the class-action plaintiffs. The judgment will represent nearly a “dollar-for-dollar” reimbursement of lost funds, he said.

The judgment proves that “justice can be obtained even where the defendants are wealthy and powerful,” U.S. District Judge William B. Enright wrote in a 14-page decision.

About $9.1 million of the funds will be paid by Smith’s estranged wife, Helen. The Smiths are now involved in divorce proceedings. Smith’s daughter, Carol Smith Shannon, will pay shareholders $3.5 million, according to the judgment. Smith, 86, is personally bankrupt and so is immune to a $17-million judgment issued against him in the case in 1979.

Smith is a former Chamber of Commerce-designated “Mr. San Diego,” whose control over this city’s political and economic affairs was virtually undisputed in the 1950s and 1960s.

The Oct. 18, 1973, collapse of his $1-billion-in-assets U.S. National Bank was at the time the largest bank failure in U.S. history. About $150 million was lost to investors because of fraud and mismanagement, shareholders later charged. Smith’s empire also once included the San Diego Padres baseball team, Yellow Cab Co. of San Diego and the Westgate Hotel.

Smith was convicted in 1979 on four felony tax-fraud charges--later reduced to misdemeanors--and on one count of felony grand theft for stealing nearly $9 million from his securities company, Sovereign State Capital. He was released from jail in July, having served less than eight months of his one-year sentence.