The heyday of Arkansas Loan and ‘Theft’

This text initially appeared within the Encyclopedia of Arkansas Historical past and Tradition.

Arkansas Mortgage and Thrift Company (AL&T) was a hybrid financial institution within the Nineteen Sixties that operated for 3 years exterior state banking legal guidelines with the assistance of political connections earlier than coming to a scandalous finish. 

A U.S. district choose halted the operations and positioned the corporate in receivership in March 1968, and a federal grand jury indicted three officers of the corporate, in addition to a former Arkansas lawyer basic, a firebrand segregationist who had served 5 phrases in that workplace and made two unsuccessful races for governor. Bruce Bennett, a former prosecutor in Union County, had performed a significant function within the historic school-integration disaster at Little Rock in 1957–59, authoring a number of of the infamous legal guidelines handed by the legislature to protect segregation.

AL&T turned a logo of the corruption and lethargy that have been the merchandise of Governor Orval Faubus’ 12-year management of the statehouse and, within the opinion of Governor Winthrop Rockefeller, the Democratic Get together’s unfettered reign in authorities since Reconstruction. It was jokingly known as “Arkansas Mortgage and Theft.”

The grand jury indictment mentioned the 4 males ran the finance firm illegally and dissipated depositors’ cash by making loans to themselves and their firms, associates and confederates — loans that have been by no means repaid — and by giving themselves and associates giant inventory dividends although the corporate was broke. The chief working officer and two different executives have been convicted and sentenced to jail for wire, mail and securities fraud, in addition to conspiracy and bribery. Bennett, who helped set up AL&T whereas he was lawyer basic and profited from it, was indicted on 28 counts, however a longtime pal from El Dorado (Union County), U.S. District Decide Oren Harris, delayed the trial when Bennett revealed that he had throat most cancers. Bennett died 10 years later, in 1979, with out going to trial.

Greater than 2,000 individuals and church buildings misplaced cash when AL&T collapsed. The receiver finally recovered a few fourth of the $4.2 million positioned within the firm. Securities, financial institution and savings-and-loan officers for Gov. Faubus backed off regulating the unusual establishment, heeding the official however secret recommendation of the lawyer basic and the intervention of highly effective state legislators, two of whom, Rep. Paul Van Dalsem of Perryville (Perry County) and Sen. Joe Lee Anderson of Helena (Phillips County), can be listed within the indictment as co-conspirators, together with different state officers and politicians. Cartoons by George Fisher within the Arkansas Gazette, which featured the political figures concerned with AL&T, popularized the scandal for a lot of years.

The financial institution appeared to be the brainchild of Ernest A. Bartlett Jr., a 25-year-old used-car supplier, and Bennett, a politician from El Dorado who was elected lawyer basic in 1956 by inveighing towards racial integration. Bennett ran an unsuccessful race for governor towards Faubus in 1960, accusing him of being tender on integration, and regained the lawyer basic’s workplace in 1962. He would make a remaining race for governor in 1968 whereas a grand jury was investigating his function in AL&T.

Bartlett, Bennett and others arrange Arkansas Mortgage and Thrift in December 1964; the incorporation papers have been ready within the lawyer basic’s workplace by an assistant lawyer basic, who acquired AL&T shares for his hassle. Bartlett and Bennett discovered a defunct finance firm, United Mortgage and Funding, which had a constitution from 1937 as an industrial mortgage firm. It was included into AL&T and have become the finance firm’s authority for taking deposits. Van Dalsem, a longtime chief of the Home of Representatives and Faubus’ ground chief, organized for Bennett to purchase an inactive insurance coverage firm from the Home speaker, J.H. Cottrell Jr. of Little Rock (Pulaski County). Bennett then offered it at a revenue to AL&T, which renamed it Financial savings Warranty Company, a shell firm that will “insure” individuals’s deposits in AL&T. Financial savings Warranty was given greater than 1,000 shares of inventory in AL&T, the one property it might ever personal. AL&T wrote Financial savings Warranty a examine for $580,000, which allowed the state insurance coverage examiner, who acquired AL&T inventory, to certify that the insurance coverage firm had the required capital to insure financial institution deposits. Then Financial savings Warranty despatched the cash again to AL&T and took an IOU.

AL&T marketed that it might pay an rate of interest of 5.75% for deposits, greater than banks and savings-and-loan associations have been allowed to supply, and that deposits have been safer than if the Federal Deposit Insurance coverage Corp. (FDIC) insured them. Truly, Financial savings Warranty had no property however the nugatory AL&T inventory, however in commercials it used a seal that regarded like the nice seal of the USA.

The corporate opened a headquarters at Van Buren (Crawford County) and places of work in Paris (Logan County), Waldron (Scott County), Ozark (Franklin County), Fort Smith (Sebastian County), Helena, Little Rock and Booneville (Logan County). It spent $150,000 promoting that folks would earn more money with AL&T than with banks and thrift establishments. It rapidly collected greater than $4 million in deposits.

Bennett issued 5 official opinions to Van Dalsem and state regulators explaining that AL&T’s operations have been completely authorized and that, as a result of it operated underneath the auspices of an outdated industrial mortgage constitution somewhat than a financial institution or savings-and-loan constitution, the state securities commissioner, financial institution commissioner and savings-and-loan commissioner couldn’t regulate its actions. Bennett by no means launched the opinions publicly; they have been discovered within the information at AL&T when it went into receivership.

The state securities commissioner testified in Bartlett’s felony trial that when he moved to manage AL&T and suspended Bartlett’s dealer’s license, Bennett threatened to go to Faubus about his interference. Faubus insisted that he by no means did something to assist the corporate and knew little about its operations. Bartlett maintained that Bennett’s opinion giving authorized sanction to AL&T was written by William J. Smith, Faubus’s authorized counsel, and that Smith suggested Faubus on the formation of the corporate. Smith denied this.

When Joe Purcell, a Benton (Saline County) metropolis choose, defeated Bennett for the workplace of lawyer basic in 1966, he rapidly moved to shutter AL&T. He filed a lawsuit in Pulaski County Chancery Courtroom on Jan. 23, 1967, 10 days after taking workplace, contending that AL&T was promoting securities illegally. The case was assigned to Chancellor Kay L. Matthews, a former Faubus aide. The following day, Bartlett visited Matthews’ legislation and enterprise associate, Claude Carpenter Jr., additionally a former Faubus aide, and paid him a considerable retainer for AL&T. Carpenter can be named a co-conspirator within the subsequent indictment. He testified at Bartlett’s trial in 1969 that he by no means did something for the charges besides talk about Arkansas Razorbacks soccer with Bartlett and accompany him on a non-public aircraft journey to Las Vegas to gamble.

Decide Matthews granted delays to the corporate and by no means introduced Purcell’s go well with to trial. One in every of Carpenter’s connections to AL&T was talked about in a procedural listening to greater than two years later, and Matthews disqualified himself from the case simply because it was put into receivership. When a reporter for the Arkansas Gazette confronted Decide Matthews with the funds by AL&T to his legislation and enterprise associate on the day after the lawsuit towards the agency was filed in his court docket and requested if he had been apprised of the funds, Matthews refused to remark. He continued to function a chancery choose till Darrell Hickman, a future Supreme Courtroom justice, defeated him in 1972.

The following week, on March 13, 1968, appearing on a movement by legal professionals of the federal Securities and Trade Fee, U.S. District Decide John E. Miller of Fort Smith closed AL&T and put it into receivership. At a listening to on the claims towards the corporate, a minister mentioned church buildings that had invested their constructing funds in AL&T ought to have first name on any property that have been recovered as a result of such property have been “God’s cash.” Decide Miller famously countered that God ought to have been sensible sufficient to not put his cash in AL&T.

A federal grand jury indicted Bennett, Bartlett, and two officers from Booneville — Afton Borum and Hoyt Borum — on 28 counts. Decide Harris, who presided, severed Bennett’s case from the others and gave him a continuance when Bennett mentioned he was in poor health. The federal government finally give up attempting to carry Bennett to trial. Bartlett was convicted and sentenced to 5 years in jail and fined $5,000. The Borum brothers have been convicted and acquired even shorter sentences.

Bennett, Bartlett and Van Dalsem helped set up the same firm in Louisiana, known as Louisiana Mortgage and Thrift, which operated with the assistance of Lawyer Basic Jack P.F. Gremillion, aides to Gov. John McKeithen, and U.S. Lawyer Jim Garrison of New Orleans, who turned well-known for his investigation of the assassination of President John F. Kennedy in 1963. Bennett profited there additionally by borrowing $160,000 from Louisiana Mortgage and Thrift after which having the debt canceled by transferring his inventory within the firm to a different man. Bartlett, Gremillion and others have been indicted in Louisiana, however a jury acquitted them of all fees in 1971.