Real Crooks Don't Show Up In Court
Rock Hill Bank & Trust Wins Lawsuit, Damages
By Heather Vogell, The Charlotte Observer, N.C. Knight Ridder/Tribune Business News
Mar. 19--ROCK HILL, N.C. - A federal judge has ordered two men to pay Rock Hill Bank & Trust $24 million for duping bank customers in a high-yield investment scam.
But the ruling in late February may be a hollow victory.
For one, a larger institution has swallowed the troubled community bank. And second, neither Donald Hughes nor Douglas Smith showed up in U.S. District Court in Columbia to defend themselves, calling into question whether the judgment will ever be collected.
During its six years in business, publicly traded RHBT endured two major, unrelated scandals that landed two officers in prison.
RHBT continued to pursue legal action after South Financial Group of Greenville, S.C., bought the bank's operations at a bargain-basement price in 2002.
The sale followed the arrest of former bank President Rob Herron on charges stemming from a separate mortgage fraud scandal. A former Rock Hill city councilman, Herron pleaded guilty to one bank fraud count and was sentenced in February to 15 months in prison.
U.S. Chief Judge Joseph Anderson's ruling concerned a civil lawsuit in which the bank alleged that Hughes, Smith and former bank trust officer Robert Yoffie tricked bank customers out of $9.5 million.
The suit said that Hughes and Smith told the customers they would make a 150 percent profit through "risk-free" trades on the European financial markets. Hughes claimed a portion of the profit would also go to humanitarian projects in Venezuela and other poor countries, according to the suit.
But after the customers deposited funds in an RHBT trust account under Yoffie's watch, the money was wired to Italy and then to accounts controlled by Hughes and Smith, the suit alleges.
The customers sued the bank after trying and failing to get their money back.
That action was settled for $7.6 million in 2001 when the bank agreed to compensate customers with cash from its insurer. The bank then sued Yoffie, Hughes, Smith and three companies associated with them to recoup the money.
Anderson's ruling was a default judgment, which judges can make when defendants do not put forth a defense.
Anderson called the defendants' conduct "egregious" and cited anti-racketeering laws in his decision to award damages amounting to three times what the bank said was lost, plus court fees and interest.
RHBT attorney Steven McKelvey of Columbia said Thursday the corporation's next step is to try to collect, though he said he isn't sure where either defendant is living.
"We will pursue the avenues available to us," he said.
He said he did not know whether a provision exists for shareholders who lost money during the bank sale to share the judgment if it is collected.
An official said Thursday the FBI continues to investigate the trust department scandal.
The suit says Hughes lives in Florida and Smith in the Bahamas. Neither could be reached.
In a 2002 letter to the court, Smith said he was a Canadian and could not enter the United States "due to an INS restriction." He said he expected to "be cleared of any wrongdoing and liability," and intended to appeal "any default conviction."
Yoffie pleaded guilty in 2002 to one count of misapplying bank funds for an unrelated incident in which he improperly released collateral securing a $200,000 loan. He served a year in prison and was released in August. His lawyers said the charge was unrelated to those leveled in the civil suit.
In early February, RHBT agreed to dismiss Yoffie from the civil suit against Hughes and Smith in exchange for his cooperation in future legal action.
Richard Fennell, Yoffie's Charlotte attorney, said Thursday: "We're just glad to put it behind us."
