Former Arkansas Coach Smith Accused of Fraud

Story first appeared on USA Today -

Former Arkansas football coach John L. Smith has been accused of using his employment contracts with the Razorbacks to defraud several of his creditors, according to two complaints filed this week in U.S. Bankruptcy Court.

Smith filed for Chapter 7 bankruptcy last year, claiming more than $40 million in liabilities stemming from failed real estate deals around Louisville. By doing so, Smith hoped to have those debts discharged so he can move on with his life. But the creditors are trying to prevent that by filing complaints that are tantamount to civil lawsuits.

The bankruptcy arm of the U.S. Department of Justice also has investigated Smith for potential fraud and abuse of the bankruptcy system but has not filed a complaint, according to court filings.

Smith made a series of transactions "with the intent to hinder, delay, or defraud creditors," said one of the complaints filed Monday.

The creditors cite his unusual contract with the Razorbacks last year, in which 71% of his $850,000 salary was deferred until right after the 2012 season. In general, the bankruptcy estate controls assets acquired by a debtor before the date of the bankruptcy filing, which was Sept. 6 in Smith's case. Debtors generally can keep what they earn after the filing date.

A week before his bankruptcy filing, Smith signed a contract that stated $600,000 of his pay would be deferred in two lump sums of $300,000. One payment was to be made on Dec. 31, 2012, the other on Feb. 23, 2013. By having his pay deferred in this way, he was able to claim on his bankruptcy petition that his net monthly income was just $107.66, after expenses.

The arrangement marked a change from previous Arkansas contracts. After his hiring in April, Smith signed an agreement that stated that he would receive half of his salary ($425,000) from the university in monthly payments, with the remaining $425,000 to come from the Razorback Foundation, the fundraising arm of the athletic department. Smith's predecessor, Bobby Petrino, was paid monthly by the university and foundation.

Arkansas Athletic Director Jeff Long told reporters last year the deferral was made for Smith's retirement. However, Smith, 64, did not retire. He recently was hired to coach at Fort Lewis College in Colorado after not being retained by Arkansas.

"The debtor was aware he was planning to file a petition for relief under Chapter 7, and his effort to renegotiate the terms of his original compensation package was intended to place such funds beyond the reach of the creditors," one of the complaints states.

The same complaint also says Smith transferred several valuable assets in recent years to his daughter and a trust in his wife's name. By doing so, the creditors allege he was concealing money owed them.

Smith "has unjustifiably concealed, destroyed, mutilated, falsified, and/or failed to keep or preserve recorded information, including books, documents, records and papers from which the debtor's financial conditions or business transactions might be ascertained," the suit states.

Several creditors joined together to sue Smith on one complaint. Another creditor, RL BB Acquisition, filed a separate complaint Monday making similar arguments.

Scott Ehrlich, a professor and bankruptcy expert at the California Western School of Law, said he believes the creditors have a "very strong case for a denial of discharge."

"If the creditors win, then the bankruptcy has no impact on their ability to pursue Mr. Smith and his post-petition earnings," Ehrlich said.

An attorney for Smith did not return a message seeking comment. A spokesman for the Razorbacks also did not immediately return a message seeking comment.

Smith previously coached at Louisville and Michigan State.