CHARLESTON - Two members of the family that owned a Jackson County business entered plea agreements in U.S. District Court for the Southern District of West Virginia.
Donald Paul Smith and his wife, Judith E. Smith, pleaded guilty to charges from a March 2008 indictment. They were among five persons who were indicted in connection with activities at Carl E. Smith Inc. in Ripley.
They were mentioned in only one count of the 11-count indictment. They were charged with conspiracy to defraud the United States. Donald Smith was mentioned in other counts.
Donald Smith, who was the pipeline construction company's vice president, pleaded guilty Thursday to tax evasion from 1998 to 2001 before U.S. District Court Judge John T. Copenhaver Jr. Judith Smith pleaded guilty before Copenhaver to filing fraudulent returns in 2000 and 2001. They are scheduled to be sentenced at 1:30 p.m. April 29.
According to the indictment they, along with Eddie Burl Smith and Edward Michael Smith, conspired to charge as business expenses about $9 million in personal spending which included automobiles for personal use and enjoyment and items related to personal interests in racing cars, snowmobiling and showing horses, to file false personal and corporate income tax returns, failed to withhold and match funds for Social Security and Medicare and issued bogus expense checks to employees that represented a portion of employees' regular wages and hid corporate records. It was also charged Donald Smith used employees at company expense to perform work related to personal hobbies.
On Jan. 28, Eddie Burl Smith and Edward Michael Smith are to enter pleas in Charleston before Copenhaver.
On Sept. 22, 2003 a special judge in Jackson County Circuit Court awarded a $10 million judgment against Carl E. Smith Inc. and Carl E. Smith Real Estate Inc. in a lawsuit brought by Larry D. Smith, Dean Ann Cox, Jason Cox and Alexis Cox, minority shareholders, claiming waste and insider lending by the company's majority shareholders, Eddie Burl Smith, Donald P. Smith and Michael Smith, son of Eddie B. Smith, who were named as individual defendants. Larry D. Smith had been company treasurer.
In the court order Fayette County Circuit Court Judge John W. Hatcher Jr., appointed as special judge, stated evidence submitted in support of summary judgment "shows clear and convincing evidence" that defendants Eddie Burl Smith and Donald P. Smith, as controlling directors and officers, beginning in about 1998, inappropriately, and in breach of the fiduciary duty, diverted more than $21 million of CESI corporate assets.
According to the order, the defendants filed a brief on Sept. 18, 2003 without exhibits or supporting documents simply objecting to summary judgment. On the same date, the corporate counsel announced the corporate defendants would file a chapter 11 bankruptcy petition.
In the findings of fact, Hatcher said Eddie B. Smith and Michael Smith acquired luxury automobiles for themselves, family and friends in 1998 costing $510,773.80. It also stated they gave a GMC Yukon and a Chevrolet Tahoe to inspectors from a company for which they were supplying and laying pipe. A self-audit showed individual defendants charged more than $1.3 million to company credit cards from January 1998 through March 2001 which had no legitimate business purposes, the order stated.
According to a table in the order on Financial Impact of Waste, Self-Dealing and Insider Lending, other transactions totaled $21,506,537. In the findings of law, Hatcher stated, "The undisputed evidence shows outright fraud, waste and illegality that has resulted in the depletion of assets of CESI by $21,000,000 to a value of less than $10,000,000."