C. Arnholt Smith

"Perhaps the swindler of the century."
Forbes magazine, Crime in the suites, 15th August, 1975.
"A few years ago, political influence was wielded by Republican bosses who owned savings and loans and big law firms and tuna fleets, like C Arnholt Smith…They shaped the downtown skyline of the day and handpicked the candidates who ran for office."
ci, August 4, 2002.

The United States National Bank of San Diego (USNB) collapsed, amidst charges of fraud, in October of 1973. The president and chief stock holder of the bank was C Arnholt Smith, resident of San Diego. In fact some people held that he was the town of San Diego. Over the prior two decades, Conrad Arnholt Smith - he dropped the Conrad sometime on the way up - had put together an interest in ship building, hotels, tuna fishing, (owning the 3rd largest fleet in the country) taxis, (including a controlling interest in a cartel that included the yellow cab franchise for most of the larger Californian cities) real estate, banking, airlines (Air California) and of course baseball, all put under the umbrella of the conglomerate Westgate-California corporation. Along the way he became the best friend of presidential aspirant Richard Nixon and as co-campaign finance chair raised tens of millions of dollars, including millions of his own, for the 1968 presidential campaign.

Early on, "I was kinda embarrassed to be in public, and couldn't handle myself very well, and I didn't like it," Smith once admitted, but in 1955 went on to buy the local baseball team, the Padres, for $300,000; the team at the time playing in the minor-league. The purchase put Smith in the public eye. The first thing that required sorting out with the team was a better baseball park. So some advice was sought from appropriate professionals about where to build the new stadium. "I almost fell outta my shoes when they picked a ranch that we owned down in Mission Valley," said Smith. (San Diego online, at sndiegomag.com/retro/febretr3.shtml)

In true baseball franchise tradition, the owner then had the city build the necessary infrastructure around it, roads, amenities, parking etc., financed via municipal city bond issues, all of which added immensely to the value of the team franchise, and the land upon which the stadium was built. (A Texan Governor also added to his wealth this way once on his way to the presidential suite.) The public got used to the idea of a taxpayer supported stadium after relentless articles in local newspapers owned by Smith contacts and supporters.

Luck seemed to follow Smith this way for years. Indeed, a significant share of San Diego's tourist dollar seemed to be collected by Smith. The ideal San Dieago tourist, wrote Mike Davis (Under the Perfect Sun, page 81): could "fly in on a Smith airline (Golden West or Air California), take a Smith-owned cab to Smith's opulent Westgate Hotel, where he would eat a Smith dinner before catching a Padre night game at Westgate Stadium. Perhaps the next day, after cashing some travelers' checks at Smith's bank, the same tourist might visit Shelter Island, developed by Smith, or cross the border to bet on the ponies at Caliente Racetrack, owned by Smith protege and business partner John Alessio. If the visitor were truly upper crust, he might even wrangle an invitation to Smith's elite Cuyamacas Club, the new inner sanctum of downtown power."

If the cash flow from these operations slowed, Smith simply went to his own bank, the USNB. Noted Davis further: "When the cash flow from tuna couldn't keep pace with his acquisitions and deal making, Smith simply lent money to himself from his U.S. National Bank. To conceal his transactions he created almost a hundred corporate shells registered in various states. When, on occasion, federal or state regulators came close to uncovering his machinations, Smith was ready with a gift or job offer. Thus in the late 1950s, as the Wall Street Journal later reported, "three Internal Revenue Service agents were assigned to examine the books of a Smith company. . . he wound up hiring two of them before the examination was completed." Smith had a closer call in 1962 when a bank examiner discovered that fully 21 percent of USNB's portfolio were loans to Smith's other companies. Self-financing on this scale, of course, was illegal, and the examiner recommended a Justice Department investigation. Instead, Comptroller of the Currency James Saxon transferred the examiner to San Francisco and hushed up his allegations. Smith, according to Forbes magazine, avoided further embarrassment over the next decade by ensuring that bank examiners were "entertained lavishly and offered jobs." Indeed, one became a vice president of the bank."

By 1968, Smith found himself sitting with Richard Nixon in Nixon's Waldorf Tower's suite as Nixon watched his race to the White house culminate in election. Smith had personally contributed or raised over $1 million to fund it. At the pinnacle of his success, Smith, with his new - and expensive - wife, embarked upon the building of the Westgate Hotel; a hotel to be designed along the lines of the classical European 'Hotel Palace de Grand Luxe', as noted by the website of the Westgate Hotel itself.

By the time the hotel was completed, in 1970, it was the most expensive hotel ever built in the US. Smith and his wife had taken the time to wander all over Europe to find just the right furnishings, the best equipment and most expensive and appealing paintings. No ordinary hotel, said Esquire magazine, rather: "a contemporary version of such elegant buildings as the Ritzs of Paris, Madrid and London, the Grand in Rome, the Amstel in Amsterdam and the Imperial in Vienna."

But whilst Smith was out spending, enemy political forces were gathering. San Diego's small time (underground) press began detailing the loaned funds, corrupted politicians and indeed mafia underworld links. For their troubles they got police harassment, firebombing and death threats.

Then, in April, 1969, the prestigious and very conservative Wall Street Journal published a piece exposing Smith's use of the capital of Westgate – a public company – and the USNB to feather his own nest at the expense of other shareholders. Specifically the Journal described a $650,000 profit Smith made by selling and reselling a small life insurance company from one Westgate entity to another. The Journal also highlighted (Republican) Smith's unwaivering support for Bert Betts, the Democratic California State Treasurer, who used Smith's bank as an official repository of state funds.

There was also the matter of Smith's relationship with John Alessio, rumoured for decades along with his brothers, to have maintained good connections with the underworld through their book-making operations across the border in Mexico in a 'sleeping partnership' with Mexican President Miguel Aleman Valdes. After years of working together, the Alessio Corporation had merged in 1964 with Westgate-California. Allessio then served on the board of Westgate.

By March of 1970, a case against the Alessio's was launched by the Inland Revenue Service (IRS) and the Justice Department for unpaid taxes. The US attorney for the San Diego area, Harry Steward, was a Nixon appointee after a recommendation from Smith. The case went nowhere, as Davis noted, (page 95) until J Edgar Hoover, the head of the FBI, intervened probably after a presentation from the California racing industry which was losing millions because of the Alessio operation across the border. The Alessio's were eventually indicted in one of the largest tax fraud cases in US history, despite the fact that the brothers had been heavy contributors to Nixon fund raising.

But back to Smith. In March of 1972, Life magazine hit the streets with the headline that the Nixon Administration (had) seriously hampered justice in the city of San Diego, detailing "five instances of White House interference in local criminal justice investigations involving Smith, Alessio, or their political allies." As described by Davis, (page 99), Life also noted Smith's efforts with the Nixon administration in trying to have the Department of Justice cease its enquiries and stop the tax evasion investigation into the Alessio family. With the New York Times supporting Life magazine's assertions, the IRS and then the SEC began investigations. Soon, shareholders of Westgate filed suit to recover lost funds.

Said the San Diego Reader in 1999 (sdreader.com): "But when Nixon began his downfall, Smith's fortunes also reversed. Protected by Nixon's cronies from the prying eyes of federal regulators, Smith, it was later revealed, had systematically looted his bank of millions of dollars by making bad loans to companies controlled by himself or his friends, many of them connected to the Mafia. The notoriously mobbed-up La Costa Resort was financed largely by money from Smith and the Central States Teamsters Union pension fund. But as Nixon's hold on power weakened in the fall of 1973, auditors finally blew the whistle. The bank, with nearly a billion dollars of deposits, collapsed in October of 1973. It was, to that date, the biggest bank failure in United States history."

All 4600 Westgate shareholders lost their entire investment. The collapse wiped out the value of the pensions of the USNB employees – the pensions being paid in USNB stock, anticipating ENRON exactly 30 years later. Smith himself, as the originator of the largest ever looting of any US public company up to that time, was handed by Judge Robert Schnake - a Nixon appointee - a fine of $30,000, to be paid at the rate of $100 a month over 25 years, without interest. Much later, Smith did end up serving eight months of a one year sentence.

Further references:

Davis, Mike. Under the Perfect Sun, the San Diego Tourists Never See, The New Press, 2003.

Life Magazine, 29/3/72, article by Denny Walsh and Tom Flaherty.

Bergman and Robach, C Smith and the San Diego Connection, in Weissman, Steve, Big Brother and the Holding Company; the World Behind Watergate.

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