FORT SMITH - A lawyer for Legacy National Bank testified in federal court Thursday he believed former Northwest Arkansas developer Brandon Barber tricked the bank into releasing its lien on an office building Barber wanted to sell because the bank thought it was a chance to recoup some of its debt against Barber.
But Marshall Ney said the bank never got a dime.
Ney was one of five witnesses to testify Thursday in the federal court trial of Barber attorney K. Vaughn Knight of Fayetteville, who is charged in a federal indictment with conspiracy to commit bankruptcy fraud, bankruptcy fraud, false statements and five counts of money laundering.
Legacy had obtained a $1.43 million judgment in 2008 against Barber and his thenwife Keri on a loan foreclosure in Washington County Circuit Court in which Barber secured the loan with his Old Missouri Office Building in Springdale.
Ney testified that Barber approached him with a request to release the lien on the building so it could be sold and promised that Legacy would get some of the proceeds from the sale.
But Ney testified he saw that he and Legacy National Bank had been tricked, or even defrauded, when he read a newspaper article that the building had sold but that a creditor with a higher priority than Legacy received the $1.65 million from the sale.
He also testified that in the trial of Barber’s personal bankruptcy in 2010, Barber had testified that he didn’t know what happened to the nearly $689,000 he received from the sale of 28 acres in Springdale known as the Ball Park or Outfield transaction.
Witnesses in Knight’s trial testified that Barber’s EIA International LLC bought the land from John David Lindsey Development LLC for $2 million on March 31, 2008, and immediately sold it for $3.2 million to Outfield Development LLC, owned by developer Bob Gaddy.
The $689,000 was deposited into Knight’s lawyers trust account to be used to pay off a loan James Van Doren’s Epsilon Investments LLC took out to finish construction of four homes in a Barber project called Timber Trails. Epsilon had provided the line of credit on the project.
A record of Barber’s funds in the trust account showed that most of the $689,000 was used for various expenses by Barber and his company and was spent by Jan. 20, 2009,according to testimony by former Barber financial assistant Christy Bennett.
Ney said that in Knight’s closing arguments in the bankruptcy trial in August 2010, he seemed to claim that the money went to him as legal fees.
U.S. Bankruptcy Court Judge Ben Barry denied Barber’s petition to be released from his debts, in part, because of the lack of evidence about what happened to the $689,000.
Knight attorney David Matthews of Rogers is scheduled to begin cross-examination of Ney when the trial resumes today.
Also Thursday, Bennett testified that in July 2009, Barber and Knight told her not to list as income in Barber’s business ledger the $3.2 million EIA International earned from the Ball Park transaction or the nearly $900,000 it netted from the 24-acre Spring Creek land sale in Lowell in early 2008.
Springdale developer Jeff Whorton testified Thursday he was the seller in the Spring Creek deal but didn’t know that Barber’s EIA sold the land immediately to Gaddy for $2.5 million.
Bennett admitted under cross examination that the decision not to list the sale proceeds in the company books as income was made in regard to a discussion on preparations of tax filings and not whether it would be reported in the bankruptcy petition Barber filed later that month, on July 31, 2009.
However, EIA International and the money from the Ball Park and Spring Creek transactions were never reported in the bankruptcy, Bennett said, because she did not include it on the entity list she prepared and that Barber and Knight submitted to the bankruptcy court.
Under questioning, she said she did not know why she did not include it on the list that contained 25 Barber companies or limited liability companies.
Barber, Van Doren and Whorton have pleaded guilty to federal indictment charges. Barber pleaded guilty July 31 to charges of conspiracy to commit bankruptcy fraud and money laundering in the case for which Knight is being tried. Van Doren pleaded guilty Aug. 23 to a charge of money laundering in the case.
Whorton pleaded guilty Aug. 26 to charges of money laundering and conspiracy to commit bank fraud. He was a co-defendant with Barber and others in a case accusing them of misrepresenting the value of land for which a bank loan was sought and paying kickbacks to participants in the deal. Barber received $314,000 from the deal.
Testimony resumes at 8:30 a.m. today.
Arkansas, Pages 10 on 11/08/2013