Here’s a chance to read again one of our old Local History Room columns, first published in August 2014 before the launch of this blog . . .
Scandal: The Failure of the Teis Smith Bank
By Jared Olar
In its account of the organization of Pekin’s first banking institutions, the 1974 Pekin Sesquicentennial volume, pages 33-34, provides the following paragraph about a bank that popularly was known among the residents of Pekin as “the Smith Bank”:
“At about the same time that the first National Bank was organized [i.e., about the end of the Civil War], the Teis Smith banking firm was founded. The bank was located in the same block as the Smith wagon works, but it was conducted as a distinct and separate business. An interesting note in conjunction with the story of this operation is that upon the death in 1890 of Fred Smith, the senior partner who had taken over after his brother Teis died in 1870, Habbe Velde of the T. & H. Smith Company, Henry Block and John Schipper of the Schipper and Block dry goods establishment, and E. F. Unland of the Smith Hippen grain company (all of which are substantial businesses of old-time Pekin) stepped in as full partners to assure that the credit of the bank would not suffer greatly from his death.”
The 1949 Pekin Centenary, page 25, offers just a single sentence on the founding of this bank:
“That year [i.e., 1866] the Smith bank was established at 331 Court street, the First National bank at 304 Court street, . . . .”
“Pekin: A Pictorial History” (1998, 2004) has even less to say about the bank – just a single reference on page 92 to the fact that Teis Smith “also had interests in banking and railroads.”
Relying only on these brief notices in the standard works on Pekin’s history, one would never even be able to imagine the catastrophic circumstances surrounding the closing of the Smith Bank.
After operating for 40 years, the bank suddenly closed its doors on April 2, 1906, and the firm was then liquidated. When shareholders and depositors learned the reasons why the bank had closed, however, they went to the state’s attorney, who filed charges of embezzlement against the bank partners.
The story of that embezzlement trial – characterized in the Peoria Star’s contemporary reports as “the most sensational and deplorable affair that has ever come under the notice of Tazewell County residents” – is told in James A. Velde’s historical essay, “A Sensational Criminal Trial in Central Illinois,” a copy of which is in the Pekin Public Library’s Local History Room collection.
This is how Velde explains the failure of the Smith Bank:
“After partner Frederick Smith, a younger brother of Teis, died in a railroad wreck in 1890, the wagon and plow companies were separately incorporated in Illinois to avoid the complications in settling a deceased partner’s interest. But the bank was not incorporated, perhaps because of a feared government interference in an incorporated bank. The bank partners were thus left with their personal unlimited liability for all the bank’s debts . . . Near the mid-1890s the three enterprises were adversely affected by nation-wide difficult economic conditions, including bank panics and years of business depression. There came a time when the payrolls and other expenses of the wagon and plow companies were financed by borrowings from the Smith Bank, whose managers and partners were officers and stockholders of the two corporations. When the loans became delinquent in large amounts, the corporations issued shares of capital stock in payment of the loans. This practice, since the stock had no market, depleted the bank’s liquid assets and led to its closing on April 2, 1906.”
On May 24, 1906, four of the six bank partners were indicted in Tazewell County Circuit Court for embezzlement, under an 1879 Illinois law that made it illegal for a banker to accept deposits when his banking company is insolvent. The four indicted partners were Dietrich Conrad Smith, youngest brother of Teis Smith, who was the bank’s president and vice president of Pekin Plow Company; Conrad Luppen, bank cashier; Ernest F. Unland, president of Smith, Hippen & Company; and Henry C. Block, president of Schipper & Block department store.
The case was prosecutors by State’s Attorney Charles Schaefer, owner of the land that came to be known as Schaeferville and later a Tazewell County judge, and Judge Jesse Black, who later successfully defended the Tazewell County Sheriff’s deputies accused of torturing jail inmate Martin Virant to death in 1932.
The criminal prosecution stretched through the rest of 1906. Unfortunately, the issues of the Pekin Daily Times from that year are lost, but the indictment and trial proceedings were reported extensively in the Peoria Star (one of the predecessors of today’s Peoria Journal Star). The Star’s reports were usually sensationalistic and incendiary, often transgressing into libelous attacks on the personal character and even physical appearance of the defendants. During the course of the trial, as Velde shows, evidence was presented showing that the bankers had fraudulently been using depositors’ money to keep their troubled wagon and plow businesses afloat.
The jury returned a verdict of guilty against all four defendants on Dec. 15, 1906. However, defense attorneys almost immediately appealed the verdict and asked for a new trial, arguing that the conviction was not in accordance with a 1903 amendment to the 1879 statute under which the bankers had been indicted. In the end, both the trial’s judge, Leslie D. Puterbaugh, and State’s Attorney Schaefer agreed that the indictment had been a mistake, because the 1903 amendment had made it virtually impossible to obtain a conviction in a case such as the failure of the Smith Bank. The conviction was then set aside. Schaefer moved to have the indictment dismissed on April 15, 1907, and Judge Puterbaugh granted the motion.
With no attempt to disguise the dismayed at the overturning of the guilty verdict, the Peoria Star wrapped up its coverage of the affair with the comment, “Although the cases were stricken from the records, the memory of the wrecking of the Teis Smith and Company Bank by those behind it will linger for years to come.”