Westgate-California Corporation (WCC) was an American public company and a vehicle for the business interests of C. Arnholt Smith (1899–1996), a San Diego banker, businessman, civic booster, political fundraiser and felon. During its existence, WCC had a substantial impact on California, especially San Diego. Smith was one of the most powerful people in San Diego for decades with interests ranging from the San Diego Padres to property to tuna fishing/packing to airlines to national politics (he was friends with and a major fundraiser/donor for Richard Nixon). Smith's empire, including WCC, unraveled starting in 1973 when his bank was taken over by the FDIC for flagrant violations of banking regulations. This led to the bankruptcy of WCC in 1974, which dragged on for eight years, at times causing significant disruption, at the end of which it liquidated in 1982. Smith was convicted on related embezzlement charges, but served little time due to his advanced age.
Origin
After an early career with Bank of America, Smith bought his own bank, United States National Bank (USNB) in San Diego in 1933 with the help of friends and family. At the time, the USNB had a single branch, assets of $1.7mm and deposits of $800,000. Smith bought it for $50,000. USNB had bad loans outstanding to San Diego businesses, including National Iron Works (today National Steel and Shipbuilding, part of General Dynamics) and the Crystal Pier at Pacific Beach. By foreclosing, Smith assumed control of these businesses, the kernel of what later became WCC.C. Arnholt Smith, in his own words – part 1, San Diego Reader, March 19, 1992A San Diego Empire, New York Times, May 14, 1972
National Iron Works built some important San Diego structures, such as some of the plants in which Convair manufactured aircraft for World War II. This led Smith to have an interest in real estate and hotels. The National Iron Works also had a shipyard which expanded substantially during World War II. This led to Smith's interest in tuna packing - after the war, the shipyard made some of the first steel-hulled deep-sea purse seiner tuna boats, which led to Smith consolidating local tuna businesses into a vertically integrated operation, controlling both the ships and the canneries. WCC ultimately owned the third largest tuna canning operation in the country, selling under brands like Carnation and Breast-O-Chicken [sic]. One of the tuna canneries was called "Westgate", from which Smith took the name. In the 1950s, tuna was the third-largest business in San Diego, employing 40,000 people.Tuna: A San Diego fish story, San Diego Union-Tribune, June 16, 2012Tampering with Justice in San Diego, Life Magazine, March 24, 1972, pg 30
Businesses
Smith consolidated his businesses under the Westgate-California Corporation, incorporated first in Delaware in 1956, reincorporated in Nevada in 1960.Westgate firm rules far-flung empire, Bakersfield Californian, January 17, 1974, pg. 17 He gave up control of National Steel and Shipbuilding in the 1960s, but otherwise WCC expanded quickly in the 1960s. Smith and his family owned over 50% of the voting stock. By 1973, WCC broadly operated in eight areas. A 1974 corporate directory listed 37 WCC subsidiaries or divisions among these areas. For example:
Seafood (discussed above) Surface transportation: WCC owned Yellow Cab taxi operations in a dozen California cities. In Los Angeles, Oakland, San Jose and San Francisco, those franchises had exclusive rights to pick up at the airport, as did WCC's airport buses.C. Arnholt Smith: how he made millions, Chula Vista Star-News, 27 April, 1972, pg 1 In San Diego, Yellow Cab had to make do with only 88% of the taxis. In Los Angeles, Yellow's monopoly extended to downtown. In 1972, the Yellow Cab business was said to gross $30mm per year (over $200mm in 2024 dollars). Air transportation: WCC owned 81% of Air California, then one of two jet intrastate airlines in California (the other being Pacific Southwest Airlines). Smith's private aircraft, a large Lockheed Electra turboprop, was operated by the airline and flew in its colors. WCC was also alleged to control Golden West Airlines, the dominant California commuter carrier. Smith had been forbidden from buying it in 1969 based on his dominance of other modes of California airport transportation, so sold it to a friend, but was viewed as still being in charge.Coast Financier's ‘Straw Man’ Named, New York Times, October 29, 1973 Real Estate: WCC had built some of the best shopping centers/malls in Southern California. For instance, Fashion Valley was a joint venture by Westgate-California Realty, built on the site of Westgate Park.From the Archives: Fashion Valley opened 50 years ago, San Diego Union-Tribune, October 13, 2019 Westgate Park was a minor league baseball stadium built by National Steel for Smith when he bought the then minor-league San Diego Padres. When Smith bought Major League Baseball franchise that became the National League Padres, he recycled the site into Fashion Valley. WCC had many other California real estate interests. Hotel/resort: WCC had built and owned the Westgate Plaza Hotel. Smith designed it to be one of the finest (it originally had a fleet of Rolls Royce cars to collect guests) in reaction to criticisms of San Diego hotels by, among others, then-President Dwight Eisenhower. Smith also instigated the creation of Shelter Island and its clubs, now home to three yacht clubs. He further owned the downtown Cuyamaca Club, the finest private club of the era.C. Arnholt Smith, part two, San Diego Reader, March 26, 1992From the Archives: The Westgate Hotel opened its doors downtown 50 years ago, San Diego Union-Tribune, August 30, 2020San Diego: Herd Instinct at Work, Los Angeles Times, February 24, 1972, part IV, p 12 Produce Leasing Insurance: Westgate Life Insurance wrote credit, life and health insurance with $230mm in policies outstanding. Another insurance subsidiary, Westgate-California Insurance, by 1972 was taking premiums from Yellow Cab subsidiaries that had previously self-insured.Insurance, Union hurt cab firm, Los Angeles Times, Part I, p. 3, December 27, 1976
In 1972, The New York Times reported WCC as having $190mm in revenues,Smith Assails S.E.C.'s Bid On Westgate Receivership, New York Times, July 23, 1973 over $1.5bn in 2024 dollars. WCC was not the only means by which Smith pursued his interests. USNB was a separate holding, as were the Padres.
Collapse
As early as 1962, banking regulators warned Smith about using USNB to fund Smith-related businesses like WCC, and forced Smith to take corrective measures. In 1969, Wall Street Journal reporter Byron Calame wrote a takedown of WCC, Smith and USNB, Self-Dealing Tycoon: How a Californian Uses Publicly Owned Firms to Aid Private Ventures. Calame did an exhaustive search of public records of Smith's dealings, showing that he and his associates profited "handsomely" in their dealings with WCC and USNB, both of which were publicly traded. Self-Dealing Tycoon: How a Californian Uses Publicly Owned Firms to Aid Private Ventures, Wall Street Journal, April 16, 1969 Calame showed how Smith would buy a property or company for his own account, then mark it up and sell it to Westgate. A steady drip of events and articles ensued, including indictment and imprisonment of one of Smith's long-time associates, and former WCC board-member, John Alessio.
The proximate cause were outside accountants withdrawing their certification of accounts for WCC for 1971 and Air California for 1971 and 1972, at which point the SEC suspended trading in the stocks, pending clarification.SEC News Digest, May 14, 1973 The SEC sued to place WCC in receivership, having already had WCC under investigation. Meanwhile, banking investigators had uncovered more trouble at USNB, causing the Comptroller of the Currency to force Smith to step down. Finally, in October 1973, driven in part by an ongoing withdrawal of deposits,Letter from Comptroller of the Currency to Board of Governors of the Federal Reserve, September 6, 1973, held in Box B114, folder “United States National Bank, San Diego” of the Arthur F. Burns Papers at the Gerald R. Ford Presidential Library the FDIC seized USNB, which by that time was the biggest bank in San Diego,From the Archives: October 19, 1973: City’s largest bank fails, San Diego Union-Tribune, October 19, 2018 the 10th largest in California with over 60 branches and $1.2bn in assets, based on continued self-dealing by Smith. It was, at the time, the largest bank to ever be taken over by the FDIC.Banking: The Westgate Scandal, Time Magazine, October 29, 1973 USNB's non-Smith business was assumed by Crocker National Bank (now part of Wells Fargo). Shorn of the support of the bank, WCC was forced into Chapter X bankruptcy by February 1974.Westgate Former Key Company Of Smith, Plans Reorganization, New York Times, February 27, 1974
Banking regulators examining USNB after the takeover identified WCC as just one of six main "lines" to whom USNB had provided funding, run by friends or family. Properties and companies would be flipped between groups, creating gains along the way.
Bankruptcy and disposition
Chapter X bankruptcy was an obsolete-as-of-1978 form of bankruptcy in which management was displaced by trustees who managed the business in the interests of shareholders while under court protection.Asa S. Herzog, The Chapter X Rules, 31 U. Miami L. Rev. 227 (1977) In contrast, in modern Chapter 11 bankruptcy, unless malfeasance is proven, management remains in charge but is obligated to maximize the value of company assets. Chapter X rules were notoriously complex. Cases could drag on for years.Chapter 10 Bankruptcy: What It is, How It Works - Investopedia By contrast, today's Chapter 11 rules require resolution within 18 months, absent court approval.
WCC's Chapter X bankruptcy lasted until 1982, over eight years, ending in its liquidation. As indicated below, some subsidiary companies started bankruptcy cases of their own. The bankruptcy resulted in literally scores of court cases and appeals. Smith himself was prosecuted, and ultimately (1985) served time for stealing from his companies.C.A. Smith Leaving Jail After Serving Eight Months, Los Angeles Times, July 16, 1985 He was also personally bankrupted.Failed Bank’s Holders Get $12.6 Million, Los Angeles Times, October 2, 1985
Example dispositions of WCC entities:
The tuna boats were sold early, and ultimately went to Bumble Bee.Officials of Borg‐Warner Buy Its Steel Operations (last item), New York Times, June 6, 1975 The cannery business was rebranded to Sun Harbor IndustriesAppellants Opening Brief, Shields vs County of San Diego, et al, (155 Cal. App. 3d 104) pg 19 and was one of the last businesses sold, to several parties including Bumble Bee.CV of Jose E. Munoz, Jr.: CFO of Sun Harbor Industries (1978-1981) Yellow Cab ended up in bankruptcy of its own. This caused significant disruption - for a brief time in 1976, Los Angeles was without taxi service as the local Yellow Cab operation was without insurance. Yellow Cab taxi drivers went on strike in San Diego. The taxicab business changed in big California cities in the 1970s out of all recognition. For example, San Diego, San FranciscoOverview of the San Francisco Taxi Industry and Proposition K, Charter Reform Working Group, San Francisco Taxi Commission and Los Angeles all eliminated/reduced the traditional domination that Yellow previously had.