SCANDALS: Mr. San Diego in Dutch

In many ways, C. Arnholt Smith seemed to personify the American Dream. A high school dropout and former grocery clerk, he rose to the ownership of a major league baseball team (the San Diego Padres) and became head of a financial empire that included one of California's largest banks and a multimillion-dollar conglomerate with interests that ranged from hotels, real estate and insurance to tuna-fishing fleets, canneries and a commuter airline. He became the chum of a President, so close to Richard Nixon that the two watched the 1968 election returns together on television. He was so respected in his hometown that a local newspaper once dubbed him "Mr. San Diego of the Century."

Last week this classic success story seemed headed for an unhappy ending. Smith, 74, and some of his closest associates found themselves at the receiving end of a double-barreled federal investigation.

The first inkling of Smith's trouble came in mid-May, when the Securities and Exchange Commission suspended trading in shares of Westgate-California Corp., the conglomerate of which Smith is chairman, after its accountants withdrew their certification of the company's 1972 financial statements. Then last week two lengthy federal investigations into Smith's affairs suddenly bore fruit. The SEC filed a suit in San Diego federal court alleging that Smith, Westgate President Philip A. Toft, Michael J. Coen, a former Westgage director, and several corporate defendants had systematically looted the conglomerate of some $100 million in assets. In a separate action, the U.S. Comptroller of the Currency moved against the U.S. National Bank, California's tenth largest (assets: $1 billion), on charges that the bank had lent more than the legally permissible 10% of its capital to Smith's various enterprises. Only a week before, Smith had resigned as the bank's chairman.

To make matters even hairier for Smith, an Internal Revenue Service task force that has been investigating his books for the past two years turned over the results of the audit to the tax agency's intelligence division for investigation of suspected criminal fraud. And a former member of a federal anticrime strike force accused high Administration officials of calling off a grand jury probe into the "laundering" of illegal contributions to Nixon's 1968 campaign by the Barnes-Champ Advertising Agency, which was controlled by Smith.

The details of the alleged looting of Westgate's holdings are exceedingly complex. Essentially the SEC charges, which Smith dismisses as "unfounded," say that he, Coen and Toft arranged sales of the company's holdings to various co-defendants at bargain prices. The purchases purportedly were made for cash, but the SEC says that they were actually financed by loans from U.S. National. To hide the fact that Smith was on all sides of the transactions, the SEC says, the loans were channeled through a thicket of holding companies that were also under Smith's control.