Dr. Walter Smith is an old colleague of Ryu's father, Jô Hayabusa, that lives in America.
Together with the elder Hayabusa, they explored the Amazon ruins of South America, uncovering the legend of the Demon. During the expedition they found a tablet and the Demon Statues of light and shadow.
The tablet told a story of how 700 years ago; the Demon, the Deity of Destruction entered the Earth realm and cause massive deaths, destroying entire nations. Then a Shinobi warrior of the Dragon Lineage rose up to become the Dragon Ninja and took it upon himself to battle the Demon. With the help of the Dragon Sword he was able to counter all of Demon's attacks. Although he defeated the Demon, he was not able to kill it, instead the Dragon Ninja sealed the Demon's body in a Temple deep in the Amazon and the Demon's immense power sealed in two separate statues, the Demon Statue of Light and the Demon Statue of Shadow. Ending with a warning, if the Demon Statues were to be reunited with its body on a Dark Moon, the Demon will rise again.
Jô Hayabusa and Dr. Walter Smith returned from the expedition with the Demon Statues. To keep the demon from ever coming back, Dr. Walter Smith kept the Demon Statue of Light, while Jô went home to Japan with the Demon Statue of Shadow.
Years passed by, and Dr. Smith had an unexpected visitor, Jô's son, Ryu Hayabusa. Ryu had followed the final note left by his father, and went to see Dr. Smith. Dr. Walter Smith gives Ryu advice and a substantial amount of background concerning the mystery which shrouds the Demon Statues. But before he can explain the entire story, one of Jaquio's men Basaquer steals the Demon Statue of Shadow from Ryu. Smith tells Ryu to go off after him and retrieve the Statue. However while Ryu was off retrieving the statue, Walter Smith was brutally murdered and the Demon Statue of Light in his possession stolen. When Ryu got back, Walter explained to Ryu all he could before dying as CIA agents showed up.
Whether the perpetrators Walter Smith's murder were the minions of Jaquio or those of the CIA is unknown.