Sewage, lies and bad debts: How a Tuscaloosa fraudster tricked one of Alabama’s largest credit unions

Danny Ray Butler, a high school dropout and used car salesman in Tuscaloosa, had plans.

In the unincorporated community of Fosters, Alaska, Butler has built a $ 7 million grocery store, gas station and private sewage treatment plant that connects to the two projects.

The high-flying businessman also had a stake in a 60-acre pecan orchard; a sod farm; a $ 4.3 million 108-acre wetland property with a pavilion, living room, cabin and garage; a luxury skybox at Bryant-Denny Stadium; high-end boats and cars; and Gulf Shores seafood restaurant, Tacky Jacks.

But his business empire began to crumble in February 2012 when it was discovered that the deals that had catapulted him into wealth, many of which involved loans from Alabama One Credit Union, were based on lies.

Alabama One is now suing state officials and regulators for conspiring against the credit union, prompting AL.com to take a closer look at past credit union practices and Butler’s failed businesses.

According to the indictment, Butler submitted a small business loan to the federal government in June 2010 that overstated the cost of his groceries by $ 2 million. Four months later, Butler showed the government fake checks totaling $ 629,000 that purported to show investments in the project.

Meanwhile, Butler hatched a massive check-kiting plot at Alabama One Credit Union and West Alabama Bank and Trust, according to the indictment. As part of the scheme, Butlers and others deposited checks totaling $ 45 million at two institutions, and it cost the credit union about $ 1.2 million.

In September 2014, Butler pleaded guilty to wire fraud and bank fraud and was sentenced to three years in prison. The properties he amassed at the height of his frenzy of fraud are sold, have been sold, or are still bankrupt.

One of the most problematic pieces of Butler’s real estate portfolio is its sewage treatment plant. Tuscaloosa County probate records show that the credit union gave Butler $ 3.5 million to buy and build the property in 2008, and gradually increased the loan to $ 7 million three years later.

The plant was built to treat wastewater from 5,000 customers. But Butler testified in May that the industrial-scale plant, the one he borrowed $ 7 million to build, only had 70 customers.

Bankruptcy trustee Peter Colmer said crews were repairing the plant. Since February, three Tuscaloosa County public schools connected to the plant have had to discharge raw sewage at a high cost on a daily basis due to the plant shutdown. Several messages left for the Tuscaloosa County school system were not returned.

Alabama One on Tuesday bought the 108-acre property from Butler through an auction for $ 1.26 million. That’s about $ 3 million less than the mortgage the credit union had on the site.

Paige Howard, Butler’s fiancée who has a power of attorney in his financial affairs, says he is “not an angel” but that he is not guilty of the most important crimes. She claims that Butler’s signature was forged on several loan documents.

Danny Ray Butler

“He’s not a micromanager, he’s a horse dealer,” she said. “He knows how to find a good deal, bring people together, walk away and say ‘good luck, do it. “”

Butler’s criminal defense attorney declined to comment, saying Butler had not allowed him to speak on the case.

The legal fallout from Butler’s crimes continues.

In June, the Alabama One Credit Union filed a lawsuit against a state senator, a senior governor’s official, local lawyers and others.

He alleged that Gov. Robert Bentley’s office and other state officials attempted to force the credit union to settle several lawsuits for tens of millions of dollars.

Earlier this year, state regulators ordered the CEO of the credit union and other senior executives to resign, only to reinstate them months later. And, several members and employees of credit unions also sued Alabama One, citing fraud related to Butler’s schemes.

Lawyer Judge D. “Jay” Smyth of Tuscaloosa law firm Lewis Smyth Winter Ford is representing seven clients in lawsuits against the credit union. Two of the cases were settled earlier this year with confidential agreements.

According to the credit union’s lawsuit against state officials, both lawsuits were settled “with zero dollars paid by Alabama One to the plaintiffs.”

Smyth issued an aggressive statement Tuesday saying “Alabama One executives are running around like chickens with their heads cut off.”

“It’s clear that a new day is coming, and it probably won’t include them,” Smyth said. “As for us, we will continue to do our job for those members of credit unions who have lost substantial amounts due to mismanagement, fraud and intentional wrongdoing. We are not intimidated and we are not going to leave until this situation is corrected.

Lawsuits

One of the settled lawsuits, filed by Jerry Griffin and his wife, involved fraud and conspiracy on behalf of Alabama One Credit Union.

In 2004, the couple had about $ 2 million in assets with the credit union.

Griffin knew Butler because Butler’s parking lot was right next to his dry cleaning business. They became friends and shared a skybox together at Bryant-Denny Stadium.

Lawsuit alleges Tammy Ewing, the credit union’s director of business loans, asked Griffin five years ago if he could give Butler a business loan because the credit union didn’t have the right provide business loans. According to the complaint, the credit union’s “excessive loan / debtor relationship” with Butler prohibited her from lending him money.

Griffin agreed, took out a $ 450,000 loan from the credit union using the $ 900,000 deposit he had parked at the credit union, gave the money to Butler, and the loan was repaid. in full, according to the lawsuit.

Ewing, the loan manager, approached Griffin, the owner of the dry cleaner, again in the fall of 2010 to take out another loan of $ 450,000 from the credit union and give the money to Butler, the company said. pursuit. Griffin agreed, but this time the loan was unpaid, according to the lawsuit.

This led to Ewing advising Griffin to take a 50 percent stake in the Butler grocery store. Ewing said if Griffin did not take a share of Butler’s business, Griffin would have “nothing to show” for the loan Griffin took from the credit union to give Butler, according to the lawsuit. Griffin agreed, and his decision led to a series of proposals that escalated with Butler and the credit union requiring more cash and mortgaged property to secure.

The other settled lawsuit, filed by Samuel Colburn and his wife Tammie, alleged that Butler told them five years ago that he got a loan from the credit union on a home equity line of credit. of their property in Fosters without their permission.

In August 2012, the couple requested an advance on their line of credit to pay for their sons’ school fees and they discovered that $ 22,500 had been remitted to Butler in November 2010, according to the lawsuit. Ewing, the credit union’s director of business loans, told them not to worry because Butler was “good at the loan.”

The credit union’s lawsuit against state officials says Smyth’s lawsuits were “nothing more than an old-fashioned ‘heist’.

Smyth is also defending former credit union compliance officer Lorraine Baird in a breach of contract lawsuit. Filed by Alabama One, the lawsuit claims Baird discussed confidential information she learned at the credit union “at least five or six times” with Griffin and his attorneys, among other allegations. A counter-suit filed by Baird against the credit union was dismissed.

In a November 2013 affidavit, Baird said she complained to the management of the credit union that the institution “significantly exceeded” the amount of money it was allowed to lend to Butler. Baird also said Butler was committing check fraud as well as straw purchases and straw loans using collateral from other members of the credit union, according to the affidavit.

Senior executives told Baird that she was creating “problems” for the credit union and that she should become “less interested” in doing her job.

A spokesperson for Alabama One Credit Union said in a statement that “Ms Baird’s unsubstantiated allegations escalated after her resignation from the credit union, which came after it was revealed that she had failed. not disclosed a personal conflict of interest involving a member of Alabama One “.

Alabama One Credit Union CEO John Dee Carruth made the following statement Monday to AL.com:

“Butler’s credit union loans have been properly underwritten, approved and reviewed for years by independent third party underwriters and appraisers. Indeed, the loans performed well for years, until regulators determined that the overall loan limits contained conflicting interpretations of those limits at the time the loans were made. Alabama One has cooperated with regulators and satisfactorily resolved their findings regarding these loans, while remaining financially strong and well capitalized to date.

“We regret that Butler misled Alabama One, but we are confident that the Fosters water treatment plant remains viable and will continue to play a crucial role in the future development of this region.”

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