Loan Fraud Claims Spark Lawsuits, C-Suite Suspensions at Alabama One
Under legal pressure, the Alabama Credit Union Administration on Thursday lifted suspensions on three employees from the $608 million Alabama One Credit Union as it continues to investigate member claims of loan fraud.
Larry Morgan, administrator of the ACUA, told CU Times an investigation is underway at the state-chartered Alabama One, but he emphasized the Tuscaloosa-based institution remains open.
Numerous members filed two civil lawsuits alleging Alabama One and some of its employees concocted a straw loan scheme that defrauded members and benefited Tuscaloosa businessman Danny Ray Butler, the ACUA said.
Butler was indicted last year on bank fraud charges, including a check-kiting scheme that caused Alabama One to lose about $1.275 million, according to court documents.
Also of Interest:
He signed a plea agreement with federal prosecutors on Feb. 27 stating he would provide information about others he claimed had knowledge of his crimes, according to the U.S Attorney’s Office.
One day later, the ACUA issued suspension notices to four Alabama One employees: John Dee Carruth, manager/CEO, Martie Patton, COO, Tammy Ewing, business lending manager and Celina Hood, a teller.
The ACUA also appointed Doug Key, president/CEO of the $133 million Mutual Savings Credit Union in Birmingham, as interim CEO at Alabama One on Feb. 28, Morgan said.
Three of the suspended employees — Carruth, Patton and Ewing — filed a civil lawsuit March 3 against the ACUA and Morgan, claiming they were wrongfully suspended and seeking a temporary restraining order that would allow them to return to work, according to court documents.
Hood, the fourth suspended employee, did not join the suit because she opted to file an appeal, said Birmingham attorney Joel Dillard, who represents Hood.
The suspensions against Carruth, Patton and Ewing were lifted March 13 after a Montgomery judge told the ACUA to state a reason for the suspensions if they were to remain in place, according to the civil lawsuit.
“The three suspensions involved in the civil lawsuit were rescinded while the ACUA’s investigation continues and the fourth suspension is under appeal,” said David Martin, a Montgomery attorney who represented ACUA in the lawsuit filed by the three reinstated employees.
However, of the four employees, only Patton is free to return to work at the credit union, Martin said. Carruth, Hood and Ewing remain on administrative leave with full pay and benefits, according to the ACUA.
Read more: Members sue alleging straw loan scheme ...
The credit union still faces separate civil lawsuits filed by numerous members who allege that Alabama One encouraged them to take out loans in their name and then loan the money to Butler, according to court documents.
One civil suit, filed by six Alabama One members, alleges forged signatures were used to funnel money to Butler.
“Our clients are the innocent victims of a serious financial fraud scheme and we expect them to prevail in the pending litigation,” said Tuscaloosa attorney Jay Smyth, whose firm Lewis Smyth Winter Ford LLC is representing the six members.
“Fortunately, it appears from the facts that Alabama One is not an impaired credit union; it is simply a credit union which has had impaired leadership,” Smyth said in a written statement to CU Times. “The State of Alabama is in the process of correcting that problem.”
Smyth and his clients claim Alabama One employees began approaching wealthy members to provide personal loans to Butler after he had already borrowed more than $20 million from the credit union, according to the civil lawsuit.
Federal and state credit union regulators began questioning the large amount of loans made to Butler several years ago because overexposure to one borrower could put the credit union at risk, Smyth said.
To reduce Butler’s loan balance with the credit union, Alabama One employees allegedly encouraged the members to take out personal loans, which Butler allegedly agreed to repay at a higher interest rate.
Butler eventually quit paying, which caused the members to default on the loans. Alabama One foreclosed on the plaintiffs’ property, the court documents said.