Allegedly Botched Fraud Inquiry Blamed for Alabama Regulator's Resignation
Larry Morgan, administrator of the Alabama Credit Union Administration, resigned from his post Monday, according to the League of Southeast Credit Unions.
The resignation came as the ACUA continues to investigate loan fraud at the $608 million Alabama One Credit Union.
A release from Alabama One said Morgan was manipulated by trial lawyers when he suspended four employees involved in the investigation.
Morgan could not immediately be reached for comment, and a message left at Alabama Gov. Robert Bentley’s press office was not immediately returned, either.
Before resigning from the ACUA, Morgan lifted suspensions and all restrictions against four Alabama One employees who had been banned on Feb. 28, according to Paul Toppins, an attorney representing the credit union.
Alabama One issued a press release on Tuesday, stating, “In an ongoing investigation, Alabama One Credit Union has learned that a group of trial lawyers and others had been attempting to manipulate the Alabama Credit Union Administration and its administrator, Larry Morgan, to take action against the credit union based on false and self-serving allegations and claims that the lawyers had made in a series of coordinated lawsuits filed against the credit union. As a result of the lawyers’ actions, several employees were suspended based on false and misleading information. After reinstating the credit union employees on Friday, the administrator abruptly resigned Monday afternoon.”
Alabama One is facing civil lawsuits filed by numerous members who allege the credit union and some of its employees concocted a straw loan scheme that defrauded members and benefited Tuscaloosa used car dealer Danny Ray Butler, according to court documents.
Butler was indicted last year on bank fraud charges, including a check-kiting scheme that caused Alabama One to lose about $1.275 million. He signed a plea agreement Feb. 27, stating he would cooperate with investigators, according to the U.S. Attorney’s Office.
On Friday, Morgan lifted all restrictions against Alabama One CEO John Dee Carruth, Business Lending Manager Tammy Ewing and Teller Celina Hood, allowing them to return to work, Toppins said. The agency previously allowed Chief Operating Officer Martie Patton to resume her duties, the ACUA said.
The suspensions against Carruth, Patton and Ewing were initially lifted March 13 after a Montgomery, Ala., judge required the ACUA to state a reason for the suspensions if they were to remain in place. However, Patton was the only employee who was allowed to return to work at that time.
While the three employees who had filed a civil suit against ACUA, Hood filed an appeal.
Alabama One stated Tuesday’s press release that one of the lawyers who reportedly lobbied the ACUA to suspend the employees was Justice Jay Smyth of Tuscaloosa, who represents several Alabama One members. Smyth’s client include businessman Jerry Griffin, who claims he was bilked into loaning money to Butler.
During a Feb. 27 deposition for one of the civil cases, Smyth allegedly said the credit union needed to settle the cases today by paying money to the plaintiffs, according to Alabama One.
Smyth reportedly told Alabama One officials that unless an immediate settlement was reached, state regulators would begin to take over the credit union Feb. 28 and “continue to cause very bad things to happen to the credit union,” according to Alabama One’s release.
In an interview Tuesday with CU Times, Smyth denied the credit union's statement.
"It is absolutely untrue that we ever told any representative of Alabama One that regulators were going to ‘take over the credit union,’ although that seems to be an excellent idea in and of itself," Smyth said.
The attorney also denied Alabama One's claims he manipulated state regulators.
“If the folks at Alabama One had spent as much time investigating the ‘Danny Butler problems’ at the credit union, as they have in trying to assign fictitious blame to people other than themselves, they might have a better situation today than they do," Smyth said. "Larry Morgan and the ACUA attorneys asked us to share with them certain information we discovered through representing various clients, not the other way around."
The credit union denied the fraud allegations.
“Griffin's lawsuit against the credit union claims that Griffin went into business with Butler only as a result of the urging of the credit union,” the press release said. “This claim is false. Griffin and Butler were long-time acquaintances and had done business with each other for many years.”
The two men jointly owed $4 million to West Alabama Bank for construction of a grocery store in Fosters, Ala., but some of that was paid off with a $1.7 million loan from the U.S. Small Business Administration, according to Alabama One.
“Because Griffin was a borrower on the West Alabama Bank loan, but not the SBA loan, getting the SBA loan funded reduced his liability to West Alabama Bank by $1.7 million. After it was funded, the SBA loan almost immediately went into default. West Alabama Bank foreclosed on the store and sold it to Jerry Griffin, providing the financing for Griffin's purchase at the foreclosure sale,” the press release said.
As a result, Griffin ended up the sole owner of the grocery store, which he later sold for about $600,000 more than he owed to West Alabama Bank, according to Alabama One.
Alabama One contends that Griffin's financial troubles were the result of his efforts to start a new dry cleaning business in Tuscaloosa, Griffin's Cleaners, which is now in foreclosure, according to Alabama One.
In a written statement to CU Times, Smyth said Griffin and his other clients hope the investigation will proceed at a faster pace now that Morgan has stepped down.
“We believe the changes which are coming to Alabama One, this time, will be systemic, profound and permanent,” he wrote.
Smyth also said that his clients believe substantive action should have been taken in 2011 when the Butler-related issues first came to light.
“Unfortunately, many of the problems our clients are complaining about today would have been avoided if strong remedial action had been taken several years ago,” Smyth told CU Times. Our clients certainly do not fault Governor Bentley for the unfortunate delay, but they do believe strong, positive, leadership will be required from the new ACUA director. They are confident that the governor will appoint a reputable and well-credentialed person to lead the ACUA and that this will lead to the kinds of changes which are needed at Alabama One.”
Smyth said his clients are also concerned that Alabama One members were reportedly prevented from asking questions during Alabama One’s annual meeting on March 22, which was overseen by Carruth.
“Following a motion made by a member of one of the law firms representing Alabama One, the traditional Q&A segment was removed from the agenda without advance notice to the members,” Smyth wrote.
In a written statement provided to CU Times, Alabama One member Jerry Logan said, “As a former board member, I am absolutely shocked that our members would be treated in this way. Issues dealing with mismanagement, inadequate director oversight and certainly possible criminal fraud are things that the members have every right to inquire into. They should be told the truth, not told to go home. This is the United States, not Russia.”
Morgan assumed the state regulator post in 2011 after retiring as CEO of the $2.2 billion APCO Employees Credit Union in Birmingham. He was also chairman of the board for the $3.7 billion Corporate America Credit Union.
Morgan is no stranger to controversy. In 2012, he denied accusations that a conflict of interest existed with him acting as regulator on issues between Corporate America and the NCUA.