Butler Sentenced to Three Years
Alabama business owner Danny Ray Butler was sentenced to three years in federal prison Tuesday for wire fraud and bank fraud that involved a check-kiting scheme that caused Alabama One Credit Union to risk losing $1.2 million.
Butler, 58, also defrauded $1.7 million from the U.S. Small Business Administration and $50,000 from a finance company.
U.S. District Judge L. Scott Coogler in Tuscaloosa also ordered Butler to pay restitution of $1.7 million to the SBA that he fraudulently obtained to build a grocery store. He was also ordered to pay $50,000 in restitution to the finance company in connection with misrepresentations Butler made regarding a car dealership he owned.
Coogler, however, said he will decide later the amount of restitution that Butler must pay the Tuscaloosa-based Alabama One.
That restitution amount has not been finalized in part because the $616 million Alabama One never directly lost $1.2 million, Paul Toppins, an attorney representing the cooperative said.
Although Alabama One was at risk of losing $1.2 million because of Butler’s fraudulent check kiting scheme, most of that money had been covered by Butler’s business partner Jerry Griffin. He agreed to sign a loan agreement for $980,954 with the credit union. In exchange for the loan agreement, Butler transferred ownership of property, including his interests in two businesses, to Griffin.
Additionally, Butler paid Alabama One $294,045 after his check kiting scheme was exposed, prosecutors said in court documents.
Butler began his check kiting scheme in 2011 between his business account at the credit union and a business account at the West Alabama Bank and Trust. Check kiting artificially inflates bank account balances to obtain unauthorized use of bank funds by exchanging checks between these accounts in a manner to misuse the float time in the banking system.
Prosecutors charged Butler deposited hundreds of checks between the two accounts totaling $45 million. In February 2012, West Alabama Bank and Trust discovered Butler’s check-kiting scheme and refused to honor a number of checks he deposited into his Alabama One account, which led to the credit union’s risk of losing $1.2 million.
In court documents, prosecutors calculated that the total amount of restitution is $417,702. That calculation was based on the $294,045 already paid by Butler to Alabama One and the $563,252 Griffin is expected to make from selling properties that used to be owned by Butler.
Toppins said the restitution will not be finalized, however, until the court determines the actual value of properties and business interests that Butler gave to Griffin in exchange for covering the $980,954 loan agreement with Alabama One.
According to court documents, prosecutors want Butler to pay the $417,702 in restitution directly to the credit union with instructions that it be applied to reduce the balances of the loans taken by Griffin to compensate the credit union for its losses.
The Butler case also led to the temporary suspensions of four credit union employees and four civil lawsuits filed by members, including Griffin.
The day after Butler signed a guilty plea agreement in February, John Dee Carruth, president/CEO of Alabama One, and three other employees were suspended by the Alabama Credit Union Administration. The suspensions were lifted March 13 after a Montgomery, Ala., judge required the ACUA to state a reason for the suspensions to remain in place.
“To be suspended without being told what I was supposed to have done, and then to discover that the action by the state was taken as a result of improper pressure by a group of trial lawyers who were trying to get money from the credit union that their clients were not entitled to, made it even worse,” Carruth said in an interview with CU Times in March. “It has been a shock.”
Toppins said the credit union is conducting an investigation to get an “accurate portrayal” as to why these suspensions occurred. A state court is expected to rule on Alabama One’s request to obtain email communications that allegedly occurred between the ACUA and the group of trial lawyers.
“Griffin’s lawyers had 112 (email) communications in five months directed to the state lobbying unwarranted regulatory action be taken against the credit union,” Toppins said.
He said the credit union has received some of the email communications from the state, but a state judge is expected to decide if other emails can be released to the Alabama One.
Larry Morgan, the ACUA administrator who issued and lifted the suspensions, resigned March 24. He said his decision was based on several factors, including the desire to spend more time with family and the amount of time required to handle complicated issues like lawsuits involving Alabama One.
Before resigning from the ACUA, Morgan lifted all restrictions against Carruth and his three co-workers: Chief Operating Officer Martie Patton, Business Lending Manager Tammy Ewing and Teller Celina Hood.
“We are grateful that we were able to get the (suspensions) reversed and hope that nothing like it ever happens again because it was clearly improper,” Toppins said.
Alabama One is also battling civil lawsuits that alleged the credit union and some of its employees concocted a straw loan scheme that defrauded members and benefited Butler.
Carruth said the claims made against the credit union are “ridiculous” and that “no one at Alabama One did anything wrong.”
Toppins said one civil suit has been dismissed and that the credit union filed for a summary judgment to dismiss a second suit.
“With the other two suits, and one of them filed by Griffin, we’ve been in negotiations regarding settling those lawsuits,” he said. “We’ve reached an agreement with Griffin that is awaiting the necessary approvals, and with the other one, we think we have an agreement but people haven’t signed off on it yet.”