Danny Ray Butler, who is currently serving a sentence for defrauding the Small Business Administration and check kiting against the $613 million Alabama One Credit Union in Tuscaloosa, Ala., came face-to-face with credit union lawyers and executives on May 22 in what legal observers at the meeting described as an intense hearing.

Butler pleaded guilty to the fraud in February 2014 and began serving a 36-month sentence in September 2014. The court convened the hearing at the federal prison facility in Talladega, Ala.

Alabama One had asked for a prison hearing in order to show Butler some of the documents and signatures that he claimed during a previous bankruptcy hearing never to have signed. However, observers from law firms who have an interest in the bankruptcy proceeding but no direct stake in it observed the strategy may have backfired on the cooperative.

Lawyers comprised the majority of the people at the hearing, but Alabama One CEO John Dee Carruth attended, as did Butler's fiancée Paige Howard.

Butler's responses to the questions were direct, clear and carried the ring of truth, reported one lawyer who had been skeptical of Butler before the hearing. Further, rather than intimidate him, Carruth's presence in the room appeared to energize Butler. At many points, observers reported, Butler looked directly at Carruth as he answered a lawyer's question and at several points broke off to challenge Carruth directly.

During the course of the hearing, Butler identified more than 25 documents that he had either never seen before, or that carried signatures that were supposedly his, which he said he did not recognize and had never signed, observers said.

Observers reported that Butler had been particularly agitated when he alleged Alabama One had included his brother Andy's house, which had been unencumbered, as collateral in a fraudulent loan. Andy Butler, Danny Butler's youngest brother, has a mental impairment, and Butler's parents left the home to Butler and his two brothers, allowing them to provide Andy a place to live.

“'You know that was wrong,'” sources quoted Butler as saying to Carruth. “'You know I would have never done anything like that with Andy's house.'”

None of the sources who spoke with CU Times would do so on the record, citing the upcoming transcript of the hearing as a more complete source. John Dee Carruth has not yet responded to inquiries for comment on the day's hearing, but Alabama One's Mike Hall, who is with the Birmingham, Ala. law firm of Burr Forman, remained optimistic.

“Alabama One Credit Union is confident that the transcript of Mr. Butler's testimony taken at the Talladega prison on Friday will prove helpful in the upcoming hearing to show Butler's forgery and fraudulent transfer claims have no merit,” Hall wrote in an email. “The hearing is scheduled for June 12th.”

An official transcript of the proceeding has not yet become available.

Instant Insights /

Alabama One Bankruptcy Hearing Ignites Drama

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