Alabama One Credit Union executives convinced Danny Butler to sue the Alabama Credit Union Administration in 2011 to forestall an effort to investigate the cooperative's ongoing loans to him, according to Butler's sworn testimony offered during a bankruptcy hearing.

Some of those same or similar loans were part of an 18-page cease and desist order that the agency issued April 2, 2015, and that the cooperative will appeal administratively on June 9.

The executives also recommended one of the credit union's frequently used lawyers, James Don Turner of the Tuscaloosa, Ala. firm of Turner and Turner, to represent Butler, Butler alleged. Butler told the court that he never received a bill for Turner's services.

Turner did not comment on Butler's statement for this report. Neither did Alabama One CEO John Dee Carruth nor Alabama One in house counsel Paul Toppins.

“The only [investigation] I knew about is when they come in and started the … the auditors wanted to call my loans in or whatever,” Butler said, according to a transcript of the hearing. “They kept asking, wanting me to bring stuff in and bring stuff in. And I was told I could get them off of me by getting an attorney because they were harassing me.”

According to the transcript, Butler went on to name Alabama One's former Business Lending Manager Tammy Ewing as one of the executives who recommended Turner, but also “whoever was above all of it” as who urged him to sue and recommended Turner.

Butler made his allegations during an emotional May 22 creditors meeting at the federal prison in Talladega, Ala., to facilitate Butler's participation in the bankruptcy proceeding. Alabama One sought the hearing after Butler repudiated some of documents the credit union used to claim his property as collateral during the bankruptcy hearing. Butler claimed some of the signatures on the documents were forged.

Butler began serving a 36-month sentence at the prison after having pleaded guilty in February 2014 to six counts of defrauding the SBA and kiting checks between Alabama One and the West Alabama Bank and Trust, another Tuscaloosa area financial institution.

Butler and Alabama One needed a lawsuit because, in 2009, according to court documents from the litigation, both the ACUA and the NCUA ordered the cooperative to stop making business loans. The agencies had found loans to Butler comprised 48% of the cooperative's business loan portfolio and that, between Alabama One and another credit union, Butler had 16 loans outstanding worth almost $26 million.

In addition to quitting business lending, the agencies also ordered the cooperative to divest itself of interest-only loans to Butler, which constituted the majority of the Butler loans. Instead, the credit union was to execute loans with Butler that had specific terms and dates of termination. Two ACUA examiners, James Arndt and Robert Russell, continued their investigation into whether Butler could repay the large debt until Butler sued.

Alabama One's strategy appeared to work, since the court dismissed the case a mere two months after bringing the suit. However, according to the transcript, Butler was never told of the case's outcome.

“I didn't know what was on it,” Butler said. “I didn't know what he [Turner] said or what he [Turner] did. I was just recommended that that would ease it up, and they would probably leave me alone.”

Read more: Butler charges bank and credit union executives knew about his check kiting …

Butler also testified that executives from both Alabama One and West Alabama Bank and Trust knew all about his check kiting. Butler further alleged that Carruth told him how to deposit the kited checks in a manner that would not raise regulatory or security concerns.

Butler described an incident early in the check kiting scheme when an Alabama One teller at one of the branches told him the branch could not take some of the checks he was trying to deposit. Butler further testified that Carruth told him to make sure to write “Butler's Wholesale” on the checks so that they could be accepted without triggering any flags.

Later, under questioning from Justice D. Smyth, a lawyer with the Tuscaloosa firm of Lewis, Smyth, Winter and Ford, which represents some of the Alabama One members suing the cooperative over its role in the Butler loans, Butler said clearly that both Carruth and Charles “Tab” Swann, an executive with West Alabama Bank and Trust, knew about the check kiting.

When asked about joint knowledge of the check kiting between Mr. Swann and Mr. Carruth, Butler referred back to the previously described episode in which Carruth had told him how to deposit the checks so that they would not trip security or regulatory flags.

According to the hearing transcript, Butler also said the following about West Alabama Bank and Trust executive Swann:

A. “And I went to Tab a couple of times and talked to him and told him that if I don't hurry up and get this loan or give me a loan, that I am going to be in trouble.

Q. Okay. You were not – is this right, you were not trying to do anything to keep the check kiting away from either Mr. Carruth or Mr. Swann?

A. No.

Q. You were not trying to cover it up?

A. No. I mean if it's there, it's there.”

Finally, when it came to the forged documents, Butler repudiated signatures on more than 25 documents as those that he could identify as not being his or that he did not recognize as his. Moreover, late in the hearing, when Alabama One attorney Mike Hall with the Birmingham firm of Burr Forman tried to circle back to ask how many times Butler had met with Alabama One executives about his loan concentrations, Butler came back to the documents.

“It went on for years, you know. So I don't know,” Butler said, according to the transcript. ”Just a bunch of times. I was in … it was going back and forth. Look at the documents. Come on now. It's just … I mean, I don't even know what I sign and don't sign no more. I guarantee you if you look at some of these in here [indicating], hell, Ray Charles would know that I didn't sign them, and he can't even see.”

And under questioning from one of the ACUA's lawyers, Gilbert Steindorff IV with the Birmingham firm of Reynolds, Reynolds & Little, Butler almost poignantly seemed to wish that he had not fought the ACUA and had let the “auditors” go ahead and pull his loans with Alabama One.

“I guess Alabama One who John Dee and … wouldn't pull them,” Butler said, according to the transcript. “Now, if I look back on hindsight, they should've pulled every one of them and let me get out of this, I wouldn't be where I am now. Besides me doing all these workouts and all this other crap, just got further and further in debt.”

Instant Insights /

Alabama One Hearing Reveals Butler Cover Up Claims

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