The CUMIS Insurance Society agreed to pay $2.25 million to the $601 million Alabama One Credit Union to settle a civil lawsuit that claimed former executives allegedly violated both federal law and credit union policies by making business loans totaling more than $7 million on a sewer treatment plant that was worth $1.3 million.

CUMIS provided the insurance bond policy to Alabama One in Tuscaloosa to cover loan losses. However, Alabama One sued CUMIS last year after declining to pay the credit union’s insurance claim because CUMIS was unable to confirm whether the allegations made by the executives were true.

“Given the lawsuit originally claimed more than $7 million in losses, we believe the settlement was an appropriate resolution to this matter,” CUMIS said in a prepared statement.

The business loans were taken out in 2008 by a used car dealer and convicted felon Danny Ray Butler. He used the business loans to finance the construction and operation on a sewer treatment facility that went bankrupt.

However, Butler allegedly diverted millions of dollars of the loan proceeds for his personal gain, including spending more than $700,000 to purchase a beach condo in Destin, Fla., according to Andy Campbell, Alabama One’s attorney in Birmingham.

What’s more, the business loans placed the credit union under years of regulatory scrutiny, led to the termination of executives and the removal of board members, and placed the credit union into conservatorship in 2015. State regulators released Alabama One from conservatorship in February 2017.

Alabama One is committed to recovering the maximum damages available for improper conduct by former officers and others in the making and administration of bad loans,” Campbell said. “This is the beginning of that path forward, and we will vigorously prosecute the remaining actions against others.”

Campbell said a lawsuit has been field on behalf of Alabama One against the directors and officers who were managing the credit union when the business loans were approved and administered.

“Alabama One has also brought claims against certain professionals involved such as appraisers, accountants and attorneys,” he said. “These cases are pending.”

Campbell said the lawsuits were filed in Alabama state court in Tuscaloosa.

Unrelated to these business loans, Butler was sentenced to three years in prison in 2014 after pleading guilty to wire fraud and bank fraud that involved a check-kiting scheme that caused Alabama One to risk losing $1.2 million. Butler also defrauded $1.7 million from the U.S. Small Business Administration and $50,000 from a finance company.

Butler was released from prison in July 2016, according to the Federal Bureau of Prisons.

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