Countdown to Showdown Over Alabama One
A legal blowup over one of Alabama’s largest credit unions was set off by the dealings of Danny Ray Butler — now serving time for fraud in a federal pen. A final battle for control of the Tuscaloosa credit union is slated for a court hearing this month.
The Ides of March could mark the end of a long and bitter feud for control of the Tuscaloosa-based Alabama One Credit Union, one of the state’s largest credit unions, with 60,000 members and nearly $600 million in assets. Founded in 1951 as the BFGoodrich Credit Union, it has 21 offices around the state.
The miasma surrounding Alabama One for the past three years has been thickened by accusations of fraud, mismanagement, cronyism, secret meetings and half a dozen or so lawsuits, as well as conservatorship.
The turmoil prompted the Alabama Credit Union Administration, which supervises and regulates the state’s credit unions, to place Alabama One in conservatorship in August 2015, and acting as conservator, terminate a number of directors and officers.
“The credit union administration voted to conserve Alabama One Credit Union and appointed itself the conservator, so the credit union administration is wearing two hats,” says Robert Reynolds, an attorney appointed as assistant U.S. Attorney for the Northern District of Alabama to represent the ACUA. “It serves as the conservator over Alabama One; it also is the board that oversees all 67 state credit unions.”
“That decision to conserve was not a decision by the ACUA administrator,” Reynolds says. “It was a decision by the board, and the board is composed of CEOs and other executive officers of other Alabama state chartered credit unions.”
“This is not a board of political appointees,” Reynolds says. “This is as close to a jury of your peers as you can get, because the board that is sitting in judgment of whether to conserve a credit union is made up of the CEOs of other credit unions. So an independent board made the decision to conserve.”
Reynolds says the board made its decision based on information from examiners from both the Alabama Credit Union Administration and the National Credit Union Administration.
According to the order for conservatorship filed in August, faulty practices by the credit union contributed to losses “in excess of $7.8 million in 2014 and $3.18 million in six months ending June 30, 2015.”
The trial expected to begin in mid-March is a statutory appeal brought by certain directors and officers of Alabama One who were terminated by the ACUA, in its role as conservator, and are appealing the decision to place the credit union in conservatorship.
The court could grant an injunction against the ACUA’s possession and control of the credit union as conservator, which means the terminated directors and officers could presumably return to their former positions.
Few people are willing to discuss the situation, because of the array of law suits that have been filed — some settled out of court, others still pending.
Some of the credit union’s difficulties can be traced back to Danny Ray Butler, a Tuscaloosa businessman who has had his hands in a number of business enterprises. According to a release from the U.S. Attorney’s Office for the Northern District of Alabama, announcing Butler’s indictment, he operated a used car lot in Tuscaloosa, and Fosters Groceries, a grocery store and gas station in the west Alabama hamlet of Fosters. Butler also owned various other enterprises, including a water treatment plant in Fosters, which did not create enough revenue to repay its debt. Alabama One held the mortgage on that property.
In October 2013, a federal grand jury indicted Butler on 51 counts of wire fraud and making “false statement charges connected to schemes to defraud financial institutions and the U.S. Small Business Administration of approximately $3 million,” according to a statement from the U.S. Attorney’s Office.
The charges were connected to the grocery store and Butler Wholesale, the used car lot in Tuscaloosa, but Alabama One Credit Union became involved, according to the statement from the U.S. Attorney’s Office, when Butler “carefully timed deposits and checks between his Fosters Groceries account at West Alabama Bank and a Butler Wholesale account at Alabama One.” When West Alabama Bank discovered the check-kiting scheme and refused to honor a number of Fosters Groceries checks deposited into an account Butler had at Alabama One, the credit union lost about $1.275 million.
After the indictment, Butler pleaded guilty to wire fraud and bank fraud and was sentenced to three years in prison at Talladega Federal Correctional Institute.
All the activity surrounding Butler and the concerns of credit union members prompted the ACUA to take a look at Alabama One, which led to conservatorship to “enable the credit union to continue regular operations with experienced management appointed by ACUA subject to approval and to correct previous service and operational weaknesses.”
The order of conservatorship referred to “persistent patterns and practices by officers and employees of the credit union of exploiting their positions with the credit union and jeopardizing the assets and interest of the membership by allowing transactions with insiders to be conducted on preferential terms in violation of credit union policy or applicable law or regulation.”
According to court papers filed in the case, the ACUA will use Alabama One’s own documents to prove the organization’s wrongdoing.
“Petitioners (credit union officials) must overcome that damning reality of their own documents, which overwhelmingly demonstrate that the action undertaken by (the) ACUA was neither arbitrary (n) or capricious under Ala. Code, and was in fact taken to preserve the best interest of Alabama One’s members and prevent further mismanagement and dissipation of member funds by the petitioners,” say the documents, which were written by Reynolds.
“Contrary to Carruth’s (John Dee Carruth is the former CEO of Alabama One) assertions, Alabama One was not strong at the time of conservatorship,” the documents say. “Carruth’s insistence that Alabama One was strong only demonstrates his failure to appreciate the actual condition of his own credit union.”
Carruth appealed the takeover and demanded that the Alabama regulator show cause as to why the ACUA should not relinquish control of the credit union and its assets. His appeal was consolidated with an appeal from Tim Powell, who was chief information officer at Alabama One.
“To argue that a credit union with more than $50 million in reserves and a capital ratio of nearly 10 percent is not a safe and sound financial institution will simply not hold up under close review,” Carruth says in a statement. “The ACUA has spent over $1 million in taxpayer money pursuing its private agenda against Alabama One. The ACUA refuses to acknowledge that a significant portion of the losses incurred by the credit union this year are the direct result of pointless expenditures and actions mandated by the ACUA, itself, who disregarded its own previous reviews.”
According to the credit union’s website, “there is no set time frame” for the conservatorship to run and “ACUA has not made any decisions about the long-term future of the credit union. Continued service to the credit union members, however, is a priority.”
In addition, several credit union members who are worried about their money have filed suits against the credit union. Add to that the fact that last June, before the conservatorship order, the credit union filed suit against several Tuscaloosa attorneys and state officials, including Gov. Robert Bentley, alleging conspiracy, due process violations and defamation. The suit claims the defendants tried to coerce tens of millions of dollars in legal settlements from the credit union through improper and unwarranted regulatory sanctions after it received clean bills of health from state and federal regulators. The suit was filed on behalf of the credit union and Carruth.
Despite the furor surrounding the Alabama One Credit Union, according to one attorney who is close to the situation and who agreed to comment if not identified, “This is just a blip on the radar screen of what you would find in credit unions around the state,” he says, adding that credit unions are generally well-run and “do a good job serving the communities.”
Reynolds says, “Morale at the credit union is great and we are moving on down the road. We just want to get past this appeal.”
Bill Gerdes is a freelance writer for Business Alabama. He is based in McCalla.