Man Indicted for Defrauding Lender in Connection with $1,760,000 Construction Loan

Allison Tussey —  October 10, 2013 — Leave a comment

Danny Ray Butler, 57, Fosters, Alabama, has been indicted by a federal grand jury on multiple fraud and false statement charges connected to schemes to defraud financial institutions.

A 51 count indictment filed in U.S. District Court charges the Defendant with wire fraud and multiple counts of false statements and bank fraud arising from three fraud schemes.

Butler owned and operated Fosters Groceries, LLC, a company formed to build and operate a grocery store in Fosters, Alamaba. According to the Indictment, after West Alabama Bank and Trust refused to finance the entire construction project, Butler sought out another lender.  The defendant allegedly defrauded the United States Small Business Administration (SBA) of $1,760,000 in connection with a loan to build Fosters Groceries, he engaged in a check kite scheme that caused Alabama One Credit Union to lose $1,275,000, and he made misrepresentations to Butler Wholesale’s floor plan company and caused a loss of $50,000.

In early 2010, Butler sought to borrow approximately $5 million from West Alabama Bank and Trust to build a grocery store in Fosters, Alabama. Subsequently, when West Alabama Bank and Trust refused to finance the entire project, Butler applied for and obtained an SBA 504 loan. West Alabama Bank and Trust ultimately agreed to loan Butler 50% of the total amount of the project and SBA agreed to finance 35% of the total amount. Butler was required to provide the remaining 15% as his cash injection into the project. Almost immediately after construction was complete, Butler defaulted on the loans by failing to make payments to SBA and West Alabama Bank and Trust as promised. SBA suffered a loss of over $1.7 million.

According to the Indictment, between March 2010 and October 2012, Butler devised and intended to devise a scheme and artifice to defraud SBA and to obtain money and property belonging to SBA by means of materially false and fraudulent pretenses, representations, and promises. It was a part of the scheme and artifice that Butler would and did submit false, forged, and altered documents to SBA in an effort to obtain an SBA 504 loan and receive over $1.7 million from SBA. Those false documents and representations included false, forged, and altered proposals, quotes, estimates, and bids submitted to SBA as evidence of the project’s cost, false, forged, and altered checks submitted to SBA as evidence of Butler’s cash injection, and false certifications on loan application forms that all information in the applications was true and complete. For instance, one count of the Indictment alleges that Butler submitted a construction company’s cost proposal for the grocery store project that Butler is charged with altering to increase the proposed cost from $2.3 million to $4.2 million. Other counts detail further false documents that Butler submitted to SBA.

The indictment also contains multiple bank fraud counts charging Butler with a check-kiting scheme in 2011 and 2012 in which he carefully timed deposits and checks between his Fosters Groceries account at West Alabama Bank and Trust and his Butler Wholesale account at Alabama One Credit Union to artificially inflate the account balances. Hundreds of checks, totaling about $45 million, were deposited from one account to the other at the two financial institutions, according to the indictment. When West Alabama bank discovered the check-kiting scheme in February 2012 and refused to honor a number of Fosters Groceries’ checks deposited into Butler’s Alabama One Credit Union account, the credit union lost about $1.275 million, according to the indictment.

Butler faces maximum penalties of 20 years imprisonment and a $250,000 fine on each of the 3 wire fraud counts, 30 years imprisonment and a fine of $1 million on each of the 30 bank fraud counts, and 5 years imprisonment and a $250,000 fine on each the 18 false statement counts.

The indictment also seeks to have Butler forfeit $3,085,000 as proceeds of his fraudulent schemes.

U.S. Attorney Joyce White Vance and FBI Special Agent in Charge Richard D. Schwein Jr. announced the indictment.

The FBI and SBA-OIG investigated the case and Assistant U.S. Attorney George A. Martin Jr. is prosecuting it.

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