BIRMINGHAM -- A federal judge today sentenced a Tuscaloosa County man to three years in prison for his schemes to defraud financial institutions and the Small Business Administration of more than $3 million, announced U.S. Attorney Joyce White Vance and FBI Special Agent in Charge Richard D. Schwein Jr.
DANNY RAY BUTLER, 58, of Fosters, Ala., pleaded guilty in February to three counts each of wire fraud and bank fraud, and consented to forfeit $1.76 million to the government as proceeds of illegal activity. U.S. District Judge L. Scott Coogler sentenced Butler to the prison term, ordered him to forfeit the $1.76 million and to pay restitution of $1.76 million to the SBA and $50,000 to Next Gear Capital, a finance company that loaned money to Butler's used car dealership. The court will decide later the amount of restitution that Butler must pay to Alabama One Credit Union, which he defrauded.
Butler's crimes were related to three separate fraud schemes.
Butler owned and operated Butler Wholesale Inc., a used car lot in Tuscaloosa, and Fosters Groceries, LLC, a company formed to build and operate a grocery store in Fosters. According to his plea agreement and other court records, Butler defrauded the SBA of $1.76 million in connection with a loan to build Fosters Groceries. He also engaged in a check-kite scheme that caused Alabama One Credit Union to lose about $1.28 million, and he misrepresented Butler Wholesale's car inventory to Next Gear Capital, causing Next Gear to lose $50,000.
"The defendant perpetrated his two most lucrative schemes – the SBA fraud and the check-kite scheme – simultaneously, garnering the use of $3 million to satiate his need for money," the government said in its sentencing memorandum. Butler created counterfeit documents, altered existing documents, forged signatures, and repeatedly lied to his several victims, the government said.
The SBA is a federal agency that supports and protects the interests of small businesses. Through public and private partnerships, the agency helps Americans start, build, and grow small businesses. One of its supports is the SBA 504 Loan Program.
In early 2010, Butler sought to borrow about $5 million from West Alabama Bank and Trust to build a grocery store in Fosters. When the bank 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 half of the project's total cost, and SBA agreed to finance 35 percent. Butler was required to provide the remaining 15 percent 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, according to court records.
Butler's check-kite scheme in 2011 and 2012 involved 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, in order to artificially inflate the account balances. He deposited hundreds of checks, totaling about $45 million, from one account to the other at the two financial institutions, according court records. When the bank and trust discovered the check-kite 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 $1.28 million.
The third fraud scheme involved Butler's misrepresentations to Next Gear Capital. Butler received loans from Next Gear to buy inventory for his car lot. A specific car secured each loan, and Next Gear inspected the dealership's inventory monthly. According to court records, Butler employed various schemes to defraud Next Gear and continue receiving loans. His misrepresentations included listing cars as part of the dealership's inventory, even though they already had been sold, and lying to Next Gear representatives when they inspected his inventory.
The FBI and SBA-OIG investigated the case. Assistant U.S. Attorney George A. Martin Jr. prosecuted it.