But the credit union's problems did not stem from the check kiting, something that could have cost the credit union roughly $1.2 million. Alabama One has always maintained that it did not suffer a loss from the conspiracy.

Rather, the credit union's problems began to surface as members raised questions about the credit union's relationship with Butler, and after a succession of members began to file suit over losses they said they had suffered as a result of loans they said the credit union had made for Butler in their names.

As of press time, six members of the credit union have filed seven complaints against Alabama One, which allege employees of the credit union committed fraud when they convinced the members to take out loans to help Butler. One of the cases has been settled, and sources familiar with the cases said another is very close to being settled. But five others are active, and the sources say others are likely to be filed.

So far, the NCUA has steadfastly declined to comment on the situation, other than to say it does not comment on supervisory issues. The Alabama Credit Union Administration has given the same response.

According to the complaint filed in one of the cases, Jerry and Brenda Griffin joined Alabama One in 1976 when it was BF Goodrich Employees Federal Credit Union and Jerry worked at the BF Goodrich plant in Tuscaloosa. Around 2004, the Griffins said they made the credit union their primary financial institution and consolidated about $2 million in personal and business assets with Alabama One.

"The Plaintiffs relied on Alabama One's agents and officers to advise them on various types of financial opportunities, loans, and for personal and business transactions," the couple argued in their complaint, adding: "Therefore, (it had) a fiduciary duty to disclose certain material facts when the Plaintiffs reposed trust in Alabama One and relied on the bank for specific financial advice."

According to the complaint, Jerry Griffin met Danny Ray Butler in 2009 when Butler's used car showroom was next to a dry cleaning business that Griffin owned. Although the two men knew each other, they did not begin to have business dealings, the Griffins said, until the spring of 2010 when Tammy Ewing, Alabama One's manager of business lending, allegedly approached Griffin with a business opportunity.

Ewing was one of the Alabama One employees temporarily suspended from their jobs at credit union by the Alabama Credit Union Administration in February 2014 in conjunction with an investigation of the credit union's dealings with Butler. The ACUA then rescinded the suspension two weeks later under legal pressure.

Butler needed a business loan, the Griffins claimed Ewing told Jerry, but Alabama One could not make him one because it was prohibited from making commercial loans at that time.

Griffin assumed that was because of a recent merger Alabama One had recently completed, and because it had just changed from a federally-chartered credit union to a state-chartered one. But in the complaint, the Griffins listed the reason as: Regulators had said the credit union could not make any more loans to Danny Ray Butler.

"Ewing also represented to Griffin that he could make a higher rate of return than he could receive with his monetary assets held in Alabama One," the complaint read. "Ewing also represented to Griffin that she (Ewing) would complete the paperwork and Griffin would loan Butler the money. Ewing completed an unsecured note, loaning four hundred and fifty thousand dollars ($450,000.00) from Jerry Griffin to Danny Butler. To fund the transaction, Ewing drafted a secured six-month (6-month) balloon note for four hundred and fifty thousand dollars ($450,000.00) from Alabama One to Jerry Griffin. This note was secured by Griffin's approximate nine hundred thousand dollars ($900,000.00) held in a certificate of deposit account with Alabama One."

That loan was repaid, but, according to the complaint, in the fall of that year, Ewing approached with a second offer that would not be repaid.

According to the complaint, Ewing advised Griffin to accept a 50% stake in a grocery store development Butler had begun working on, and from there, the complaint detailed an ongoing spiral of involvement with Butler and the credit union that required a steadily rising amount of money and property to cover Butler's debts.

Alabama One has declined to comment on the Griffin case.

The other five complaints made similar points, and sources familiar with Butler said that they are merely a small part of the full picture.

The situation turned into a mini-crisis on April 3, 2015 when Alabama One sought to convince U.S. Bankruptcy Court Judge Jennifer Hendickson to lift a stay and allow the credit union to sell some of Butler's property. The credit union maintained the property had been collateral for a few of its many loans to Butler, according to court filings.

Alabama One CEO John Dee Carruth took the stand during the court proceedings and testified that Alabama One had been paying for criminal lawyers for him and Ewing since October 2013.

Carruth added he thought the credit union might be paying criminal lawyer fees for other employees as well, but that he couldn't be sure at that time, according to sources in the courtroom.

When contacted by email subsequent to the hearing, Carruth said that the credit union has a policy of providing an attorney for its employees when contacted by the government for information or testimony. He declined to say why Ewing had not been put on administrative leave.

Carruth testified that the credit union engaged the criminal defense lawyers as representation for him and Ewing after they were subpoenaed to appear in front of a grand jury investigating Butler in October 2013, according to legal sources. The grand jury did not target neither Carruth nor Ewing, but Ewing has since declined to answer questions in civil cases involving her work on some loans, citing that she might incriminate herself. She cited the same reasons for staying away from an April 6 federal court hearing, the legal sources said.

Carruth has not yet responded to a subsequent email seeking an exact number of employees who have criminal lawyers paid for by Alabama One, and the credit union has not yet said whether it is paying for the criminal representation fees for another credit union employee, who also declined to take questions on the same grounds.

Carruth also testified on April 6, despite previous denials that the credit union had continued to make loans to Butler, some with interest rates as low as 2%, even after the indictment for check kiting and fraud.

Other surprises from the day included the testimony of the aforementioned Jerry Griffin. Alabama One had called Griffin to the stand to impeach Butler's character further, according to observers, but Griffin had none of it. Griffin objected that he had not dealt with Butler on the loans, but instead with Ewing. He also said at one point that he would trust Butler with his money before he would trust Alabama One or Ewing.

When Alabama One's attorney, Mike Hall of the Birmingham firm Burr and Forman, tried to circle back and asked Griffin if he would trust Butler with his money, Griffin responded firmly that he would, the sources reported.

Paige Howard, Butler's fiancé, who also has power of attorney for his business affairs while he is in prison, took the stand to reveal that Butler had informed her he will be released in December 2015 after serving 15 months of his sentence. Howard also testified that Carruth had paid for insurance on Butler's property out of what Carruth had called a special account, because Butler could not afford it himself.

Carruth denied the existence of a special account in a subsequent email.

Regulators at both the state and federal levels have been largely absent from the controversy swirling around the troubled cooperative.

The ACUA's seven-member board of advisors, which includes the CEOs of five Alabama credit unions, met in an executive session on April 2, 2015 to consider, among other things, whether the agency should issue a cease and desist order against Alabama One, according to a source familiar with the agency.

No one at the meeting would characterize its outcome, but if such an order were to have been approved, the agency would have sent it to the credit union's board of directors. Ten days after they receive it, the agency could make it public, according to agency regulations.

The agency's range of possible actions in such an order is quite large, a legal source familiar with the process explained. They include everything from a mundane change in underwriting criteria to a complete change in executive staff, the source said. No matter their content, what all such orders have in common is a timetable for complying with the order and a requirement to periodically report the credit union's progress, the source added.

A lawyer for the ACUA declined to say whether the agency has sent an order to Alabama One.

The Problem with Catching Fraud

Lawyers familiar with cases of credit union fraud argued that it is too easy to blame regulators when a situation such as Alabama One's arises, because the situation on the ground is almost always more complex than many outside the credit union can understand.

Andrew Keeney, a nationally-known credit union lawyer from the Virginia firm Kaufman and Canoles, contended that as the size and complexity of credit unions has grown, the portion of agency budget dedicated to on-site examination has comparatively shrunk or at least been stalled.

"Smaller dollars mean shorter amounts of time in the credit union," Keeney said. He also observed that a mix of agency turnover and specialization has meant better examiners tend to be promoted away from examination, be directed into specialized examination, or leave for other agencies or lines of work.

"So now there are going to be examinations for cybersecurity," Keeney said. "That might need to be done, but the other work has to be done too."

Keeney, who has served both credit unions and the NCUA at different times in his career, observed that due to a shortage of time, examiners tend to notify a credit union well in advance of their visit and tell leaders what they want to examine. This way, the credit union can be well-prepared with the necessary materials.

This saves time, Keeney noted, but it also gives fraudsters a heads up that the examiners are coming, and allows them get everything squared away before the arrival.

Another noted credit union lawyer, who asked to speak anonymously, argued the NCUA would be better served by emphasizing internal controls rather than focusing on examinations.

The lawyer contended that there have been enough internal frauds at credit unions for the agency to have learned what internal controls are most effective at stifling fraud. The lawyer also pointed out that a relatively easy and effective internal control revolves around a popular employee benefit: Vacation.

Strong internal controls involve having every key employee in the loan or valuation area of the credit union, as well as operations, take two weeks' vacation each year. Most frauds, the lawyer pointed out, require the fraudster to be on-site at the credit union on a regular basis to continue manipulating numbers and keep things hidden. Making sure key employees get out of the credit union for an extended period of time makes it harder to keep such frauds a secret.