In its order to conserve the 61,000 member, $598 million Alabama One Credit Union, the Alabama Credit Union Administration stated the cooperative lost nearly $11 million over 18 months beginning in January 2014 and ending in June 2015.
The agency said the credit union's executives caused the losses by failing to maintain underwriting standards, underwriting loans inadequately and failing to underwrite mortgages to Fannie Mae standards, thus incurring forced buybacks of previously sold mortgages.
The ACUA also found the cooperative's executives took advantage of board or committee members' positions to conduct outside advertising at the credit union free of charge. In addition, the agency found, the cooperative granted preferential treatment to the brother of a credit union executive in connection to a member business loan. Further, the agency stated the credit union hid that loan when it became delinquent and failed to act against the borrower.
In the order, the agency specifically named Alabama One President/CEO John Dee Carruth, stating that he "materially misrepresented the collateral value and credits within a material lending relationship and made misrepresentations…relative to the execution of a material contract."
The credit union also improperly administered a $2.2 million member business loan to one of its executives' family members, failed to report non-performing assets on NCUA Call Reports, and understated its Allowance for Loan and Lease Losses to conceal its true credit risk from agencies and its members, the agency stated.
Justice D. Smyth III, whose Tuscaloosa-based firm Lewis Smyth Winter & Ford has represented credit union members suing the cooperative, and has subsequently been accused of conspiracy by the credit union, praised today's action.
"Honest people with integrity and common sense will applaud the actions taken today by the ACUA," Smyth wrote in an email. "The conservatorship of Alabama One demonstrates, thankfully, that no lie can live forever. There will now be no further doubt that our clients have been honest, while many other people have been dishonest, over these past two very difficult years. August 27, 2015 is a great day for the truth in Tuscaloosa, Alabama."
Smyth did not comment on what the conservatorship might mean for the legal case involving his firm or the other legal cases involving the credit union.
In response to the conservatorship Carruth, through his attorney Jeven Sloan, provided the following statement:
"Today's action is exactly what we feared would be the result of the illegal conspiracy that we alleged among the defendants in the lawsuit that Alabama One and I filed on June 29 of this year, and it is unwarranted and unfair. The regulator has made a number of general and broad allegations, but has refused to provide us with the sufficient details to respond to them."
Carruth also said he would continue to oppose the move.
"What is especially disturbing about the actions taken is that numerous good employees, and our long-term volunteers, who have all devoted their lives to the credit union, have been summarily discharged," the statement read. "Our safe and sound financial institution, which has been repeatedly praised by the state for our compliance mechanisms, has now been put in this position because of the alleged conspiracy among politically-connected attorneys, public officials and the very office charged with defending community institutions like ours. We will fight this decision with every ounce of our effort and expect to prevail."
A public statement from the ACUA emphasized that business at the credit union would continue as usual.
"(The) ACUA placed Alabama One into conservatorship to enable the credit union to continue regular operations with experienced management appointed by (the) ACUA subject to approval and to correct previous service and operational weaknesses," the agency stated. "While continuing normal member services, (the) ACUA will serve as conservator for the institution."
ACUA Administrator Sarah Moore also confirmed that Carruth, COO Martie Patton and former Member Business Loan Manager Tammy Ewing, along with two other credit union executives, had been dismissed. The Birmingham, Ala.-based law firm Burr & Forman was also removed as the credit union's outside counsel.
"Upon being named conservator, (the) ACUA succeeded to all of the authority of the board, executives and committees," Moore wrote in an email. "(The) ACUA is managing the day to day operations as conservator."
The order did not mention Danny Ray Butler, the former car wholesaler and Alabama One member whose construction loan, check kiting and subsequent straw loans led to the disclosure of Alabama One's many leadership challenges.
Butler pleaded guilty to check kiting and fraud, and received a sentence of three years in prison, but upon completion of a substance abuse program later this year, he will be eligible for release to a halfway house, according to Butler's fiancée Paige Howard, who has handled many of Butler's legal affairs while he has been in prison.
Howard stated that the ACUA's actions would help clarify Butler's role in the credit union's downfall.
"Today's action by the ACUA is a major step forward in telling the whole story – not just part of the story – about what went wrong at Alabama One," Howard wrote in a message to CU Times. "No thinking person can read the Order of Conservatorship and believe that Danny Ray Butler concocted the massive fraud scheme that the ACUA has uncovered. The conduct that led to this regulatory action was not the creation of the man who sits in prison in Talladega. The conditions are the product of actions taken by people who are still walking around on the streets of Tuscaloosa today."
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