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Oct. 4, 2013

Tuscaloosa County Man Indicted For Financial Fraud

BIRMINGHAM -- A federal grand jury has indicted a Tuscaloosa County man on multiple fraud and false statement charges connected to schemes to defraud financial institutions and the United States Small Business Administration of approximately $3 million, announced U.S. Attorney Joyce White Vance and FBI Special Agent in Charge Richard D. Schwein Jr.

A 51 count indictment filed in U.S. District Court charges DANNY RAY BUTLER, 57, of Fosters, Alabama, with wire fraud and multiple counts of false statements and bank fraud arising from three 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 the Indictment, Butler 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.

The SBA is an agency of the federal government created to aid, counsel, assist, and protect the interests of small businesses. Through partnerships with public and private organizations, SBA helps Americans start, build, and grow small businesses. One of the ways in which SBA helps small businesses is through the SBA 504 Loan Program.

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.

The third fraud scheme alleged in the indictment involves Butler's misrepresentations to the company that provided financing for his inventory at Butler Wholesale. Butler received loans from Next Gear Capital to buy inventory for his car lot. Each loan from Next Gear was secured by a specific car, and Next Gear conducted monthly inspections of the dealership's inventory. According to the indictment, Butler employed various schemes to defraud Next Gear Capital in order to continue receiving loans. His fraudulent representations included representing that cars were part of the dealership's inventory even though the cars had already had been sold, and lying to representatives of Next Gear when they conducted inspections of his inventory. Butler's scheme caused Next Gear Capital a loss of at least $50,000.

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.

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

The public is reminded that an indictment contains only charges and it will be the government's responsibility to prove the defendant's guilt beyond a reasonable doubt at trial.

Source: United States Attorney's Office for the Northern District of Alabama

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