TUSCALOOSA Ala. – Alabama One Credit Union has filed a lawsuit against a number of high-ranking public officials in the state, including a state senator and a senior aide to the governor, as well as officials with the state regulator, the CEO at another credit union, local attorneys, and others.
The suit alleges “conspiracy and abuse of power emanating from Gov. Robert Bentley’s office to coerce tens of millions of dollars in legal settlements from the credit union after it received clean bills of health from state and federal regulators.”
The credit union is alleging that after it made loans to a local businessman who has since been convicted of fraud, a number of influential individuals who lost money as part of that fraud have sought to use the regulator to pressure Alabama One into paying out those settlements. It called the lawsuits filed by those individuals “nothing more than an old-fashioned stick-up.”
“(The lawsuit) has been filed after serious consideration and much thought,” said Alabama One CEO John Dee Carruth during a press conference. “There are some serious allegations in this complaint and it involves some very powerful people. We feel there has been some wrongdoing that has been perpetuated against Alabama One. For the past 18 months we have been dealing with regulatory scrutiny that is unparalleled in the industry. Earlier this month we learned additional information that shocked us and surprised us about the actions taken against the credit union last year. We felt we had no choice but to seek redress for the actions that have been taken against the credit union and to somehow be compensated for what has been done.”
The $613-million Alabama One has been embroiled in litigation and headlines for more than two years after it became part of a fraud perpetrated by local businessman Danny Ray Butler, who is currently in federal prison following conviction on charges related to fraudulent loans and check kiting. Documents filed as part of Butler’s bankruptcy filing in 2012 indicated that at that time he owed Alabama One $25 million, although that figure has reportedly since been reduced.
Officials Suspended, Then Reinstated
In February of 2014 the Alabama CU Administration temporarily suspended four members of the senior management team of Alabama One, before they filed a civil lawsuit seeking a reason for the suspensions and were eventually reinstated. In its new lawsuit the credit union said the former administrator of the ACUA has testified it was not his decision to suspend the management team and that and he did not prepare the suspension letters, even though they bore his signature. The lawsuit alleges that those letters copied the wording of another letter sent by a Tuscaloosa attorney to a state senator.
In April of this year the Alabama Credit Union Administration, with a new administrator on board that Alabama One alleges was appointed due to relationships with some of the people named in the suit, issued a cease-and-desist letter to Alabama One that again ordered it to replace its CEO, chief lending officer and COO, and further required the board to undergo training related to conflicts of interest.
But the credit union challenged the Alabama Credit Union Administrator’s authority to make the demands included in the cease-and-desist, and earlier this year alleged that what’s really at work is a conspiracy among a number of parties, including a group of attorneys. Additional detail on what was included in the cease and desist letter can be found here.
Carruth remains CEO as a result of a lawsuit the credit union filed against the regulator.
'Gross Abuse' is Alleged
In its new lawsuit, Alabama One is alleging that the public officials “grossly abused” their power and state positions solely to “enrich a political and personal friend – Tuscaloosa plaintiff’s attorney Justice D. ‘Jay’ Smyth, III,” whom the credit union is alleging orchestrated a scheme to pressure and coerce Alabama One into settling five frivolous lawsuits that he and cohorts had filed against the credit union.
“The fact that Smyth had secret meetings at the state Capitol with the governor, his chief legal advisor who is also a former law partner and longtime friend of Smyth, and a state senator to discuss Alabama One and Smyth’s clients’ lawsuits against the credit union should cause every Alabama resident substantial concern,” Alabama One said in a released statement. “And it speaks volumes about what Alabama One has gone through.”
The suit was filed in Federal Court in Tuscaloosa on behalf of Alabama One and its CEO, John Dee Carruth, following threats that the ACUA, which was allegedly being used as “weapon of destruction,” according to the lawsuit, would place Alabama One in conservatorship.
Among those named as defendants:
- David Byrne, chief legal advisor to Governor Bentley and a former law partner to Smyth.
- State Sen. Gerald H. Allen
- Sarah Moore, administrator of the Alabama Credit Union Administration
- Smyth
- Lewis Smyth Winter Ford, LLC, in Tuscaloosa
- Albert G. Lewis, III, Smyth’s law partner
- Bobby Cockrell, a Tuscaloosa plaintiff’s attorney
- Doug Key, who was brought in as CEO by the ACUA after Carruth and other members in senior management were temporarily suspended in 2014. Key is CEO of Mutual Savings Credit Union in Hoover, Ala.
- Larry D. Morgan, the former Administrator of the ACUA, who in 2014 issued the temporary suspension order for Alabama One’s senior management
'Sanctions Threatened'
“The investigations and threatened sanctions that the ACUA has brought against Alabama One have nothing to do with the public interest or any legitimate government function. They are, rather, the result of a regulatory system captive to and manipulated by the personal interests of a politically connected lawyer, Smyth, his partners and co-counsel, Gov. Bentley, Byrne, and Senator Allen,” the suit claims.
In a statement, Alabama One said. “Since November 2013, Smyth allegedly exerted influence to use improper and unwarranted state regulatory pressure as a lever to coerce settlements from Alabama One. The allegations are supported by sworn testimony, more than 100 e-mails, and numerous in-person meetings with Gov. Bentley, Sen. Allen, and Byrne, replete with allegedly defamatory falsehoods leveled against the credit union.
“The allegedly frivolous lawsuits filed by Smyth and his allies sought somehow to blame Alabama One for the individual plaintiffs doing business with a convicted felon whose business loans from the credit union inadvertently exceeded the regulatory cap on the percentage of loans to a single member,” the statement goes on to read. “Smyth and his cohorts took little action to prosecute these lawsuits, allegedly knowing that they would not be able to prevail on the merits. Consequently, they hatched a plan to improperly increase bogus regulatory pressure on Alabama One to coerce high-dollar settlements. This was despite the fact that Alabama One had received three letters of commendation from state and federal regulators congratulating Alabama One for complying with and satisfying many regulatory concerns, according to the complaint.”
Alabama One said in a released statement that during a June 2, 2015 deposition, Morgan testified that he had no “proper or legitimate basis to suspend Carruth or other Alabama One employees on Feb. 28, 2014. Morgan further testified that, unlike any other official action he had ever taken as ACUA Administrator, it was not his decision to suspend Carruth and others, and he did not prepare the suspension letters even though they bore his signature. Those letters, the suit claims, copied the wording of a memo that Smyth wrote three weeks earlier to Senator Allen.”'
'Ratcheting up the Pressure'
Morgan resigned as ACUA Administrator in March 2014, just one day after Carruth and other Alabama One employees were reinstated to their posts, and he was succeeded the following month by Moore, a former banking industry executive where Alabama One alleges she had “worked closely” with Byrne.
“Moore immediately began ratcheting up the pressure on Alabama One, including issuing a cease-and-desist order in April and threatening conservatorship,” according to allegations in the newly filed lawsuit.
Alabama One said in a statement that “despite the allegation that Byrne and Governor Bentley participated in hours of secret meetings to discuss improper regulatory pressure on Alabama One, the credit union’s plea in April of this year for a meeting with the governor fell on deaf ears. After Alabama One’s board chair requested a meeting with the governor, Byrne responded that Governor Bentley was too busy to meet because of the state’s budget crisis. At the same time, the lawsuit states, ACUA spent $775,000 outside of its budget to implement the scheme to coerce money from Alabama One.”
When asked by CUToday.info about shield laws in Alabama protecting public officials from such lawsuits, Devin Sloan, an attorney for Alabama One, told CUToday.info that the officials are being sued in their private capacity.
“We think the conduct alleged in the complaint exceeded the government authority of these officials, so they would not be immunized,” he said.
A copy of the lawsuit is available in CUToday.info's The Vault here.