"Bankers who hire money hungry geniuses should not always express surprise and amazement when some of them turn around with brilliant, creative, and illegal means of making money.“

Linda Davies

The Butcher Brothers and the United American Bank

Group Members

• Abdul Rehman• Arif Bashir• Chaudary Waqar• Jasim Hussain Azam• Hassaan Wasim• Waqas Saleem

OVERVIEW

• Introduction• Link to khilafah reading

JACOB FRANKLIN "JAKE" BUTCHER

• Born in Dotson's Creek in Union County in 1936• Son of Cecil H. Butcher Sr.

– a general store owner and organizer and president of the Union County Bank of Maynardville.

• Attended the University of Tennessee and Hiwassee College and served in the U.S. Marine Corps.

• Founder of Bull Run Oil Company, an Amoco distributorship, and engaged in commercial farming.

• On New Year's Eve 1961 he met up-and-coming movie star Sonya Wilde on a blind date, and the couple married in 1962.

Bro intro

• Cecil H. Butcher Jr

Involvement in banking industry

• Work in his father's bank named ………..• In 1968 he and his younger brother Cecil H.

Butcher Jr. began acquiring banks, borrowing large amounts of capital to finance their purchases of bank stock

• By 1974 the brothers controlled eight banks in Tennessee along with other business properties

• used borrowed capital to purchase stock in Hamilton National Bank, Knoxville's largest banking institution, with 39 percent of the city's total banking reserves.– changed the bank's name to United American Bank.

• By 1982 the United American Bank accounted for over half of the business loans in Knoxville.

• In that year Jake Butcher declared a net worth of approximately $34 million.

‘Politics’ in Politics

• After failing to win the Democratic Party's gubernatorial nomination in 1974, he won the nomination in 1978, only to lose in the general election to Republican Lamar Alexander.

• Butcher supported Knoxville Mayor Randy Tyree, who defeated State Senator Anna Belle Clement O'Brien for the Democratic nomination.

• Interestingly, the Knoxville Journal reported that Jake's brother C.H. supported Tyree's Republican opponent, sitting Governor Lamar Alexander. Governor Alexander won re-election handily.

The Alleged Fraudulent Scheme• According to the government, Schledwitz was a "player" or a "nominee"

for the Butcher brothers in a scheme based on numerous fraudulent bank loans. Schledwitz allegedly agreed to receive loans from the Butcher-controlled banks with no intention of ever repaying them. Instead, these loan proceeds were allegedly used for a variety of improper purposes to benefit the Butcher brothers personally, such as for manipulation of the Butchers' bank stock and satisfaction of the Butchers' personal debts. Additionally, the government contended that the loan proceeds were used to promote an alliance between the Butcher brothers and then-Congressman Harold E. Ford, who was Tennessee's most powerful African-American politician at the time. In return for Schledwitz's role in the scheme, the Butchers provided Schledwitz with business for his law practice and allowed him to keep some of the loan proceeds for his own use.

The Alleged Fraudulent Scheme—

• In total, the Butcher-controlled banks loaned more than $1.5 million in Schledwitz's name. Many of these loans were unsecured, and were made to Schledwitz at a time that he did not have the personal income to justify such loans. For example, in 1980, due to his loans from the Butcher banks, Schledwitz was billed $89,709.69 in interest, while he reported only $28,385 in total income. J.A. at 200. In 1981, the total interest due on his loans was $122,647.91, whereas his total income was only $31,994. Id. at 200. In 1982, his interest obligations were $172,957,57, but his total income was $52,163. Id. at 203. In fact, the 1982 interest obligation alone exceeded Schledwitz's total income for the combined years of 1978 to 1982.

The Investigation and the Ford Trials

• An investigation by federal regulators following the collapse of the Butcher banks revealed that Schledwitz owed $1.5 million to the Federal Deposit Insurance Corporation ("FDIC"); and $485,000 to the Southern Industrial Banking Corporation ("SBIC"), an uninsured state-regulated thrift. Schledwitz eventually settled those obligations for $90,000 and $30,000, respectively.

Both brothers behind bars

• In 1983, the Butchers' banking empire collapsed. Charges were brought against each of the Butcher brothers. For his part in the scheme, Jake Butcher pled guilty to bank fraud in 1984 and was sentenced to 20 years in prison. He served six years and eight months at a federal prison, and was paroled in 1992. After being acquitted of related charges.

• C.H. Butcher pled guilty to five counts of bankruptcy fraud in April 1987. He agreed to cooperate with federal authorities in their cases related to the collapse of the Butcher banking empire, and eventually served seven years in prison.

The Greeneville Trial and Direct Appeal

• January 21, 1992. Schledwitz was then charged with eight counts of mail fraud, in violation of 18 U.S.C. 1341 and 1342, for bilking the Butcher banks and defrauding the FDIC and SBIC in their attempts to recoup the lost loans

Out of eight, three counts were

1. that Schledwitz allegedly used the loans to assist Jake Butcher's manipulation of UAB stock in banks controlled by the Butchers

2. that Schledwitz allegedly borrowed $40,000 from the City and County Bank of Roane County (which was controlled by the Butchers) to repay C.H. Butcher's Las Vegas gambling debts

3. that Schledwitz borrowed $115,000 from the City and County Bank of Anderson County (which was also controlled by the Butchers) to promote the Butchers' political interests in West Tennessee.

Bank Failures and Assistance to Open Banks

• There were 45 bank failures and 3 assisted mergers of mutual savings banks, a post-Depression record. That number included several large institutions, which resulted in a substantial increase in the volume of failed bank assets held by the FDIC, as receiver.

• In order to handle those assets more efficiently, the FDIC decentralized its liquidation operations. It opened and staffed five new area liquidation offices, with each office responsible for ten states. The offices were located in Atlanta, Chicago, Dallas, and San Francisco, (the New York office opened in November 1982.)

1982 - 1983: FDIC at a Glance ($ in Millions) 12/31/82 12/31/83 Percent Change

Number of Bank Failures * 34 45 32.35%

Assistance to Open Banks 8 3 -62.50%

Total Failed and Assisted Banks 42 48 14.29%Total Assets of Failed and Assisted Banks $11,722.6 $7,191.7 -38.65%

Losses on Failed and Assisted Banks $1,168.6 $1,407.0 20.43%

Losses as a Percent of Total Assets 9.97% 19.56% 96.29%

Assets in Liquidation $2,155.1 * $4,259.6 97.65%FDIC Staffing 3,504 3,846 9.76%Number of Problem Banks 369 642 73.98%

Deposit Insurance Fund Balance $13,770.9 $15,429.1 12.04%

Deposit Insurance Fund Balance as a Percent of Insured Deposits 1.21% 1.22% 0.83%

Source: FDIC, 1983 Annual Report and Reports from FDIC Division of Finance and Division of Research and Statistics.

• Two lawyers and an accountant were also charged in the indictment– Karl A. Schledwitz, a Memphis lawyer, is described in the

indictment as a close associate of the Butchers who helped them make payments to Mr. Ford.

– Douglas R. Beaty, a lawyer, is charged with creating a company, Tenn-Ford Inc., to receive and distribute concealed funds to Mr. Ford. The indictment said the funds came from a financial institution, the Southern Industrial Banking Corporation, controlled by C. H. Butcher Jr. and a close associate, David Crabtree, a certified public accountant.

http://www.nytimes.com/1987/04/25/business/tennessee-congressman-is-indicted.html

World’s Fair

• Name given to various large public exhibitions held since the mid-19th century. They are the third largest event in the world in terms of economic and cultural impact

• Jake Butcher served as the driving force behind bringing the fair to Tennessee. Many Knoxvillians called it "Jake's Fair.“

• 1982 Fair was widely considered a success as it brought in more than 11 million people over its six-month run.

• The World's Fair site is still in use today as a municipal park in downtown Knoxville.

Debacle of UAB

• U.A.B. was on the "problem list" of the Federal Deposit Insurance Corporation throughout 1982.– AS butcher brothers had issued numerous fraudulent bank loans

• In November more than 200 federal bank examiners swept into all five of Butcher's banks, as well as 24 smaller banks controlled by his brother C.H.

• According to FDIC regional counsel in Atlanta– We wanted to see how much bad paper was really there. The

situation at U.A.B. was very grave indeed.– The FDIC concluded that $90 million in loans should be written

off.

• U.A.B. announced a loss of $2.3 million in January 1982• U.A.B. 's board refused the FDIC demands of reporting

high losses.• Through an external audit the bank was found in solvent.• On its last day of business, between $17 million and $25

million in deposits were withdrawn in a run on the U.A.B.• The other 28 banks controlled by the brothers were

judged to be solvent. Nevertheless, worried customers have with drawn several million dollars from C.H.'s Southern Industrial Banking Corp

Acquisitions of UAB

Linking to khilafah reading

• Thanks to the acquisition, U.A.B.'s 135,000 depositors will not lose a penny. First Tennessee will also absorb up to $86.5 million in uncollectible U.A.B. loans. Any more than that will be covered by the FDIC, which believes the total may reach $160 million. The biggest loser is Jake Butcher; he owned $15 million in U.A.B. stock that is now worthless. The flamboyant entrepreneur, who five years ago was Tennessee's Democratic candidate for Governor, and who was the driving force behind last year's Knoxville World's Fair, has clearly lost more than a bank.

Wiki conclusion• Also in 1982, there were rumors about Butcher's banking practices.

Knoxville federal and state bank investigators had long suspected that Butcher was engaged in unlawful banking practices. On 1 November 1982, 180 federal bank regulators from the Federal Deposit Insurance Corporation simultaneously raided all of the Butcher brothers' 29 bank branches and offices, thereby preventing transfers of funds to cover their tracks.[2] Bank records ultimately led investigators on a paper trail of illegal loans, forged documents and various other forms of fraud. The United American Bank collapsed on 14 February 1983. It was the fourth-largest bank failure in US history up to that time.[2][3] Several other Butcher-controlled banks, such as the Southern Industrial Banking Corporation, also became insolvent. Later that year, it was learned that Butcher was also insolvent; his assets were listed at $11.9 million and his liabilities at $32.5 million. [1]

Enclyclo conclusion• Federal bank examiners had long suspected that the Butcher brothers' three-

billion-dollar empire was largely a paper empire operating under improper management. On November 1, 1982, 180 FDIC investigators descended on all the Butcher banks simultaneously, thus preventing the transfer of assets from one bank to shore up another. Ultimately they found that bank acquisitions had been made through loans from Butcher-owned banks and uncovered a pyramid of unsecured loans, forged loan documents, and bank fraud. On February 14, 1983, United American Bank, the capstone of Jake Butcher's financial empire, failed; in August 1983, he was involuntarily declared bankrupt with listed assets of $11.9 million and liabilities of $32.5 million. In May 1985 he pled guilty to federal charges of bank fraud and was sentenced to twenty years in prison. He was released on parole in 1992, after having served almost seven years of his sentence. Butcher accepted employment at a Toyota automobile distributorship and lives in quiet obscurity--his fortune of cash, real estate, automobiles, houseboats, and property having been swept away in a series of public auctions.

FDIC report• The failure of the United American Bank (UAB), Knoxville, Tennessee on February 15, initially made headlines

because its owner, Jake Butcher, was the principal organizer and promoter of the 1982 World’s Fair and twice was a candidate for governor of the State of Tennessee. The deposit liabilities and assets of UAB were transferred to First Tennessee Bank of Knoxville, a subsidiary of First Tennessee Corporation, Tennessee’s largest bank holding company. The transaction was noteworthy because it marked the first use of the extraordinary acquisition provisions of the Garn-St Germain Depository Institutions Act of 1982. Before the year was out, seven more Tennessee banks controlled by Jake Butcher or his brother, C.H. Butcher, Jr., failed. There were almost daily reports of an excessive volume of classified loans, loans to insiders, loans far from the bank’s trade area, and evidence of inaccurate or deliberately misleading accounting.

The Butcher organization, including approximately 40 loosely affiliated banks and savings and loan associations, operated in two FDIC regions and three Federal Reserve Districts. A total of seven different regulatory agencies were responsible for supervising the institutions, making the detection of problems within the combined organization extremely difficult.

The insolvency of United American Bank and, subsequently, of other Butcher-related institutions, was discovered only because the FDIC undertook a simultaneous examination of the major Butcher-affiliated banks, committing to the task nearly 10 percent of its field workforce for almost three months. At the end of 1983, the FDIC estimated that its losses in connection with the eight failed Butcher banks would amount to approximately $382.6 million.