A federal grand jury has indicted Tennessee financier C. H. Butcher Jr. on charges of defrauding investors in a failing company that funneled millions of dollars in loans to Butcher and his friends and relatives.
The indictment of Butcher, who with his brother Jake once controlled more than 20 banks in Tennessee and Kentucky, is the latest fallout from the collapse of the family financial empire that began to crumble in 1983. Jake Butcher, 48, was sentenced last year to 20 years in prison for stealing $20 million from depositors.
The charges against C. H. Butcher, 49, issued late Wednesday in Knoxville, do not involve a bank. Instead, they revolve around an investment firm that sold $90 million in securities and was largely unregulated by state authorities.
"It looked like a bank and smelled like a bank, but was a finance company in essence," said assistant U.S. attorney J. Lawrence Tullock.
The tale of the now-defunct Southern Industrial Banking Corp. (SIBC), of which Butcher was chairman, is reminiscent of the lax state regulation that produced Maryland's savings and loan crisis. The firm was subject only to marginal oversight by Tennessee's insurance department, and investors flocked to buy its securities, lured by interest rates at least two percentage points above those offered by area banks.
"There wasn't any regulation," said Thomas Hamm, Tennessee's assistant commissioner for financial institutions. "The reputation of the Butchers was such that the thing grew from $22 million in securities in 1979 to $90-to-$100 million in 1983."
The 1983 bankruptcy of SIBC prompted legislative reforms that virtually ended such securities sales, forcing at least 15 similar Tennessee companies to leave the business, Hamm said.
Butcher's attorney could not be reached for comment yesterday. If convicted, Butcher and codefendant James E. Steiner, former president of SIBC, face up to 130 years in prison on 26 counts of mail, wire and securities fraud.
The indictment charges Butcher and Steiner with defrauding investors by misrepresenting the company as profitable, when it actually was losing more than $1 million a year in 1979, 1981 and 1982.
Butcher also concealed the fact that he was using money from the sale of securities for "personal purposes," the indictment said. This included commercial loans to Butcher, his friends, relatives and business associates, and to companies he controlled, according to the indictment.
In 1982, for example, SIBC's "related party transactions" -- financial dealings with insiders -- amounted to more than $26 million, the indictment said. On a single day -- Jan. 5, 1983 -- Butcher is charged with obtaining $10.9 million in SIBC's funds, much of it in promissory notes that allegedly were forged in other people's names.