After building a large banking empire, twice running for governor of Tennessee, and working as the chief planner and backer of a world’s fair in Knoxville, Jake Butcher witnessed the collapse of his banking empire in a scandal involving fraudulent loans and other financial crimes that sent him to federal prison. The collapse of his United American Bank in 1983 marked one of the largest bank failures in U.S. history.
On November 1, 1982, the banks of the Butcher brothers, Jake and C. H., Jr., were raided by the Federal Deposit Insurance Corporation (FDIC). To prevent transfers of loans and assets between banks, almost two hundred federal investigators descended on the banks simultaneously. Investigators soon discovered that the twenty-nine banks and branches ran a network of forged documents, illegal and unsecured loans, and other forms of bank fraud. The revelations shocked the banking world and investors.
Jake Butcher was born in Union County, Tennessee, in 1936. His father, Cecil H. Butcher, Sr., owned a general store and was the founding partner in 1929 of the Southern Industrial Banking Corporation, which made loans to farmers. Jake’s father also organized and presided over Union County Bank in Maynardville during the 1950’s. Jake’s career in banking began by sweeping bank floors and counting pennies for his father. After some college (he never graduated) and time in the U.S. Marine Corps, Jake founded an Amoco Oil distributorship. He and his younger brother, C. H. Butcher, Jr., entered the banking industry in 1968 by aggressively borrowing large sums of money to buy stock in a number of banks. Eight Tennessee banks and other business properties were under their control by 1974.
Also in 1974, Jake began his career in politics by running for the Democratic nomination for governor of Tennessee. Although he lost this first nomination bid, he won it in 1978. He was defeated in the general election by Republican Lamar Alexander.
By 1976, the name of Jake Butcher was circulating in the business world. He lent Calhoun, Georgia, banker Bert Lance $443,000 to finance some of Lance’s financial endeavors. Lance soon became the director of the U.S. Office of Management and Budget under newly elected president Jimmy Carter, who had already met Jake. Lance was soon accused of mismanaging his Calhoun bank, was forced to resign his position in the Carter administration, and was tried but acquitted of corruption charges. President Carter had actively campaigned for Jake during his 1978 bid for Tennessee governor.
The year 1978 remained a pivotal one for Jake. The family banking empire by the late 1970’s included fourteen banks in Tennessee and Kentucky, still supported by heavy borrowing, and Jake claimed assets of more than $8 million. From the Carter administration, he received a $12.5 million grant for his next big project, the 1982 World’s Fair in Knoxville. At its peak, the Butcher empire included twenty-seven banks.
The world’s fair, which opened on May 1, brought about eleven million visitors to Knoxville in its six-month run. However, the celebration for Jake and his investors would be hampered later that year. Rumors began to circulate about Jake’s banking practices, including the use of round-robin loans, in which loans are transferred to affiliate banks prior to auditor visits. One such loan was drafted in 1980, when Milton A. Turner signed a guarantee for a $2 million loan from Jake’s United American Bank (UAB), the cornerstone of his banking empire. After the bank collapsed in 1983, the loan defaulted, leading the Federal Deposit Insurance Corporation (FDIC) to sue Turner for collection. Turner was shocked to find that the name of the loan guarantor had been changed—with correction fluid—from United American to City and County Bank of Knoxville, which was controlled by Jake’s brother. In 1989, a federal appeals court ruled that Turner had been defrauded by Jake and UAB, so he was not required to repay the loan.
The collapse of UAB on February 14, 1983, marked the fourth largest bank failure in U.S. history. Other Butcher-controlled banks soon collapsed as well. The collapse of C. H. Butcher’s SIBC, an uninsured thrift bank, caused many people to lose their life savings. C. H. pleaded guilty to bank fraud and other charges, served six years in prison, and was paroled in 1993. Other family members and friends of the brothers went to prison for their part in various illegal transactions.
In August, Jake was declared bankrupt with assets of $11.9 million and liabilities of $32.5 million. During bankruptcy proceedings, Jake used his Fifth Amendment right against self-incrimination so that he would not have to produce potentially damaging real estate documents. The U.S. Court of Appeals, Sixth Circuit, ruled in Jake’s favor, partially, in its decision of January 11, 1985.
Because Jake’s United American Financial Services Company, a separate entity, had filed for reorganization under bankruptcy laws, his asset auction was in full force during bankruptcy proceedings. His assets included a forty-room mansion with thirteen bathrooms in Knoxville, two condominiums in Lexington, Kentucky, a 1983 Lincoln Mark IV sedan, a private jet, a helicopter, and dozens of houseboats. The houseboats had been equipped as floating motels during the world’s fair.
In November, 1984, the Securities and Exchange Commission
The Butchers were related in one way or another with several court cases. Jake was named an unindicted coconspirator in the 1987 case against U.S. representative
Perhaps the most significant court case in which Jake had ties was that involving
The FDIC led the investigation of the Butcher banks and ultimately inherited most of the empire’s debts. The FDIC also received a share of the blame for those enormous debts. In early 1984, the FDIC estimated that its losses in the Butcher bank failures would be about $400 million. By September of that year, that estimate was raised to $1.1 billion.
In November, 1983, the U.S. House Committee on Government Operations had issued a report that criticized the FDIC for not taking stronger action against the Butcher empire prior to 1982. With a 1987 lawsuit, the FDIC passed the blame to the accounting firm of Ernst & Whinney for being lax in its audits of four Butcher banks in 1981.
If the Butcher banking scandal had any positive impact, it was a procedural change within the FDIC. After the Butcher crisis, the federal banking agency strengthened its regulatory capacities, making it more difficult for similar crises to develop among American banks.
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Adams, James Ring. The Big Fix: Inside the S & L Scandal—How an Unholy Alliance of Politics and Money Destroyed America’s Banking System. New York: John Wiley & Sons, 1990. Examines the Butchers’ use of round-robin loans, the practice of transferring loans to an affiliate bank just prior to an auditor’s visit. -
Lea, Sandra. Whirlwind: The Butcher Banking Scandal. Brookline, Mass.: Whirlwind, 2000. Discusses the setting for the Butcher brothers when they moved to Knoxville, Tennessee, and began their rise to power in the banking industry. Includes glimpses of most major figures in the scandal. -
Ruble, Drew. “Vestige of Empire.” Business Tennessee, July, 2006. Summarizes the life and influence of Jake Butcher, including his activities after prison. Analyzes the impact he had on the community of Knoxville, Tennessee. -
“Tapped Out.” Time, February 28, 1983. One of the first national stories about the collapse of the Butcher banking empire. Published one week after the failure of UAB. -
Walker, John A., Jr. “Whirlwind: The Butcher Banking Scandal.” Tennessee Bar Journal 37, no. 5 (May, 2001). A critical review of the 2000 book by Sandra Lea. Recognizes some value in the book but details the work’s weaknesses in research and style. -
Wheeler, William Bruce. Knoxville, Tennessee: A Mountain City in the New South. 2d ed. Knoxville: University of Tennessee Press, 2005. Extensive coverage of the Butcher family. Discusses the economic impact of the Knoxville world’s fair championed by Butcher as well as the collapse of the Butcher banking empire.
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