Jacob Franklin Butcher was born in Maynardville, Tennessee, in 1936. He worked in his father’s store, which operated as an informal local bank, before graduating from the University of Tennessee and serving in the US Marines. In 1968 Jacob and his brother, C.H. Butcher Jnr, bought a small bank in Lake City. Over the next 15 years they would build a banking empire. By 1982 the brothers controlled a consumer finance company, as well as 27 banks, though a combination of equity stakes and management contracts, with total reported assets of $3bn ($7.95bn in today’s money).
What was the scam?
To finance the buying spree, they would loan money from one of the banks to another, which was then used to purchase shares in a third institution, leaving the banks with high levels of debt. They also began to embezzle money to support their lifestyle, holding lavish parties with Jimmy Carter and Imelda Marcos and making a large number of reckless loans, including one to pay for a 60-foot yacht for Jacob. To hide the fact that their banks were insolvent, the brothers started to use fake loans to shuffle money between them, taking advantage of the fact they were audited on different dates.
What happened next?
By 1982 federal agents and state regulators working on individual cases started to realise that large amounts of money were being transferred around the various parts of the brothers’ empire. As a result, they raided all institutions simultaneously in November 1982. This revealed the true extent of the fraud, leading to the collapse of 11 of the banks, including the United American Bank, which was the main part of the group, as well as the Southern Industrial Banking Corp, run by C.H. Butcher Jnr. Both brothers were convicted of fraud and spent time in jail.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Lessons for investors
Federal insurance ensured bank depositors got their money back, with US taxpayers picking up the estimated $382.6m in losses. The 7,000 depositors in the uninsured Southern Industrial Banking Corp would have to wait up to a decade to get only two-thirds of their money back. Jacob Butcher told a reporter in 1976 that borrowing large amounts was like “going barefooted in the spring” – “for the first few days, the gravel really hurts. But then your feet toughen up and you don’t notice it”. Investors would be wiser to remain aware of what they’re treading in.
-
Inheritance tax receipts jump 11% even before Autumn Budget overhaulOfficial figures show inheritance tax receipts are rising even before the chancellor’s changes to reliefs
-
Will bond vigilantes come for Donald Trump?Bond vigilantes could make a comeback if Donald Trump follows through on some of his promised policies
-
UK wages grow at a record paceThe latest UK wages data will add pressure on the BoE to push interest rates even higher.
-
Trapped in a time of zombie governmentIt’s not just companies that are eking out an existence, says Max King. The state is in the twilight zone too.
-
America is in deep denial over debtThe downgrade in America’s credit rating was much criticised by the US government, says Alex Rankine. But was it a long time coming?
-
UK economy avoids stagnation with surprise growthGross domestic product increased by 0.2% in the second quarter and by 0.5% in June
-
Bank of England raises interest rates to 5.25%The Bank has hiked rates from 5% to 5.25%, marking the 14th increase in a row. We explain what it means for savers and homeowners - and whether more rate rises are on the horizon
-
UK wage growth hits a record highStubborn inflation fuels wage growth, hitting a 20-year record high. But unemployment jumps
-
UK inflation remains at 8.7% ‒ what it means for your moneyInflation was unmoved at 8.7% in the 12 months to May. What does this ‘sticky’ rate of inflation mean for your money?
-
VICE bankruptcy: how did it happen?Was the VICE bankruptcy inevitable? We look into how the once multibillion-dollar came crashing down.
