Jim Kenyon: Friendship On Loan
Former car dealer Andrew Button’s $10 million personal bankruptcy, which I wrote about in Sunday’s paper, is a cautionary tale on many fronts. Here are some that come to mind:
Follow the Money. In less than three years, Button went from zero to five dealerships. Money was obviously a driving force, but I suspect that ego also played a part. Button and his father, Henry, had operated a successful private plane charter service in Burlington that they sold in 2002. Andrew Button, who was still in his early 30s back then, apparently believed he could duplicate his success in the car business.
But Button couldn’t have gone full throttle in buying up car dealerships in the Upper Valley and Keene during the early 2000s without help. Mascoma Savings Bank saw fit to make four loans, totaling $2.9 million, to his company, Button Automotive Group. The bank, which at one time was out more than $3 million to Button, recovered some of its money in two foreclosure sales.
Still, the bank ended up suffering one of its biggest losses ever. According to U.S. Bankruptcy Court records, Mascoma lost $2.1 million.
“Anytime you loan money, it comes down to the borrower’s ability to repay you,” said Barry McCabe, Mascoma’s chief operating officer. “Not every loan gets paid back. Losses are part of the lending process.”
Do Your Homework. Along with bank loans, Button depended heavily on individual investors. He persuaded people to write him six-figure checks without having to fully disclose his dealerships’ financial positions.
“The moral of this story is due diligence,” said Michelle Kainen, a White River Junction bankruptcy attorney who wasn’t involved in Button’s case. “Did anyone have an accountant look at the (dealerships’) books?”
Loaning to Friends Is Risky Business. Shelley Gilbert, a Hanover Realtor, became a friend of Button’s while selling him several properties. In 2004, she loaned him $650,000. After Button filed for personal bankruptcy under Chapter 7, Gilbert ended up losing $600,000 of her $650,000 investment.
“Personal loans are never a good idea from a financial perspective,” said Jay Hutchins, a Lebanon financial adviser. “They almost always end up destroying personal relationships.”
Hutchins tells clients that if they make a large personal loan, “Don’t plan on getting it back. You’re better off just considering the money a gift.”
Good Times Don’t Last Forever. The 2008 Wall Street meltdown was still not on the radar screen (most people’s anyway) when Button started shopping for investors. In the early 2000s, banks and individuals were feeling flush.
“The stock market was humming along,” said Hutchins, “and greed took over.”
With Button agreeing to pay double-digit interest, it appears that for a while, at least, that he was able to find investors.
In 2003, Paul Choiniere, a South Burlington, Vt., car and boat dealer loaned $1 million to Button, who agreed to pay an annual interest rate of 10 percent for 10 years.
“We all want to make double digit returns, but it’s not realistic,” said Hutchins.
In Button’s bankruptcy case proceedings, Choiniere filed a claim for $928,320. When the case was finalized last year, Choiniere got back $597. Choiniere couldn’t be reached for comment Tuesday.
It’s OK to Talk About It. After Button filed for bankruptcy in October 2006, many people who had done business with him were reluctant to go public.
“We are all embarrassed by this,” said Howard Myers, a Lebanon lawyer who represented Button’s car dealerships and made a $150,000 personal loan that wasn’t repaid.
In Sunday’s story, Myers said banks and a lot of people, including himself, who should have known better fell for Button’s charm. (Button declined, through his attorney, to talk with me Tuesday.)
Gilbert, one of the Upper Valley’s leading real estate agents, agreed to talk with me for Sunday’s story, after reading in this paper back in May that Button was now president and general manager of Yankee Barn Homes in Grantham. (Button, 43, doesn’t have an ownership interest in the post-and-beam company, said his attorney.)
Why, in 2004, did Gilbert loan such a large sum to Button?
“I thought he was my friend, and my friend needed help and I knew I could do it, so why not?” she said. “He fooled me. For years, I asked myself, ‘How could I be such an idiot?’ ”
After we talked a few times, Gilbert sent me an email.
“I know there will be a great deal of public embarrassment on my part after the public airing of my unbelievable error in judgment and I do fear the potential repercussions of such,” she wrote. “However, it is my belief that the benefits of my actions outweigh the potential negative result.”
When she read about Button’s re-emergence at Yankee Barn, Gilbert decided it was time to speak up: “I am dumbfounded that he is now running another company.”
Jim Kenyon can be reached at Jim.Kenyon@valley.net.