The founder of a large-scale, investor-funded veterans project unveiled in Altoona in January with much fanfare was the defendant several years ago in a civil securities case in Virginia, the Mirror has learned.
Dennis M. Butts, chairman of the U.S. Veterans Educational Institute, settled the case in 2010 by admitting to a securities violation and agreeing never to engage in registered securities business in Virginia, ending a prosecution that began in 2006, based on online documents.
Butts said that he never did anything wrong and that the effort of the Virginia State Corporation Commission was a 10-year harassment, culminating in his agreeing not to do something again that he'd never done in the first place or ever planned to do.
Mirror photo illustration by Gary M. Baranec
Dennis M. Butts, chairman of the U.S. Veterans Educational Institute, was accused of improper selling in Virginia.
Butts also said that whoever brought the Mirror's attention to the Virginia case is conducting a vendetta.
As CEO, chairman and president of DMB Sports and its daughter companies, Butts sold securities in violation of a provision of the Virginia Securities Act that prohibits unregistered agents from selling them and "made material misrepresentations to investors about the extent of the operation of the business of each corporation under the DMB Sports umbrella," according to commission documents.
The allegations of improper selling were bogus, because the law allows owners to sell their own securities, Butts said.
Sales by the "issuer" - provided buyers don't number more than 35 per year and provided the securities aren't offered publicly by advertisements or solicitation - are exempt from the registration requirement, according to the law.
The case documents contains 37 investor listings, although there is overlap with several addresses.
"We never exceeded 35," Butts said.
The allegation of misrepresentation was also bogus, according to Butts, as stated in case documents.
In 2009, Butts settled, neither admitting nor denying the allegations, agreeing to offer to reimburse investors and repay the commission $9,000 for investigative costs.
But in December 2010, after the commission learned Butts hadn't reimbursed the investors or paid the investigative bill - and that neither he nor the companies at issue had the funds to do so - Butts reached a second settlement.
In this second settlement, Butts admitted to violating a securities act provision that requires sellers of securities to register with the commission and agreed to be "permanently enjoined" from selling securities in Virginia or registering as a "broker-dealer, agent, agent of the issuer, investment adviser or investment adviser representative under the Virginia Securities Act."
Investor defends Butts
Upon being questioned at first about the Virginia case, Butts grew angry and threatened to sue the Mirror if there was anything incorrect in a presumed story about the case.
Later, he agreed to tell his side of it at the USVEI offices on Logan Boulevard.
As Butts and longtime associates and investors John Weidlich and Mike Howard said in the interview, the Virginia commission accused a succession of DMB subsidiary corporations of not following through on projects it funded with investor money.
The three men rebutted the accusations one-by-one.
The ultimate penalty was essentially nothing, because the commission had nothing on him, Butts claimed. He and his attorneys laughed when that penalty came down.
But Butts said he paid almost $200,000 in attorney fees.
"This stuff just infuriates me," Butts said.
Weidlich showed the results of some of the DMB efforts, bringing in copies of calendars the organization had produced years ago.
A glossy picture of a University of Tennessee football player was on one.
Another project involved trading cards and another, sneakers, Butts said.
The biggest project - and the biggest disappointment - was DMB's projected role in Sportivo, a proposed $1.2 billion development of a series of sports complexes, they said.
Sportivo fell apart when its second-in-command agreed to a vastly expanded role for the primary lender in its financing deal, which involved eight other banks, Butts said.
The deal had taken two years to craft, and the other banks didn't agree to accept lesser roles, as he knew they wouldn't, Butts said.
The deal fell apart just before DMB was to receive $1 million to cover expenses.
"[Sportivo] was one of the things they [the commission] said we never did," Butts said. "We would kill one [accusation], they would come back [with] another."
The commission declined to speak with the Mirror about the DMB cases.
In recent days, there has been scuttlebutt around town that Butts is "a scam artist from Virginia," Weidlich said.
That scuttlebutt is "bull--," Weidlich said.
Butts is not perfect, does "a lot of creative business" and is unconventional, Weidlich said. "But he's not a crook."
If he had been a crook, he'd be living a much more lavish lifestyle, Weidlich said.
"My car is from '99," Butts said. "You don't see me driving around in a god- limo."
Weidlich said he himself lives in "a little two-bedroom apartment" and drives a 1997 Blazer.
"My deals are sometimes complicated," Butts said.
"I'm an intuitive visionary," he explained. "As long as I can see it, we can do it."
He doesn't necessarily know how to get there at first, he said. "I have people handle the details."
USVEI is one of those complicated arrangements.
It includes a deal with Clarion University to teach veterans who would be living in Altoona and taking college courses, mostly by interactive TV, mostly beamed from Clarion, where professors would be teaching regular students in person.
The veterans would live a disciplined military lifestyle to help ensure they focus on their school work.
Butts has also proposed a technology lab that would develop mostly communications-oriented innovations under contract with organizations, including government agencies.
The lab was to earn money to help pay for the educations of the vets, who would pay nothing.
Butts has also proposed a data storage unit to mirror sensitive data stored in Washington, D.C., as a backup in case of a crisis that would force workers there to move to a safe area.
He proposed a contingent of former special forces personnel who would be available to protect corporate executives living and traveling in dangerous areas of the world.
He proposed a search-and-rescue group to help find lost people nationwide.
And he proposed a program to help female veterans learn to become construction workers and do construction jobs.
Weidlich liquidated his $70,000 401(k) and his $17,000 house to invest in DMB projects.
"I burned through both," he said.
He's not sorry.
"I'm in this for life now," Weidlich said. "I know someday he [Butts] is going to do something great."
Weidlich said he wants to "live the dream and be part of something big."
"If something bad was going on, we would not still be standing behind Dennis," said Mike Howard, also an investor and longtime associate.
Butts said he started USVEI to help veterans and doesn't need the project financially.
"I can live on my Social Security and VA check all day long," he said. "Shut the hell up and meet me in the parking lot," he said, addressing those who would accuse him of wrongdoing.
Jimmy Batrus of the Altoona area invested $25,000 in DMB Sports projects and lost the money.
That's a "heckuva chunk of change," he said.
But the loss hasn't undermined his support.
"I admire him and respect him," said Batrus, whom Weidlich suggested the Mirror call. "He's still hanging in there."
Butts has always been upfront with him, Batrus said.
He was initially impressed that Butts was "a heck of a go-getter."
Subsequently "some things just didn't develop the way they had hoped," Batrus said.
Now, Batrus is "kind of reborn in the belief they can kind of get more things going," he said.
Scott Evans of Utah lost all $21,000 he invested over a period of years with DMB.
"There were some misrepresentations with respect to what he was doing with his business," Evans said.
Evans "didn't feel good" about the settlement agreement, because it didn't seem to require DMB to take responsibility for what happened, he said.
During the time he was investing, he'd hear from DMB about "grandiose things they were working on," at least one of which involved the NFL, he said.
"They'd call me for more money, because they needed it to close this deal or that," he said. "They'd say it as if it were a fait accompli."
He took notes on what they told him and later reviewed those notes, he said.
"In hindsight, they were to me in my opinion at best puffing [up] what was happening and at worst not saying the truth at all," he said.
He's under the impression that despite their indication, there were various sources of money, there was "not any significant stream of cash," he said.
Norman Musser of Altoona invested $5,000.
"Lawyers or something sent me paperwork," Musser said. "Something about I was supposed to get money back."
He invested after acquaintances of Butts mentioned the opportunity, Musser said.
"So I went for it," he said.
It was to have been his wife's retirement.
"It's something I
shouldn't have done, I guess," he said. "They went down. So I just eat the money."
George Lulos of Johnstown didn't get back money he invested in various projects of DMB Sports.
But those losses - he declined to say how much - haven't diminished his support.
"[Butts] is a very smart person who has the best of intentions," Lulos said. "I have no beef with Dennis, no complaints, no second guesses. I wish him the best."
He was not defrauded, Lulos said. Startups like Butts proposed aren't like blue chip stocks but are risky.
"Sometimes they make it, sometimes they don't," he said. "They seemed worthy causes at the time."
An investor from Fairfax, Va., who didn't want to be named lost about $7,000.
"It sounded like a good deal," the investor said.
Butts is a "very personable fellow" who talked big and had big dreams, the investor said.
"[But] he doesn't have anything to back it up," the investor said. "He ought to start out working at a job, instead of using other people's money."
The investor didn't feel defrauded, but wouldn't advise anyone to put money in any of Butts' proposals.
Fred Runco of Virginia doesn't believe Butts is dishonest. But he doesn't think he's a good businessman.
Runco's family invested $10,000 in a project that was "actually doing pretty well" for a while, he said.
Butts had proposed a subscription service by which fans of Division II college sports that weren't on TV could get a specific team's games streamed to smartphones or computers.
At the time, it was a good idea, one that may have spawned successful imitations, he said.
The investors were friends and family, and they were getting an "undiluted" 1 percent - which means that no matter how large the whole enterprise became, their 1 percent would hold.
"It was a good deal," Runco said.
Butts had "some very big hitters" who worked at Lockheed Martin backing him, according to Runco, who got to know Butts when Runco coached AAU basketball at a sports complex Butts owned in northern Virginia.
But Butts quarreled with some of those powerful people, which undid the project, Runco said.
"He had a huge ego," Runco said. "I think he was trying to do everything on his own."
If he had settled for 20 or 25 percent of the project, instead of 51 percent, he would have been a "multi-multi-millionaire now," Runco said.
Still, "I don't honestly believe he did anything to deceive," Runco said. "I never got the impression it was anything other than on the up-and-up."
"If he is put up there as someone who scammed and stole, put my name right there next to his," Weidlich said. "We'll stand shoulder-to-shoulder and fight the whole f--- world if we have to."
Mirror Staff Writer William Kibler is at 949-7038.