St. Paul banker charged with goosing profits on Duck Donuts franchises, swindling buyer

A St. Paul bank executive is accused of swindling a man who bought two Duck Donuts franchises for nearly $1 million and wound up at least $300,000 in the hole.

Justin A. Butler, 41, of Woodbury was charged Friday with felony theft by swindle in Washington County District Court. Butler, the chief risk officer for Bremer Bank since 2022, is accused of orchestrating an illegal deal in which the buyer was intentionally misled to invest in an overvalued business.

Charging papers filed Friday called for a summons to be sent to Butler’s home notifying him of required court appearances.

Reached by phone on Monday, Butler said he had no prior knowledge of the criminal charge and had no comment on it.

The complaint offered no indication of a connection between Butler’s employment at St. Paul-based Bremer and the allegations involving the doughnut shops. A spokesperson said the matter was “outside of Bremer Bank business” and declined to comment Monday.

Duck Donuts is an international treat chain that has grown to more than 150 locations, more than a dozen of which are located across the Midwest. It started in North Carolina in 2007 and is now headquartered in Mechanicsburg, Pa.

Woodbury police opened an investigation of the sale of the two franchises in October 2023. The Minnesota Department of Commerce and the U.S. Secret Service were among the agencies notified of the situation, according to a probable cause statement filed in Washington County.

Authorities claim that in preparing the franchises for market, Butler prepared “extensive documentation related to the profitability of the businesses, both in retail sales and in catering.”

But the buyer was sold a bill of goods, authorities allege.

The buyer, identified only by the initials J.D.S. in the criminal complaint, offered a purchase price of $975,000 in November 2022 for the two stores, one in Woodbury and the other at the Mall of America in Bloomington.

A few months after taking over, authorities say, the buyer grew suspicious of the financial documents Butler provided, as the profitability of the business fell far below its promise.

A forensic computer firm hired by the buyer discovered financial documents had been altered to show the doughnut shops were making money when they were not profitable, according to the complaint.

Ultimately the buyer declared bankruptcy. Butler then arranged to buy the business back — but only after the buyer had lost the $195,000 down payment plus $100,000 invested while trying to keep the failing Duck Donuts locations afloat.

Police also interviewed an unnamed operations manager, who believed the stores lost between $20,000 and $30,000 a month.

The manager worked at the doughnut stores from 2020 until 2023. He told investigators that Butler twice tried to sell the franchises to him — once for $400,000 and a second time for $350,000.

Butler’s ownership of the franchises came with some financial woes. In 2019, during an interview with the Star Tribune, the entrepreneur described being chagrined when three subcontractors filed liens for nonpayment on about $389,000 in construction, electrical and other work performed by failed contractor Thor Construction.

The doughnut stores have been the subject of civil court cases for contract disputes, unpaid rent and bankruptcy. Details in those cases involve one local couple, Luke and Lindsey Schraw of Hugo, and align with what authorities spelled out in the criminal complaint Friday.

The Schraws sought bankruptcy protection Oct. 27, 2023. An initial filing in the case alleges “breach of contract and fraudulent misrepresentation” on Butler’s part in the doughnut shop deal.

In another case, filed in Hennepin County, Butler sued the Schraws, accusing them of defaulting on contractual obligations.

The Schraws formed a business called Long Game Inc. to buy the two Duck Donut franchises from Butler in November 2022. The franchises were listed through a broker called We Sell Restaurants Inc., according to the lawsuit, with a list price of $975,000.

The civil case references a security agreement under which all lease rights, supplies and property of “every kind of nature” were listed as collateral.

In an affidavit filed in the civil suit this past November, Butler said the Schraws had defaulted on their agreement.

Outside of work, Butler is a booster and leader of Twin Cities community service and education.

He is a member of the Greater Twin Cities United Way’s board of directors and sits on Hamline University’s board of trustees. United Way and Hamline declined to comment.

Butler’s first court appearance in the criminal case is scheduled on Feb. 25.

Paul Walsh of the Minnesota Star Tribune contributed to this story.