Major Ponzi Scheme Indictment handed down for Tim Durham of Fair Finance and National Lampoon fame. Choices and Consequences…

According to an indictment handed down on March 15, 2011 – Tim Durham, James F. Cochran and Rick D. Snow – all have been charged in what is reported as the largest fraud case in the state of Indiana.  The 23 page Grand Jury indictment alleges that Durham, business partner James F. Cochran and former Fair Chief Financial Officer Rick D. Snow devised and executed a scheme to defraud investors in the Akron, Ohio-based  Fair Finance.  The actual indictment can be seen here:  durham_indictment

The alleged fraud is over $200,000,000 and that, if proven, equals a long time in prison.

All three men are facing felony charges of 10 counts of wire fraud, one count of securities fraud and one count of conspiracy to commit wire fraud and securities fraud.  Each faces a maximum of five years in prison for the conspiracy count, 20 years in prison for each wire fraud count and 20 years in prison for the securities fraud count. In addition, each could be fined $250,000 for each count upon which they are convicted.

Separate civil securities charges were filed by the SEC against the men in federal court.

The indictment alleges that between February 2005 and November 2009, Durham and Cochran directed Fair to loan money to themselves and other insiders “which caused a steady and substantial deterioration in Fair’s financial condition.” The three men then allegedly deceived and defrauded investors through misleading statements about the company’s finances.

Durham and Cochran also “used a significant portion of the proceeds of these loans to maintain their lifestyles and to pay for personal expenses,” which, according to the indictment include:  $250,000 in Fair money in 2007  wired to remodel his garage, another $150,000 the following year to use at a casino and Cochran wired $50,000, also in 2008, to pay country club fees.  This is the tip of the iceberg according to the formal indictment.

FROM A HIGH TO A LOW…

CNBC did a report on Tim Durham sometime back.  Take a look

How high one can fall when life is based on an illusion.  I know…I’ve been there.  For now, Tim and cohorts face an uphill battle.  Rarely does the US Attorney unseal an indictment unless the US Attorney feels that a win is inevitable.  Advice to Tim – cop a plea…otherwise a conviction will result in a far greater sentence than he’d get today.  Further, although I doubt he’d receive it…I think the three could gain some benefit in reading my new book – SECOND CHANCES.  Perhaps one day – just not this day – they will find that they could use their intellect in a well placed endeavor that will help instead of hurt people.

WHAT ARE YOUR THOUGHTS?

Fair Finance Fiasco – Owners scam investors to prop up failing business ventures

An excellent series of articles is being posted on Ohio.com about Fair Finance and the world of hurt the investors find themselves in as Tim Durham et. al. take funds to prop up their lifestyle and failing business ventures.

For the best set of links that you can easily find related to Fair Finance and the mess that’s been created click here.

The question that I wish to raise in this blog (and I hope I’m not beat up for it) is – with all that’s been posted, circulated and discussed, what would motivate someone to “invest” their hard earned money or savings into something that was uninsured?

Let me share a part of an article posted on Ohio.com and then let’s look at the triggers for a victim becoming a victim…

n November 2005, exactly one month
servers at a time parts of Durham’s financial empire are strained. They note that if the borrowers fail to pay off the loans, Ohioans who have provided capital to Fair for decades by buying short-term investment certificates may not get their money back.”

Scott dug through her family’s financial documents and discovered three of the investment certificates expired in less than a month, on Nov. 24, 2009.

She began counting down the days until she could cash them out and get back at least some of her children’s money.

To keep the cash flowing, Fair Finance filed a request in late October with the Ohio Division of Securities seeking to sell up to $250 million in new securities in Ohio.

The previous authorization to sell securities for a 16-month period was to expire on Nov. 24, 2009.

Unaware of the mounting problems, Raymond Warner, 90, of Ravenna was preparing to make his first investment.

Decades earlier, Warner’s brother, Paul, started investing with Fair Finance and boasted about the healthy returns.

Warner and his wife, Ruth, lived in Arizona for several decades, where he made a living specializing in antiques and liquidations. He handled plenty of bankruptcies, helping to sell off assets of failed or foreclosed businesses.

When his wife of 51 years became ill, the couple moved back to their native Ohio in 2005 before she died.

Several years later, $40,000 worth of the widower’s investment CDs matured. With the struggling economy, conventional CDs weren’t providing him much interest income.

So Warner talked with his brother about Fair Finance and discovered he could earn 71/2 percent interest on a six-month investment.

Warner was sold.

He and his brother hadn’t heard about the article in the Indianapolis magazine.

”We thought it was a good investment,” he said.

On the morning of Nov. 17, Warner drove with his brother to the East Market Street office in Akron intent on investing.

A woman working in the office greeted him but seemed reluctant to take his money at first.

”We only have two certificates left,” she told him. ”I’ll have to see if they’re available.”

The worker went into another room and returned a couple minutes later to let him know he could buy two investment certificates for $20,000 each after all.

Warner handed over his checks, signed the paperwork and left with two certificates in hand, along with a promise to get his first interest payment of $246.58 a month later.

A week later, on the morning of Nov. 24, Cindy Scott gathered up her children’s investment certificates that matured that day and went to Fair Finance’s Cuyahoga Falls office to cash them out.

When she got there, the office was empty. A sign on the door indicated the business was closed for the week for the Thanksgiving holiday.

”That’s nice,” she thought. ”They’ve never done that before. But that’s nice.”

Unconcerned, Scott went home to her modest but comfortable Cuyahoga Falls home to get ready to spend the Thanksgiving holiday with her family.

It wasn’t until early Thanksgiving morning two days later that she learned the truth: Fair Finance wasn’t just closed for the holiday.

It had been raided by the FBI.

The story is sad.  However, it resonates with a pattern predictable in application by victims of fraud schemes such as the Fair Finance debacle.

Let’s look at the parts to the scam:

(1) PROMISE – What was the investor looking for?  When the investor was told he could earn 7.5% on a six month investment – that was the first sign of a scam.  Funny, but those most susceptible to being scammed are the folks who succumb to internal greed.  They want the most and are blinded by the PROMISE and fail to realize the reality.  Looking back and being honest…there is NO INVESTMENT that legitimately will guarantee 7.5% return in six months.  What was he thinking?

Now, at the risk of seeming to attack the investor turned victim, I’m not.  I just know from experience that people who look beyond reality and wish to grasp an alternate view of truth are the easiest to scam.  The internal greed of wanting more or better than what someone else could have sets them up to be ripe for the picking.  Realistic folks would say, “No one gets that kind of return and, that coupled with the unsecured nature of the investment, means I should look elsewhere – unless I’m gladly willing to lose my investment.”

(2) ILLUSION – Things change and so do companies.  Fair Finance was quite the illusion.  Early on it was legitimate and produced returns for folks like any legitimate business.  What most did not know was that the form owners (what appeared to be ethical business folks) sold the business in January 2002.  Folks had the illusion that it was business as usual when in reality it was far from that.  Ohio.com reports, “Indianapolis businessmen Timothy S. Durham and James F. Cochran extracted tens of millions of dollars to prop up hemorrhaging business ventures and to support a lifestyle that included a yacht, swanky restaurants, expensive cars and luxurious homes.”

When making your investment – always – let me repeat ALWAYS due your due diligence.  Check out the company.  Especially today with the advent of the internet, it is relatively easy to search out the status of the company that you’re seeking to invest your funds with.  No, I know, not always can trouble be spotted – example Bernie Madoff or Dan Frishberg, but for sure, a simple google search would likely turn up some issue that could at least give one pause for evaluation.

(3) TRUST – The capstone of creating a victim in a true scam is trust.  In the case of Fair Finance, that was easy.  The Ohio.com article states, “Decades earlier, Warner’s brother, Paul, started investing with Fair Finance and boasted about the healthy returns.”  The fact that Fair Finance had a proven track record created a level of comfort and trust that would cause most folks to believe that their investment was placed in a secure environment.  The fact was, in its former state, it was, but with the new owners, Fair Finance has become a cash cow that supported a vastly inflated lifestyle – one that eventually brought the house of cards tumbling down.

What a tangled web was woven here.

If you were a victim…FEEL FREE TO COMMENT.

As much as I hate to say it, victims are in a sense a victim of their own greed.  Not that they deserved the outcome – THEY DIDN’T.  Reality is, however, that prudence and due diligence would have provided a least a barrier from being scammed by the likes of Durham and crew.

AS ALWAYS YOUR COMMENTS ARE WELCOME!

Fair Finance – Seems that beneath the surface it was anything but FAIR!

Fair Finance.  When I first heard that name I was confused.  I thought it might be a non-profit organization – left leaning perhaps – that fought for or advocated “fair finance” for the underprivileged.  Man…isn’t if funny what’s in a name.  Was I sure wrong!

Below is an article written by By Jim Mackinnon – Beacon Journal business writer.  Turns out Fair Finance was nothing more than massive Ponzi scheme. Read the great article by Mr. Mackinnon and you’ll get a clearer picture of what “Fair Finance” really was all about.

The court-appointed trustee for Fair Finance Co. has his eyes on lots of fancy cars and artwork that he believes were purchased with money from the under-investigation Akron finance and loan business.

There are three Bentleys, an antique Duesenberg, Mercedes and Jaguar cars, even a Lamborghini. The possible value is in the millions — same thing for the art, primarily paintings purchased by Fair Finance co-owner Timothy Durham, said the trustee, Cleveland attorney Brian Bash.

Bash on Tuesday said he is looking into the sale of more than $1 million in antique and exotic cars by an affiliated company in Indiana, Diamond Investments LLC, as he works to preserve assets for the bankrupt Akron business.

Bash said he is placing liens on perhaps as many as 100 vehicles listed under Diamond, which does business as Diamond Auto Sales. The business is owned by Durham.

”These are pretty fancy cars,” Bash said. Most of the vehicles are in storage, while the Duesenberg and three Bentleys were among vehicles sold recently in Indiana, he said. The vehicles were not ”on the books” of Fair Finance, he said.

Bash talked about the cars and artwork during a monthly status report in federal bankruptcy court in downtown Akron.

”Those are unique assets,” said Marilyn Shea-Stonum, chief judge of U.S. Bankruptcy Court for the Northern District of Ohio, who is overseeing the Chapter 7 liquidation process.

Of the more than $1 million from the car sale proceeds, ”it looks like a number of law firms were paid over $908,000,” Bash said. ”We’re going to be investigating that.”

Bash gave his report over a telephone conference call in open court; just six Fair Finance certificate holders attended. Bash’s monthly update took place less than a week before he will hold a creditors meeting at 1 p.m. Monday at Akron City Centre Hotel, 20 W. Mill St. in downtown Akron. Bash booked the hotel’s Salon A ballroom because he said he anticipates a large turnout.

More than 5,300 people and organizations that include churches bought investment certificates totaling about $200 million from Fair Finance, a small investment and loan company founded decades ago in Akron. The Fair family sold it to Durham and Jim Cochran, two Indiana-based businessmen, in 2002. Most of the certificate holders are in the greater Akron area.

The FBI in late November raided Fair Finance and a related business in Indiana, with court records showing investigators suspected the business was being operated as a Ponzi scheme. Then some investors earlier this year forced Fair Finance into bankruptcy as means to recover assets. The investment certificates, which promised to pay high interest rates, were not government insured.

Bash said he and the team he has assembled continue to look for Fair Finance assets.

Besides the cars, Bash told Shea-Stonum that he is in discussions to have ”a number of pieces of artwork” turned over to him.

Afterward, Bash said Durham had estimated the value of his art collection in the millions of dollars.

The pieces that he does have are ”secured, stored and insured” but he wants the entire collection, Bash said.

”I don’t even have half of it,” he said. ”I’m hopeful they will start cooperating more.”

There also might be as much as $5 million in Fair Finance equity in accounts overseen by two firms, Fortress Investment Group LLC and Duvera Financial, that did business with Fair Finance, Bash said. He said he has asked for an accounting of the money and that the two firms said the information is in more than 80,000 pages of documents.

And in what would be a significant move in the bankruptcy proceeding, Bash said he also expects to shortly have all the assets of Fair Holdings, which is Fair Finance’s Ohio corporate parent, and those of DC Investments — the Indiana corporate parent — assigned over.

”My view right now is, I’ve heard them [Fair Holdings and DCI’s representatives] wanting to cooperate but I haven’t seen the actions follow the words,” Bash said.

The FBI is continuing to scan Fair Finance documents, Bash said. ”My accountant goes out to Indianapolis to review those records,” he said.

It does not look as if any former Fair Finance employees will testify or answer questions at Monday’s creditors’ meeting, Bash said.

”It’s my understanding none of the individuals are willing to testify because of the ongoing investigation by the FBI,” he said.

In addition, the Indianapolis law firm representing Fair Finance, Taft Stettinus & Hollister, told Bash in writing and the judge during the conference call that it intends to withdraw as Fair Finance’s counsel. The firm did not give a reason.

Shea-Stonum said investment certificate holders and other creditors who have questions about the case need to go online and review court documents. She said the bankruptcy court clerk’s office is not in a position to respond to questions about the case.

The judge also said certificate holders need to guard themselves from scam artists who claim that they can recover their money from Fair Finance. Scam artists have taken advantage of people in other cases, she said.

”It appears to me the certificate holders in this case have been the victims of what appears to be, well, I’m not going to characterize it. People have been parted from their money,” she said. ”I do not want to see this case become a hotbed for scam artists.”

Shea-Stonum asked Bash to use the trustee’s Fair Finance Web site to post information on how creditors can legitimately find ways to recover assets.

The trustee status report is available online at http://www.kccllc.net/fairfinance.

Here’s another link to Fair Finance articles.

One more time it seems that we see the reality behind the Ponzi scheme…fancy living, fast cars, a lifestyle that cannot be supported by a real business enterprise.  Sadly, what started out as a legitimate business enterprise that helped many, became a vehicle for fraud.  And while I have not been following this active investigation it appears that I sure should be…so look for more information to come.

OF COURSE, YOUR COMMENTS ARE WELCOME!