Monthly Archives: December 2009

Securities America and financial adviser Bradley Hofhines have been sued in a potential class action tied to Provident Royalties and oil-and-gas private placements that the Securities and Exchange Commission (SEC) alleged in July were fraudulent. Securities America has been named in at least two other related potential class actions; however, this may be the first time an adviser and his individual practice are cited.

As reported Dec. 1 by Investment News, a lawsuit filed Nov. 25 in an Idaho federal court alleges that Bradley K. Hofhines and his firm, Summit Retirement Advisors LLC, failed to disclose to clients that returns from investments in Provident Royalties LLC securities did not come from revenue generated by actual investments in oil-and-gas properties.

“Rather, investor funds were commingled, and funds raised from later offerings were used to pay so called dividends or “returns of capital” to earlier Provident investors,” the article says.

Hofhines is affiliated with Securities America, an independent broker/dealer subsidiary of Ameriprise Financial. Securities America and Ameriprise are named in the latest lawsuit.

The complaint alleges that the defendants violated federal securities laws and the Idaho Uniform Securities Act, as well as provided investors with materially untrue and misleading offering materials regarding Provident Securities.

In July, the SEC charged Dallas-based Provident of allegedly committing fraud in connection to the sale of $485 million of preferred stock and limited partnership offerings in oil and gas deals. Since then, many investors have begun legal action to get their money back by filing individual arbitration claims with the Financial Industry Regulatory Authority (FINRA).

If you have suffered investment losses and wish to discuss filing an individual arbitration claim with FINRA or have questions about these investments, please contact us.

UBS AG faces dozens of arbitration claims from U.S. clients who bought 100 percent principal protected notes issued by Lehman Brothers Holdings that turned out to be virtually worthless after the company filed for bankruptcy in September. Now, in one of the first cases to be heard by the Financial Industry Regulatory Authority (FINRA), an arbitration panel has awarded an investor $200,000, ruling that her UBS broker inappropriately sold her the risky investments.

As reported Dec. 5 by the Wall Street Journal, the case serves as one of the first that FINRA has ruled upon concerning Lehman principal protected notes and could be a sign of how future cases may unfold.

Steven Caruso, an attorney with Maddox Hargett & Caruso, said in the article that hundreds or thousands of additional arbitration cases are expected to be filed in connection with Lehman principal protected notes. Caruso’s firm alone will represent roughly 100, according to the Wall Street Journal.

Lehman principal protected notes were structured notes that many banks and securities firms represented as low-risk investments. What they failed to emphasize to investors was the fact that the notes were unsecured obligations of Lehman Brothers. When Lehman filed for bankruptcy on Sept. 15, holders of the notes found themselves with investments that traded for pennies on the dollar.

If you have suffered losses in Lehman principal protected notes and wish to discuss filing an individual arbitration claim with FINRA or have questions about these investments, please contact us.

A newly filed class action lawsuit against Fair Finance accuses the Akron, Ohio, company of misrepresenting investments sold to thousands of Ohio investors. According to the complaint, Fair Finance co-owners Timothy Durham and James Cochran purchased Fair Finance in 2002 and proceeded to convince investors to invest tens of millions of dollars by misrepresenting critical facts about certain securities it sold. Investors are now owed more than $200 million – money that Fair Finance allegedly may not be able to repay. 

Many investors who put their faith and money into Fair Finance (also known as Fair Financial Services) are retirees and fear their life savings have now vanished. 

Fair Finance marketed and sold “investment certificates” and promised investors rates of return as high as 9%. That amount is nearly three times higher than what is offered by commercial banks for similar products. At the same time, the lawsuit alleges that Fair Finance used “a tangled web of financial transactions to conceal the withdrawal of investors’ funds for their own enrichment.”

“Nobody knew the company was basically being used as a personal ATM for the owners and their affiliated companies,” said David Meyers, co-counsel for the plaintiffs, on Dec. 4 in the Cleveland Ohio Business News. “Had they known, no one would have invested in this.” 

Maddox Hargett & Caruso P.C. and David P. Meyer & Associates filed the class action lawsuit on Dec. 4 in Summit County, Ohio. 

The FBI is conducting a separate criminal investigation into Fair Finance, as well as Obsidian Enterprises – another company co-owned by Durham and Cochran. On Nov. 24, federal investigators held simultaneous raids at Fair Finance and Obsidian, hauling away boxes of banking-related documents. Since the raid, eight Fair Financial offices in Ohio have remained closed.

Meanwhile, the state of Ohio is taking steps to keep Durham and his companies from selling more investment certificates to Ohio investors. As reported Dec. 4 by the Akron Beacon Journal, a seven-page letter dated Dec. 3 from the Ohio Division of Securities is demanding additional information and clarification from Fair Finance regarding its request to sell new investments. That request was submitted by Fair Finance on Nov. 24, just hours before FBI agents raided Fair Finance’s offices in Akron, Ohio, and another Durham-owned business, Obsidian Enterprises, in Indianapolis.

According to the letter written by Mark Heuerman, registration chief counsel for the Ohio Securities Division, to Fair Finance’s attorney, “The issuer [Fair Finance] has failed to provide investors with material information regarding the risk of the underlying portfolio and lending practices.” 

Among other risks cited in the letter:

·       “In many instances, the issuer amended loans to increase the amount available despite a deteriorating financial condition and without performing any additional due diligence.”

·       “The Chief Executive Officer, Tim Durham, appears to have unfettered discretion to amend a loan for Fair and related parties without involvement or approval by other parties, officers, directors or employees of the affected entities party to the loan.”

·       “The issuer may engage in high risk loans where substantial uncertainty exists as to the ability of the borrower to repay principal.”

Fair Finance, the Akron, Ohio, company co-owned by Indianapolis businessman Timothy S. Durham, faces a class action lawsuit that is seeking to rescind $200 million in investor purchases of Fair Finance securities. The lawsuit, which was filed Dec. 4 in Summit County, Ohio, by the law firms of Maddox Hargett & Caruso P.C. and David P. Meyer & Associates, LPA., is the first investor lawsuit filed following allegations last month by the U.S. Attorney’s Office that Fair Finance was operating as a Ponzi scheme.

In addition to Durham and Fair Finance, the Complaint names parent company Fair Holdings, Inc., DC Investments, LLC, Obsidian Enterprises, James F. Cochran, Daniel S. Laikin and other current and former directors of Fair Finance as defendants.

Among the allegations, the Complaint cites violations of the Ohio Securities Act and other breaches of legal duty tied to sales of investment certificates sold by Fair Finance, which allegedly caused millions of dollars in damages to the plaintiffs and class members, all of whom are residents of Ohio.

“These investors, many of whom are retired and on a fixed income, were tricked into buying investments based on representations that Fair Finance was in the same line of business that it had been in since 1934,” said David P. Meyer, co-counsel for the plaintiffs and an attorney with David P. Meyer & Associates, LPA. “The problem is that as soon as the new owners bought the company in 2002, they drastically changed that business.”

Fair Finance (which also goes by the name of Fair Financial) was founded in 1934 by car dealer Ray Fair to provide loans to customers during the Great Depression. In 1959, the business entered into other avenues, including second mortgages, small consumer loans, and financial investments.

The company was sold by the Fair family in 2002 to Durham.

On Nov. 24, the offices of Fair Financial, as well those of another Durham-owned business, Obsidian Enterprises in Indianapolis, were raided by the FBI, with federal agents taking numerous computers and files. As of Dec. 4, the offices of Fair Finance have remained closed.

The basis of the Dec. 4 Complaint focuses on millions of dollars in “insider loans” that allegedly have been made to various individuals and entities associated with Fair Finance’s co-owners, Durham and Cochran. The loans total $168 million and constitute almost 70% of Fair Financial’s assets.

In addition, the Complaint alleges misrepresentation and omission of facts concerning the investment certificates. According to Thomas Hargett, co-counsel for the plaintiffs and an attorney with Maddox Hargett & Caruso P.C., the written offering circulars used to sell the investment certificates failed to adequately inform prospective investors of the “unfettered” discretion Durham and other insiders had in loaning money to themselves and their related businesses. There also was no apparent oversight or disclosure of the substantial credit risks these loans posed to Fair Financial investors, the Complaint alleges.

Between May 2004 and May 2009, the Complaint alleges that more than 900 wire transfers totaling approximately $84 million had been directed to Fair Holdings by Fair Finance Company. This money was then allegedly wired to nearly 50 individuals and businesses over a five-year period, including:

• $6.9 million to U.S. Rubber Reclaiming (a subsidiary of Obsidian Enterprises);
• $5.3 million to Speedster Inc. (a classic car replica manufacturer owned by Timothy S. Durham);
• $1.8 million to Danzer Industries (former parent company of Obsidian Enterprises); and
• $1 million to Champion Trailer (former subsidiary Obsidian Enterprises).

A copy of the Complaint will be available at InvestorProtection.com and InvestorClaims.com.

Offices of Tim Durham’s Akron-based Fair Finance Company remain closed following FBI raids that occurred on Nov. 24. Today, a lawyer representing Durham said customers may have access to their accounts next week, although not to 100% percent of their investments.

The FBI, the U.S. attorney’s office and the Securities and Exchange Commission (SEC) all have been investigating whether Fair Finance is a Ponzi scheme that defrauded Ohio investors. As reported Dec. 2 by the Akron Beacon Journal, reopening the company, as well as offices elsewhere in the Ohio area, depends in large part on whether Fair Finance is able to get its computers back from federal investigators.

Durham, an Indiana businessman, bought Fair Finance (also known as Fair Financial) in 2002.

Meanwhile, investors sit and wait, hoping for a glimmer of hope. One man arriving at the offices of Fair Finance on Monday morning said he saw an 85-year-old investor who appeared distraught about his investments.

“He couldn’t talk. There were tears in his eyes,” he said in the Dec. 2 story by the Akron Beacon Journal. “This guy couldn’t afford to lose it. My heart went out to him.”

CLST Holdings (CLHI) revealed in a recent 8-K filing that it had received a subpoena from the Division of Enforcement of the Securities and Exchange Commission (SEC) in connection to financial dealings between it and Fair Finance, the Ohio-based consumer finance firm owned by Timothy Durham and the same company that is the subject of an ongoing federal probe.

According to the SEC’s subpoena, CLST Holdings must produce voluminous amounts of information relating to its portfolio transactions, including those with Fair Finance. The subpoena also seeks documents, emails, BlackBerry messages, personal and business contact lists and more pertaining to select individuals on CLST’s board of directors, including Durham, Robert Kaiser, and David Tornek, each of whom received subpoenas from the SEC. Durham is CLST’s chairman of the board.

The fact that the SEC has launched an investigation of CLST Holdings casts further questions over Durham and his business dealings. Last week, federal agents conducted simultaneous raids at two of Durham’s companies – Obsidian Enterprises and Fair Financial (also known as Fair Finance). On Nov. 24, the federal government filed a civil lawsuit against Durham and Fair Finance, alleging that Durham operated the business as a Ponzi scheme by using money from new investors to pay what it owed prior investors, thereby “lulling the earlier victims into believing that their money was being [handled] responsibly.”

The Ponzi scheme allegation is the same claim cited last week by Tim Porter, one of Durham’s former business partners.

“It’s a mini Bernard Madoff. A mini Ponzi scheme and when you stand back and look at it from the outside in, you see exactly what they’re doing,” said Tim Porter in an interview with WTHR News.

The government’s complaint against Durham was mysteriously withdrawn on Nov. 30, although the investigation is continuing.

As reported Dec. 1 by the Indianapolis Business Journal, Dallas-based CLST Holdings was at one time a wireless telecommunications business known as CellStar Corp. Approximately three years ago, the company sold off its business units to several buyers, including Plainfield-based Brightpoint, Inc. Shortly thereafter, Durham was elected to CLST’s board of directors, “in part by pledging to dissolve the company quickly and distribute remaining cash to shareholders,” according to the IBJ article.

Instead, CLST began buying consumer finance contracts, including about $3.6 million it acquired from Fair Finance, IBJ says.

When federal officials filed a complaint on Nov. 24 to seize the assets of Fair Finance owner Tim Durham, the allegations focused on Durham’s alleged involvement in a Ponzi scheme to defraud Ohio investors. On Nov. 30, U.S. Attorney Timothy Morrison mysteriously withdrew the request for seizure of Durham’s properties and banking accounts on grounds that the assets in question “would not dissipate.” The federal investigation is continuing, however, according to Morrison.

As reported Dec. 1 in the Akron Beacon Journal, Morrison said his office has not accused or charged Durham or anyone else with a crime, although the withdrawn complaint alleges a Ponzi scheme. The search warrants used in last week’s raids on Durham’s businesses – Obsidian Enterprises and Fair Finance – remain sealed. If federal charges are filed, it is likely the search warrants will be unsealed, according to the article.

The government’s initial complaint against Durham alleged that money from investors in Durham’s Akron-based Fair Finance company – also known as Fair Financial – was moved to companies controlled by Durham in thousands of transactions to support investments other than the low-risk, high-yield, short-term consumer debts represented to investors. Instead, the document says, the money was used to make interest and redemption payments to “earlier victims of the scheme.”

The document also alleges that Durham kept for his personal use a “portion of the funds entrusted to him by purchasers of the investment certificates”

Between May 2004 to May 2009, Federal Reserve records show 6,400 transactions occurred in which millions of dollars from Fair Finance were directed to its parent company, Fair Holdings, and then wired to 21 companies controlled by Durham and Fair Financial co-owner James Cochran.

In 907 transactions, $84.2 million went from Fair Finance to Fair Holdings, according to the complaint. Of that amount, the lawsuit alleges that some of the transactions included:

• 6.9 million to U.S. Rubber Reclaiming (a subsidiary of Obsidian Enterprises, owned by Durham;
• $5.3 million to Speedster, Inc. (a classic car company owned by Durham);
• $1.8 million to Danzer Industries (former parent company of Obsidian Enterprises);
• $1 million to Champion Trailer (former subsidiary of Obsidian Enterprises);
• $804,000 to Playa Del Racing (IndyCar racing team controlled by Durham);
• $155,000 to United Expressline Trailers (a subsidiary of Obsidian Enterprises);
• $277,000 to Car Collector Magazine (a Durham-owned company);
• $30,000 to James Cochran (co-owner of Fair Financial); and
• $100,000 to Tim Durham (co-owner of Fair Financial)

Durham’s legal woes escalated following a recent Indianapolis Business Journal investigative story that questioned whether his company, Fair Financial, could repay investors who bought nearly $200 million in investment certificates.

Durham’s attorney, John Tompkins, has stated that Durham believes he has done nothing wrong in response to the FBI seizing banking records and other documentation at his two businesses.

Calls to Fair Finance’s offices continued to be greeted by a prerecorded phone message telling callers that offices are closed for the Thanksgiving holiday and will reopen on Nov. 30. That hasn’t happened. Instead, a sign is taped on front door that reads: “DUE TO UNFORSEEN CIRCUMSTANCES, FAIR FINANCIAL SERVICES IS TEMPORARILY CLOSED. WE LOOK FORWARD TO SERVING YOU UPON OUR REOPENING.’”