Monthly Archives: November 2012

In the end, Tim Durham’s own arrogance and sense of entitlement may have been the deciding factor to his fate. In handing down a 50-year prison sentence for Durham, Judge Jane Magnus-Stinson offered three words to describe the disgraced businessman, 50, and his crimes in conning more than 5,000 unsuspecting Fair Finance investors out of $250 million: Deceit, greed, and arrogance.

It’s quite a fall for Durham who once famously threw lavish parties at his Geist Reservoir mansion and drove expensive Bugatti cars.

Durham offered only a brief statement to the court before Judge Magnus-Stinson announced his sentence. What he did not offer, however, was an apology to his victims. Instead, Durham stated that he felt “terrible that they all lost money. My family has lost all of its investments.”

Durham’s 50-year sentence means he’ll likely spend the rest of his life behind bars. Unlike state prisoners, federal inmates are required to serve 85 percent of their sentences. Durham will have to live to the age of 93 to survive his sentence.

Judge Magnus-Stinson also sentenced Fair Finance co-owner Jim Cochran, 57, to 25 years in prison, and Fair Finance CFO Rick Snow to 10 years.

Durham attorney John Tompkins says he plans to appeal his client’s sentence within the next 14 days.

Before Durham’s sentence was announced, several Fair Finance victims spoke about the crime and its effect on their lives. One of the victims was Barbara Lukacik, a 74-year-old nun who lost her life savings of $125,000 to Durham’s scheme.

“What has happened is shameful,” she said in a Nov. 30 story by the Indianapolis Business Journal. “Yes, the economy was weak, but that didn’t give you the right to steal not only my money but all the victims of Fair Financial to use as you wish, for serious greed and pampering. And you say you haven’t hurt anyone; let’s be real. I honestly believe justice must be served because it’s the righteous thing to do.”

As she concluded her testimony, Lukacik turned toward Durham and said, “Shame on you.”

Following the sentencing, Lukacik stated to WRTV Channel 6 that she disappointed Durham failed to show any signs of remorse.

“If he had said he was sorry, that would have meant something,” she said.

James Cochran, the business associate of disgraced Indianapolis financier Tim Durham, has been sentenced to 25 years in prison for his role in a Ponzi scheme that swindled about 5,000 investors out of more $200 million.

U.S. District Judge Jane Magnus-Stinson sentenced Cochran about an hour after she sentenced Durham to 50 years in prison.

In June, a jury found Durham, Cochran and another business associate, Rick Snow, guilty of securities fraud and conspiracy.

Prosecutors say the three men used Ohio-based Fair Finance as their personal piggy banks, orchestrating an elaborate Ponzi scheme to steal investors’ money to buy mansions, fancy cars and other luxury items for themselves.

The party is really over for convicted Indianapolis Ponzi schemer Tim Durham. The once big spender will be spending the next 50 years of his life in prison. U.S. District Judge Jane Magnus Stinson announced Durham’s sentence today at approximately 2 p.m.

Durham, 50, was convicted in June of securities fraud, conspiracy and 10 counts of wire fraud for bilking 5,000 investors in Ohio-base Fair Finance out of more than $200 million. Many of the investors were elderly.

Judge Magnus Stinson’s sentence was much less than the 225 years that the state was pursuing. The judge noted, however, that it was “effectively” a life sentence. She told Durham it was easy for him to donate to charity and politicians because he was using other people’s money and that he was trying to play the system.

Durham took the stand on Friday, but no one testified on his behalf. Ten individuals, including Durham’s mother, did write character letters for Durham in which they described him as gentle, loving, charitable and unselfish.

While on the stand, Durham stated that he felt “bad” for investigators, telling the court that he didn’t know people invested on an individual basis and wishes he was clearer about some things.

Earlier this week, Durham’s attorney, John Tompkins, lobbied unsuccessfully for his client’s sentence to reduced to five years.

“We believe that (five years) is well-supported by the law,” Durham’s attorney John Tompkins told The Indianapolis Star. Tompkins argued that Durham deserves a shorter sentence because “the seriousness of Mr. Durham’s offenses is substantially overstated.”

Prosecutors, meanwhile, saw Durham’s crimes in a different light.

“Durham is responsible for one of the largest and most brazen frauds in Midwest history, and due to its terrible impact on the victims, also one of the most egregious frauds in history,” prosecutors stated in initial charging documents.

Durham and Fair Finance co-owner Jim Cochran (who was convicted on eight of 12 felony charges) bought Fair Finance in a 2002 leveraged buyout. Following the purchase of the business, court documents say Durham drained tens of millions from Fair Finance by making loans to himself and several failing businesses he owned. Millions of dollars also went toward Durham’s mansions, including one in the swanky neighborhood of Geist Reservoir in Indianapolis, a yacht, part ownership of an airplane, remodeling of his garage and $150,000 at one casino.

Rick Snow, Fair Finance’s chief financial officer, was convicted on five of 12 counts.

Cochran and Snow also will be sentenced Friday.

Friday is a big day for former Indianapolis financier and Fair Finance owner Tim Durham. Convicted in June of securities fraud, conspiracy and 10 counts of wire fraud for conning about 5,000 investors out of more than $200 million, Durham is set to be sentenced in U.S. District Court in Indianapolis.

Durham is facing a possible sentence of 225 years in prison, the maximum sentence recommended in a federal probation report.

“Durham has earned a place among the greediest, most selfish, and remorseless of criminals,” federal prosecutors wrote in documents filed Monday.

Earlier this week, Durham’s attorney, John Tompkins, filed documents asking for a five-year sentence for his client. Among other things, Tompkins argued that Durham deserves a shorter sentence because “the seriousness of Mr. Durham’s offenses is substantially overstated.”

The 5,000 investors in Fair Finance may think otherwise.

Troubles at large and smaller brokerage firms – from allegations of misappropriation of funds to bankruptcies – are leaving more investors with questions – and concerns – about the safety of their assets.

“There’s a big difference between doing business with a national or regional brokerage firm and a smaller one,” said Mark Maddox, founder of Maddox, Hargett & Caruso, P.C. in a Nov. 23 Wall Street Journal article. Maddox, an Indianapolis-based lawyer, has represented investors in arbitrations against both small and large brokerage firms.

Larger brokerages such as UBS or Morgan Stanley Wealth Management or online firms such as Fidelity Investments and Charles Schwab are often thought of as more secure and less likely to fail, experts say.

But, as the WSJ article points out, some investors prefer the homegrown touch of smaller brokerage firms to their bigger counterparts. To ensure their money stays safe, investors should consider several factors, according to the article.

Among those considerations: Choose the right type of account. A cash account compared to a margin account is safer. It’s also important to check the Broker Check Web site of the Financial Industry Regulatory Authority (FINRA) to view the history of regulatory actions or civil proceedings against a firm or broker.

In addition, research the firm’s reputation and balance sheet.

“If a firm is thinly capitalized, you want to stay away from it,” Maddox said in the Wall Street Journal article. Case in point: Hudson Valley Capital Management. Earlier this month, the New York-based firm was expelled from the securities industry after its chief executive allegedly used customer assets to cover up losses he sustained while day trading. As of Sept. 30, 2011, Hudson Valley Capital had only about $80,000 in assets.

Maddox also advises asking the brokerage firm if it has professional liability insurance. If it does, and it commits malpractice that costs clients money, they will be able to recover what is owed to them. Maddox recommends asking for a copy of the declaration page of the policy that summarizes the firm’s coverage.

The Securities and Exchange Commission (SEC) has received 3,001 tips and complaints following the creation of its Whistleblower Program one year ago. The statistics were made public yesterday in the SEC’s Annual Report on the Dodd-Frank Whistleblower Program for Fiscal Year 2012.

According to the report, tips have come from all 50 states, the District of Columbia, Puerto Rico and 49 countries. States with the highest percentage of tips include: California (17.4%), New York (9.8%), Florida (8.1%), Texas (6.3%), New Jersey (4.1%), Illinois (4%), and Pennsylvania(3.6%).

So far, the 3,000-plus tips are focused in three main areas: Corporate Disclosure and Financials (18.2%); Offering Fraud (15.5%); and Manipulation (15.2%).

The full report is available here.

This year, the SEC made its first award under the Whistleblower Program. On Aug. 21, 2012, a whistleblower who helped the SEC stop an ongoing multimillion dollar fraud received an award of 30% – the maximum percentage payout allowed by law.

In that case, the award recipient submitted a tip concerning the fraud and then provided documents and other significant information. The information ultimately resulted in a federal court ordering more than $1 million in sanctions.

The Bank of New York Mellon Corp. has reached an agreement with the state of Virginia concerning accusations that the bank charged hidden markups on currency transactions to Virginia’s employee pension fund. The deal also involves a $1.1 million payment to a whistleblower group.

Pension funds in Virginia, as well as in other states and municipalities, have accused Bank of New York and custodial bank State Street Corp. of deceiving them by using a least-favorable high or low range to price their currency trades and then pocketing the difference, according to a Nov. 9 Dow Jones Newswires story.

The whistleblower in the case is Grant Wilson, a Japanese yen trader on one of BNY Mellon’s foreign exchange desks in Pittsburgh. For the last two of the 10 years he worked with Mellon, Wilson collected information and documents to assist government investigators and a plaintiff legal group, FX Analytics, into the alleged practices at the bank. The information he provided detailed how the alleged scheme worked and how much BNY Mellon made as a result.

Wilson’s actions are among the first under a new initiative by the Securities and Exchange Commission (SEC) to incorporate whistleblowers into its securities fraud prevention strategies. The program, which was launched under the Dodd-Frank financial overhaul, rewards whistleblowers 10% to 30% of the proceeds in cases where penalties exceed $1 million. Since the program’s inception, tips from informants have surged.

Though it’s only a little more than one year old, the SEC’s Whistleblower Office has been inundated with more than 3,000 tips from informants about alleged securities fraud.

The program, which provides significant monetary rewards to whistleblowers who provide original information leading to a successful enforcement case, has seen a noticeable difference in the quality of information being received, said SEC Commissioner Luis Aguilar in an Oct. 18 story by Marketwatch.

According to Aguilar, the SEC receives an average of eight tips per day; so far, tips have come from around the United States and some 45 foreign countries.

On Aug. 21, the SEC issued its first reward under the Whistleblower Program. The informant, who didn’t wish to be identified, received $50,000, or 30%, of the $150,000 thus far reclaimed out of the multimillion-dollar fraud that the person prevented, the SEC says.

The SEC whistleblower program was implemented under Section 922 of the Dodd-Frank Act. It mainly intended to reward individuals who act early to expose violations and who provide significant evidence to help the SEC bring successful cases.

U.S. District Judge Robert Sweet has given final approval to the $275 million settlement between former Bear Stearns Cos. shareholders and JPMorgan Chase & Co., which bought Bear Stearns in 2008 just as the investment bank faced financial collapse.

The settlement brings to a close years of litigation between Bear Stearns, former executives of the investment firm and investors led by representatives of Michigan’s state pension funds.

Bear Stearns first agreed to the all-cash $275 million settlement in June. The money, minus legal fees, will go to shareholders who accused the company of issuing “materially false and misleading statements” about its financial results. Bear Stearns’ auditor, Deloitte & Touche, agreed to pay $19.9 million.

Shareholders initially filed a series of lawsuits against Bear Stearns beginning in 2008. Among other things, the lead plaintiff in the case claimed that Bear Stearns management had masked the firm’s failing financial health during the last year and a half of existence. During that time, Bear Stearns saw the collapse of two internal hedge funds because of deteriorating mortgage securities. Those investments are now viewed by many financial experts as one of the first key signs of the financial crisis that was to come.

High-yield municipal debt has become an increasingly attractive investment vehicle for fixed-income investors – and with good reason. For the three years ending Oct. 31, funds in that sector returned an average of 9.1% a year, according to Morningstar.

The positive returns do not come without their share of risks, however. And, all too often, investors may be unaware of those potential risks. As reported Nov. 5 by the Wall Street Journal, some of the risks associated with high-yield municipal debt include liquidity issues.

The size of the high-yield muni market is $65 billion, which represents only a small portion of the total municipal market. Moreover, many individual issues are small. “It can be difficult to buy in or sell out,” said James Colby, a senior municipal strategist, in the Wall Street Journal article.

Default rates are another issue facing investors of high-yield municipal debt. Since 1970, the cumulative default rate for high-yield muni debt has been 7.94%. By comparison, Moody’s says the cumulative default rate for investment-grade muni debt – i.e. issues with credit ratings from triple-A to triple-B – is 0.08%.