Category Archives: Ponzi Scheme

Disgraced businessman Tim Durham has been arrested on charges of defrauding at least 5,000 Indiana and Ohio investors out of hundreds of millions of dollars. Durham, who is co-owner of Fair Financial, is accused of running a $200 million Ponzi scheme. The case against Durham is the largest corporate fraud case in Indiana’s history.

For more than two years, Durham has been the subject of a federal investigation for allegedly using Fair Finance – and the money that investors put into Fair – as his personal piggy bank. In November 2009, the FBI raided the offices of Fair Financial, as well as Durham’s other business, Obsidian Enterprises.

Durham’s March 16 arrest occurred at him home in West Hollywood, Calif., at about 2 a.m. He is scheduled to appear in a Los Angeles courtroom later this evening, where he intends to plead not guilty to one count of conspiracy to commit wire and securities fraud, 10 counts of wire fraud and one count of securities fraud. According to news report, Durham will waive extradition to Indiana.

Sales of tenant-in-common exchanges (TICs) have come back to haunt a number of broker/dealers, as they face a lawsuit brought by the trustee of one of the biggest creators and distributors of TICs – DBSI Inc.

DBSI, which defaulted on its payments to investors in 2008, has filed for Chapter 11 bankruptcy protection. Now, James Zazzali, the trustee in charge of the bankruptcy, is taking legal action against nearly 100 broker/dealers that sold the doomed product. The lawsuit, which was filed in November, alleges that the TIC from DBSI was actually a $600 million Ponzi scheme.

As reported Dec. 8 by Investment News, the five biggest earners of commissions for selling DBSI include: Berthel Fisher & Co. Financial Services Inc.; QA3 Financial Corp.; DeWaay Financial Network LLC; The Private Consulting Group, which shut down last year; and Questar Capital Corp.

Many of the firms listed in the DBSI lawsuit already are waging similar legal battles over failed private-placement deals. Among those on the DBSI list: Brecek & Young Advisors Inc., which merged into Securities America Corp. in 2009; KMS Financial Services; J.P. Turner Co. LLC; and Alternative Wealth Strategies Inc.

Unlike other private-placement investments that have hit hard times recently, DBSI has not been charged with fraud by the Securities and Exchange Commission (SEC). In July 2009, two high-profile private placements, Medical Capital Holdings Inc. and Provident Royalties LLC, were sued by the SEC for fraud. In the case of Provident Royalties, more than 40 broker/dealers that sold the product have been sued by Provident’s receiver.

A TIC is a real estate investment in which two or more parties own a fractional interest in a select property. The investments became popular in 2002 after the Internal Revenue Service ruled that investors could defer capital gains on real estate transactions involving the exchange of properties.

JP Morgan Chase, the main banker for the now-jailed Bernie Madoff, is being sued for $6.4 billion by the trustee charged with liquidating the former financier’s business. According to a statement made earlier this week by trustee Irving H. Picard, the lawsuit is based on claims that JP Morgan aided and abetted Madoff’s fraud.

“JPMorgan was willfully blind to the fraud, even after learning about numerous red flags surrounding Madoff,” David J. Sheehan,” counsel to Picard, said in the statement. “JPMC was at the very center of that fraud, and thoroughly complicit in it.”

Any money recovered from JPMorgan will be returned to Madoff’s victims on a pro rata basis, Picard said.

As reported Dec. 2 by Investment News, the lawsuit is the second-biggest filed by Picard in the Madoff bankruptcy. In May 2009, Picard filed a $7.2 billion claim against investor Jeffry Picower, who later died in October 2009.

Last month, Picard sued UBS AG for at least $2 billion, claiming the company also helped Madoff in his fraud.

Madoff currently is serving a 150-year prison sentence after admitting his guilt in the biggest Ponzi scheme – $65 billion – in U.S. history. Meanwhile, investors who were defrauded by Madoff lost some $20 billion in principal.

The trustee charged with trying to recover money for investors who were swindled by disgraced financier Bernard Madoff is now suing UBS AG and related entities and individuals on allegations they enabled Madoff’s Ponzi scheme.

As reported Nov. 25, 2010, by Investment News, the lawsuit – which alleges 23 counts of financial fraud and misconduct – seeks to recover at least $2 billion for Madoff’s victims. According to the complaint, UBS allegedly was an active participant in Madoff’s scam by serving as the sponsor, custodian and administrator of various affiliated feeder funds.

Madoff’s scheme could not succeed “unless UBS had agreed not only to look the other way, but also to pretend that they were truly ensuring the existence of assets and trades when in fact they were not and never did,” said David Sheehan, counsel for the trustee, in the Investment News story.

Madoff’s fraud, which is said to be the largest Ponzi scheme in U.S. history, was uncovered in December 2008. According to federal investigators, the scam may have begun as early as the 1980s. In total, investors lost some $65 billion.

On June 29, 2009, Madoff was sentenced to 150 years in federal prison.

Justice was blind recently when it came to sentencing a broker who defrauded investors out of more than $66 million. New York broker Bradley D. Eisner received five years’ probation for his role in a Ponzi scheme that convinced investors they were putting money in a foreign-exchange market when, in reality, the funds were being spent by Eisner and his business partner, Michael R. MacCaull.

The court apparently showed leniency toward Eisner because he turned himself in 2008 and began cooperating with the government. MacCaull, in the other hand, was sentenced to 15 years and eight months in prison in March.

As reported Sept. 20 by Bloomberg, Eisner and MacCaull operated their scam from January 2001 to January 2008.

At MacCaull’s sentencing, MacCaull called Eisner the mastermind of their Ponzi scheme and the one who benefited the most financially. According to MacCaull, Eisner kept the majority of the more than $110 million that their company, Razor FX, stole from investors. Prosecutors say both men used investors’ funds for their personal use, buying lavish homes, cars, and artworks by Picasso and Willem De Kooning.

To conceal the scheme, MacCaull and Eisner created fake customer account statements and returned tens of millions of dollars to investors with money from new ones. Both men must pay back $66.3 million to their victims.

According to prosecutors, a total of 272 investors found themselves victims of MacCaull and Eisner’s scheme. Two of those individuals were David B. Dringman and Evi Remp- Dringman.

“We lost our future financial security to Mr. Eisner, the public face of Razor FX,” said David B. Dringman and Evi Remp-Dringman, in the Bloomberg article. “Ultimately we were forced to make the decision to sell our home in California that we had hoped to keep for our future.”

The debacle involving Fair Finance and owner Tim Durham just keeps getting bigger. There are more than 13,000 outstanding Fair Finance investment certificates valued at more than $208 million, according to a just-released report from Brian Bash, the court-appointed trustee of Fair Finance. Translation: More than 13,000 claims will be filed as part of the Chapter 7 bankruptcy proceeding.

The offices of Fair Finance have remained closed since Nov. 24, after federal agents seized banking records and company computers. On that same day, the U.S. Attorney’s Office in Indianapolis filed court papers alleging that Fair Finance operated as a Ponzi scheme, using money from new investors to pay off prior purchasers of the investment certificates.

In other Fair Finance news, friends and business associates of Durham who accepted millions of dollars in loans from his company could be facing problems of their own.

As reported March 6 by the Indianapolis Business Journal, the trustee in the case, Brian Bash, is going to try and turn Fair Finance’s assets into cash wherever possible. That means firms and companies with outstanding loans from Fair Finance can expect to hear from Bash in the near future.

Extending loans enabled Durham to continue listing the money as assets on Fair Finance’s balance sheets, which in turn gave investors the false impression that the company was fiscally sound.

Moreover, Fair Finance had no outside auditor. In other words, there was no one to sound the alarm that there was something awry with Fair’s accounting procedures.

The various people and companies listed as owing money include Scott McKain, former vice chairman of Durham’s Indianapolis-based business Obsidian Enterprises; Joan SerVaas, Durham’s ex-wife and owner of Curtis Publishing; Jeff Osler, Durham’s brother in law and owner of Geist Sports Academy; Henri Najem, an Indianapolis restaurant owner who is best known for his Bella Vita restaurants; and MyGhetto.com, a social-networking site created by the rapper Ludacris, a close friend of Durham’s.

As reported in the IBJ article, some of the people and firms listed cite inaccuracies with the trustee’s list.

Embattled businessman Tim Durham apparently will not oppose the appointment of an interim receiver for Fair Finance and its parent corporation, Fair Holdings. The story was first reported on Feb. 11 by the Akron Beacon Journal. The news comes one week after the law firms of Maddox Hargett & Caruso and David P. Meyer and Associates Co. filed paperwork asking a Summit County, Ohio, court to appoint a receiver for Fair Finance and Fair Holdings.

Attorneys for Fair Finance deny the company has been involved in any wrongdoing.

The offices of Fair Finance have remained closed since Nov. 24 when the FBI raided the company’s Akron headquarters and the offices of a related business in Indianapolis, Obsidian Enterprises. According to court records, federal investigators suspect that Fair Finance was being operated as a Ponzi scheme.

Meanwhile, a federal judge is weighing whether to unseal search-warrant documents related to the FBI’s November raids. On Feb. 11, during a court hearing in Youngstown, Ohio, a representative of the U.S. Attorney’s Office in Indianapolis argued that unsealing the search warrants could damage the federal government’s ongoing investigation.

Christopher Bass, an Albany investment broker and president and CEO of Swiss Capital Harbor/USA, was arrested Feb. 8 on federal criminal charges of securities fraud for an alleged scheme involving more than 200 investors and $5.5 million. 

According to the criminal complaint, Bass allegedly deceived investors with promises of high returns via investments in his company, which also operated under the name Revisco Finanz. Investigators say the alleged scheme dates back to January 2007. 

Investors’ funds were supposedly invested in several overseas projects, including power plants that authorities now believe may not exist. Court documents say that less than half of investors’ money was used for the purposes conveyed by Bass. Instead, the majority of money went to bankroll Bass’ personal expenses or to repay other investors. 

As reported Feb. 9 by Times Union.com, bank records show that Bass allegedly used $169,858 of investors’ deposits to finance the purchase of his upscale home in Menands, and that at least $700,000 of investors’ money was disbursed to Bass.  Another $550,000 of investors’ deposits was used for payroll expenses at Swiss Capital Harbor, including $200,000 in gross pay to Bass and at least $50,000 to his family members. 

The complaint also says that more than $1.25 million of investors’ deposits was used to repay investors who ultimately demanded to get their money back or income from their investments, which is indicative of a Ponzi scheme.

According to the Times Union.com article, several people who were solicited to invest money with Bass and Swiss Capital Harbor had previously warned state and local authorities more than two years ago that his company was “suspicious” and appeared to be inflating the rate of its returns to investors. 

Bass’ offices, as well as his Park Hill Lane home, were raided last August by U.S. Custom agents. 

Some investors now say they have lost their entire life savings because of Bass’ alleged scheme.

As investigations continue into the business dealings of Tim Durham and Fair Finance, a motion has been filed on behalf of some Fair Finance investors to appoint a receiver in the case. The motion was filed Feb. 4 by the law firms of Maddox Hargett & Caruso and David P. Meyer and Associates.

“The remaining Fair Finance assets are in imminent danger of being siphoned away by [Tim] Durham and [Jim] Cochran now that their Ponzi scheme has been exposed,” said David Meyer of David P. Meyer and Associates, in a Feb. 4 article in the Indianapolis Business Journal.

In December, Meyer’s law firm, along with the law firm of Maddox Hargett & Caruso, filed a class-action lawsuit on behalf of investors who purchased $200 million in unsecured investment certificates from Akron, Ohio-based Fair Finance. Fair Finance is owned by Durham and Jim Cochran.

Following the November FBI raids on Fair Finance, investors have grown increasingly fearful that the company’s owners may be spending what remains of the company’s finances. The Akron offices of Fair Finance have been closed since the FBI raids, with no word from Durham on when or if his company will ever repay investors.

In December, Ohio Congressman John Boccieri called for an asset freeze on Fair Finance and its owners. He reiterated that plea in late January at a town hall meeting held in Ohio. As reported Jan. 27 by the IBJ, Boccieri was seeking the asset freeze after learning Fair Finance co-owner Jim Cochran had posted an ad on Craigslist for an estate sale at his $3.5 million Naples, Florida, residence. According to the article, the sale went as planned, with Cochran selling off everything from Bentley and Porsche automobiles to a 28-foot boat and a large potted plant.

The Feb. 4 motion for a receiver was filed in Summit County, Ohio. It asks that the receiver take control of Fair Finance and its parent company, Fair Holdings.

Tim Durham’s Fair Finance Company has officially withdrawn its request from the Ohio Department of Commerce’s Division of Securities to sell additional investment certificates to Ohio investors. The company has remained on lock down since Nov. 24 after federal prosecutors filed court papers accusing Durham of running a Ponzi scheme. That same day, FBI agents stormed Durham’s Indianapolis office and the Akron, Ohio, offices of Fair Financial where they seized boxes of banking records and computer equipment.

No one has been charged with criminal wrongdoing.

The FBI raids occurred one month after IBJ reporter Greg Andrews published an in-depth investigative story that raised questions about the financial health of Fair Financial and whether the company had enough money to repay the $200 million it owed to Ohio investors.

A number of stories have since come forth citing evidence that Durham and others used Fair Finance as a personal bank for years.

“We concluded some time ago that Ohio would never allow Fair Finance to register any more securities,” said Thomas Hargett of Maddox Hargett & Caruso P.C., in a Jan. 13 article in the Indianapolis Star. Hargett and David P. Meyer & Associates Co. are working to get class-action status on behalf of investors. Their complaint, filed last month in Akron, Ohio, accuses Fair Finance and its officers of violating the Ohio Securities Act and other breaches of legal duty that included duping investors into buying investment certificates from Fair Finance.

Late last month, more than 1,000 Fair Finance investors packed the Fisher Auditorium at the Ohio Agricultural Research and Development Center in hopes of getting some answers about their investments.

The meeting was spearheaded by Ohio Congressman John Boccieri, who invited area attorneys, Ohio securities officials and representatives from the FBI to answer questions and offer guidance to investors.

As reported Jan. 27 by The Daily Record, one investor asked what was being done about potential asset liquidations, noting that Durham’s 98-foot yacht is reportedly up for sale. Other investors wanted to know why the U.S Attorney’s Office decided to drop the civil suit against Durham and unfreeze his assets.

“Reports have said that Mr. Durham doesn’t want to be known as one of the richest men in America, he wants to be the richest man in America,” Boccieri said in the article. “I find that absolutely egregious and that people would do this and perpetuate such acts on people who have put their life savings in these types of investments.”

If you have questions about investments in Fair Finance, contact us.