Category Archives: Ponzi Scheme

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.’”

The federal government withdrew its request to seize the assets of Indianapolis financier Tim Durham on Nov. 30. According to the Indianapolis Business Journal, the U.S. Attorney’s Office based its decision on assurances that Durham’s assets were not being dissipated. There’s no word on who provided those assurances.

The previous lawsuit had been filed Nov. 24, and alleged that Durham, his associates and his companies misled investors into buying investment certificates in which they believed their money would be invested in low-risk, high-yield short-term consumer debt.

“Instead, the money provided by victims of the scheme was used to make interest and redemption payments to earlier victims of the scheme, thereby lulling the earlier victims into believing that their money was being (invested) responsibly,” the complaint said.

On the same day the now-dismissed civil lawsuit was filed, the FBI raided two of Durham’s companies – Fair Finance Co. and Indianapolis-based Obsidian Enterprises.

The Akron Beacon Journal reported on Nov. 30 that the headquarters of Fair Finance remained closed and empty today as a steady stream of worried customers drove in to try to check on their investments.

Timothy Durham’s rich and famous lifestyle may have had less to do with investing prowess and more to do with his ability to allegedly defraud investors, according to court papers filed by the federal government on Nov. 24. The documents accuse Durham of committing wire fraud and seek forfeiture of Durham’s $30 million mansion, his residence in Los Angeles, a 2008 Bugatti Veyron and 18 different investment accounts.

The complaint alleges that Durham, his companies and various associates concocted a scheme to defraud investors, convincing them to buy investment certificates from Durham’s company – Fair Finance – and that their money would go toward low-risk, high yield, short term consumer debts. In turn, investors were to receive high regular interest payments on their investments.

Instead, court papers allege that the money essentially was used to carry out a Ponzi scheme, with funds “provided by victims of the scheme used to make interest and redemption payments to earlier victims of the scheme, thereby lulling the earlier victims into believing that their money was being [used] responsibly and enticing new investors into the scheme in order to fund payments to the earlier investors.”

The civil forfeiture action was filed on the same day that the FBI conducted simultaneous raids on Durham’s businesses in Indianapolis and Ohio – Obsidian Enterprises and Fair Financial (also known as Fair Finance).

The complaint of forfeiture further alleges that Durham wired $84.2 million of Fair Finance’s funds to a First Indiana bank account of Fair Holdings, the parent company of Fair Finance. Fair Holdings then wired money to 50 individuals and businesses over a five-year period, according to the complaint. Among the most significant transactions noted, approximately $20 million went to:

•$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)

•$1.4 million RM Auctions (a classic car auctioneer; as of June 2008, Durham owned 70 classic and exotic cars)

•$1 million to Champion Trailer (former subsidiary of Obsidian Enterprises)

•$804,000 to Playa Del Racing (IndyCar racing team controlled by Durham)

•$730,000 to Pyramid Coach (former subsidiary of Obsidian Enterprises)

•$690,000 to Evaco Acquisition Corp. d/b/a Superline Trailers

•$495,000 to McDonald Investments (a brokerage firm)

•$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)

•$100,000 to Tim Durham (co-owner of Fair Financial)

The FBI isn’t talking, but local and national news outlets have plenty to say about simultaneous raids that took place Nov. 24 on two Tim Durham companies – Indianapolis-based Obsidian Enterprises and Fair Financial in Akron, Ohio. At both locations, federal agents hauled away numerous boxes containing banking-related information and other documents.  

The basis for the search warrants is still unknown, but many believe they stem to whether Fair Financial has the money to repay Ohio investors who purchased some $207 million in investment certificates – a question that initially sparked attention following an investigative story published in October by theIndianapolis Business Journal. 

A follow-up IBJ story dated Nov. 28 says the latest situation involving Durham has some investors becoming increasingly concerned: “Many have been purchasing or rolling over investment certificates for years, enticed by lofty interest rates. Fair has been paying as much as 9% on 24-month notes,” the article said. 

That amount – 9% – is three times what commercial banks pay on certificates of deposit with similar terms. CDs have a government guarantee – something Fair Financial investors most definitely do not.  

The IBJ story cites one Fair investor, Harley Himes, 82, who said that he and his wife live off the monthly interest payments they receive from their Fair certificates.  

“I was an investor back when the original owner owned it,” said Himes. “We didn’t have any problem with him. You kind of get used to a good thing. Then you find it is not such a good thing.” 

The original owner of Fair Financial that Himes refers to was car dealer Ray Fair, who founded the business to provide loans to customers during the Great Depression. The company, which also does business as Fair Finance, stopped making vehicle loans in 1959 and began providing second mortgages, small consumer loans, and financial investments. 

Durham bought the business from the Fair family in 2002.  

One of the key issues now facing Durham may be the offering circulars that were provided to prospective Fair Financial investors and, specifically, whether that information contained any material misrepresentations or omissions. 
 
The circulars themselves are more than 40 pages in length, difficult to understand and offer confusing information about insider loans and what constitutes as collateral for the loans. 
 
“Are you telling enough about the entities receiving insider loans, and what kind of shape they are in?” asked Mark Maddox in the IBJ article. Maddox serves as an Indianapolis securities attorney with the law firm of Maddox Hargett & Carusuo P.C., which is considering representing investors in civil litigation against Fair Financial and Tim Durham. 

Read the entire IBJ Nov. 28 story about Durham here.  

If you’ve had investment dealings with Tim Durham or Fair Financial, we want to hear your story. Leave a message in the Comment Box below or via the Contact Us form.

Access International Advisors LLC’s LuxAlpha Sicav-American Selection Fund could mean hundreds of damages claims for UBS AG and Ernst & Young LLP if investors who lost millions of dollars in the Bernard Madoff-linked fund emerge victorious in their case. The story was first reported Nov. 25 by Bloomberg.

According to the article, individual and institutional investors who lost money through the LuxAlpha Sicav-American Selection Fund are suing UBS and Ernst & Young for “seriously neglecting” their supervisory duties of the fund. It’s now up to a Luxembourg court to decide whether investors have the right to bring direct claims against the fund’s custodian and auditor – UBS and Ernst & Young.

Hearings on the matter started today.

At one time, the LuxAlpha SicavAmerican Selection Fund had $1.4 billion in assets. Following Madoff’s arrest, the fund was dissolved.

UBS’s Luxembourg unit served as the custodian bank to the LuxAlpha Sicav-American Selection Fund. Custodians are responsible for oversight, as well as managing deposits and making payments to investors.

As for Ernst & Young, its role in LuxAlpha included auditing the fund’s annual accounts. In one complaint, a French investor claimed Ernst & Young is “co-responsible” for losses because it “didn’t follow the necessary obligatory controls and checks,” according to the Bloomberg article.

Tell us about your situation with LuxAlpha Sicav-American Selection Fund and Access International Advisors by leaving a message in the Comment Box below or via the Contact Us form. We want to counsel you on your legal options.