Tim Durham, the so-called “Madoff of the Midwest” and the Indianapolis businessman accused of swindling 5,000 Fair Finance investors out of more than $200 million, has been denied a pre-sentencing release by U.S. District Judge Jane E. Magnus-Stinson.

Instead, Durham will remain in prison until his formal sentencing. Judge Magnus-Stinson announced her ruling earlier today, noting that Durham is considered a flight risk because of the life sentence he faces.

Durham was convicted of 12 felony fraud charges on June 20 in connection to a Ponzi scheme to defraud investors of Ohio-based Fair Finance. Prosecutors say Durham and fellow Fair Finance business associates James Cochran and Rick Snow used investors’ money to make personal loans to themselves and buy luxury mansions, fancy cars and other extravagant items.

Like Durham, Cochran also will remain in jail until his sentencing. Snow was placed on home detention.

A sentencing hearing is expected to take place within the next 90 days. 

U.S. Attorney Joe Hogsett, whose office is handling the Durham case, says he plans to seek life-in-prison terms for Durham.

“It is our continued hope that through these convictions, and the historic sentences we plan to seek, we will be able to bring some measure of justice to the thousands of victims of these criminal acts,” said Hogsett in a statement.

As reported June 25 by the Indianapolis Business Journal, Judge Magnus-Stinson apparently scoffed at a suggestion from John Tompkins, Durham’s defense attorney, to require a higher bond for Durham and in exchange allow him to maintain an office so he could help “find” money to pay back Fair Finance investors.

Prominent Indianapolis businessman and Durham’s former father-in-law Beurt SerVaas had previously guaranteed $1 million to bond Durham out of federal detention last year. Judge Magnus-Stinson suggested that the assets of the bond could have been “put up with Fair money in the first place” based on some of the insider loans Fair Finance had made to Durham and his family and friends.

The judge further said that the jury’s verdict sends a message that Durham has “no respect for other people’s money,” according to the IBJ article.

 

 

By all accounts, Tim Durham is a smart guy – a financial mastermind who built companies and orchestrated complex business deals worth millions of dollars. Then, greed apparently caught up with him. On June 20, Durham was convicted of 12 felony fraud charges, and now faces the very real possibility of living out the rest of his life behind prison bars.

Durham is currently locked up in the Marion County Jail, awaiting a detention hearing set for Monday that decides whether he remains in jail until his formal sentencing.

It’s quite a change from the mansions and lavish lifestyle that Durham has been accustomed to. But then again, 5,000 other lives have been drastically altered, as well. They are the elderly investors of Fair Finance and the individuals that the government says were swindled out of more than $200 million by Durham and two business associates, Jim Cochran and Rick Snow.

Durham’s six-day trial included thousands of pages of documents and taped phone conversation from FBI wiretaps, as U.S. prosecutors presented evidence to show jurors that Durham and fellow Fair Finance executives Cochran and Snow ran Fair Finance as a Ponzi scheme. Prosecutors alleged that the defendants used Fair Finance as their own personal bank, taking out tens of millions of dollars in related-party loans for themselves and friends. The loans were never repaid.

During the course of Durham’s trial, FBI-recorded phone conversations captured Durham and Cochran devising excuses to tell investors who wanted to cash in their investments or why they would no longer be receiving interest payments. The recordings also revealed conversations between Durham and Snow about how to hide bad loans that Fair Financial had made.

Durham’s defense attorney, John Tompkins, says his client plans to appeal the 12 felony convictions.

Tim Durham once presided over a financial empire that included Fair Finance, several investment businesses, media properties, mansions in Indiana and California, priceless art pieces, a private jet and a bevy of contemporary and classic sports cars. On June 20, a federal jury found Durham guilty of 12 felony fraud charges.

Federal rules require inmates to serve at least 85% of their sentence even with good behavior. Based on those guidelines, that means the maximum sentence for Durham’s 12 convictions is 225 years.

For the 5,000 investors in Ohio-based Fair Finance whom Durham and two business associates are accused of swindling out of more than $200 million, the conviction is long-awaited justice.  

Durham and his attorney say they plan to appeal the 12 felony fraud convictions. For now, Durham remains locked up in the Marion County Jail. On Monday, a hearing will be held to decide if he remains there until his formal sentencing.

Fair Finance’s Tim Durham may soon be trading his once-lavish lifestyle of mansions and expensive cars for prison garb and a 6×8-foot prison cell. Durham was found guilty on June 20 of 10 counts of wire fraud, one count of securities fraud and one count of conspiracy to commit wire and securities fraud, all felonies.

Durham and two other Fair Finance executives – James F. Cochran and Rick Snow – were convicted by a federal jury of conning 5,000 investors out of more than $200 million. All three men could spend the rest of their lives in prison and pay $250,000 in fines. Cochran and Snow were found guilty on eight and five counts, respectively.

United States Attorney Joseph H. Hogsett told reporters that the guilty verdict sends a powerful message to those who would “sacrifice truth in the name of greed,” adding that, “no  matter who you are, no matter how much money you have, no matter how powerful your friends may be, in a free society no one is above the law.”

Federal investigators raided Durham’s downtown Indianapolis headquarters in November 2009 and seized business records on Fair Finance. Among other allegations, investigators said that Durham and his partners used Fair Finance as their own personal private bank, taking investors’ money to pay for Durham’s high-end lifestyle, which included several mansions, a luxury car collection, boats, trips and over-the-top parties.

During the seven-day federal trial, prosecutors presented jurors with reams of evidence to back up their claims, including business records, transcripts and the actual recording of telephone calls and emails documenting what they say was an elaborate Ponzi scheme.

As reported June 20 by the Indianapolis Star, Durham seemed to gasp as the first guilty verdict was revealed. He, Cochran and Snow were then placed in handcuffs and led away by U.S. marshals to the Marion County Jail.

Durham alone could face a maximum of 225 years in prison.

A June 17 story by the Orlando Sentinel examines restitution-recovery rates in Florida, which has the second-lowest restitution-recovery rate among the 10 largest U.S. states from 2007 through 2011. According to an analysis of federal data, Florida’s recovery rate was 4.1% during those five years, compared with California (38%), Texas (29%) and New York (16%).

Part of Florida’s problem has been organizational inefficiency, says the Orlando Sentinel story. A new reorganization plan was set in place in January 2011, with improved collection of restitution made a priority by U.S. Attorney Robert O’Neil, the federal law enforcement officer for Florida’s Middle District.

A recent case illustrates some of the strides that Florida is making. In 2009, federal agents persuaded a judge to freeze the assets of David Merrick, who had been charged with running a multimillion-dollar Ponzi scheme. Two-and-a-half years later, authorities have recouped much of the $11.5 million that Merrick was ordered to pay the hundreds of victims he swindled.

“The Merrick case is a success story for victims of financial crime,” said Assistant U.S. Attorney Anita M. Cream, head of asset recovery for federal courts in Central Florida, in the Orlando Sentinel article. “Getting a return of 80% or more of the losses in a case like this is just very rare.”

In the Merrick case, regulators sued him, alleging civil fraud, while simultaneously moving to freeze his assets. Meanwhile, prosecutors then pursued their criminal case and eventually got Merrick to cooperate with them. Merrick pleaded guilty to conspiracy and wire fraud and was sentenced in January 2012 to eight years in prison.

Financial aid, health insurance and Ponzi schemes are the latest focus of three growing cons and investment frauds, according to regulators and investor-protection agencies.

The Better Business Bureau recently issued a warning to families and college students about Web sites, seminars and other schemes that promise to find scholarships, grants or financial aid packages in exchange for an upfront fee. Some companies promise a money-back guarantee, but set so many conditions that it’s almost impossible to get a refund. Others tell students they’ve been selected as finalists for a grant or scholarship but must first pay a fee to be eligible for the award.

Last week, the Federal Trade Commission halted a telemarketing scam that allegedly tricked consumers who were looking for affordable health insurance into buying worthless medical discount plans.

Health Care One LLC and three affiliated companies – Americans4Healthcare Inc., Elite Business Solutions, Mile High Enterprise – agreed to settlements that will bar them from any healthcare-related enterprise and from selling goods or services related to healthcare. The settlements also prohibit the defendants from violating the Telemarketing Sales Rule and require them to turn over their ill-gotten gains.

Finally, on June 12, the Securities and Exchange Commission (SEC) charged 14 sales agents who misled investors and illegally sold securities for a Long Island-based investment firm at the center of a $415 million Ponzi scheme.

According to the SEC’s complaint, the sales agents – which include four sets of siblings – falsely promised investor returns as high as 14% in several weeks when they sold investments offered by Agape World, Inc. The agents also misled investors into believing that only 1% of their principal would be at risk.

The Agape securities being peddled were actually non-existent. Instead, investors were simply lured into a classic Ponzi scheme in which earlier investors are paid with new investor funds. The sales agents turned a blind eye to red flags of fraud and sold the investments without hesitation, receiving more than $52 million in commissions and payments out of the investors’ funds. None of the sales agents were registered with the SEC to sell securities, nor were they associated with a registered broker or dealer. Agape also was not registered with the SEC.

“This Ponzi scheme spread like wildfire throughLong Island’s middle-class communities because this small group of individuals blindly promoted the offerings as particularly safe and profitable,” said Andrew M. Calamari, Acting Regional Director for the SEC’s New York Regional Office. “These sales agents raked in commissions without regard for investors or any apparent concern for Agape’s financial distress and inability to meet investor redemptions.”

The SEC says that more than 5,000 investors nationwide were affected by the scheme, which lasted from 2005 to January 2009, when Agape’s president and organizer of the scheme Nicholas J. Cosmo was arrested. He was later sentenced to 300 months in prison and ordered to pay more than $179 million in restitution.

 

Just weeks after facing $2.6 million in fines by the Financial Industry Regulatory Authority (FINRA) over sales of collateralized mortgage obligations (CMOs), broker/dealer Brookstone Securities has closed up shop.

Last month, a FINRA arbitration panel fined Brookstone $1 million, as well as ordered the firm, its majority owner and ex-chief executive, Antony Lee Turbeville, and a broker, Christopher Kline, to pay $1.62 million in restitution to elderly clients who bought the risky CMOs in question.

According to the FINRA panel who rendered the decision, Brookstone Securities made “fraudulent misrepresentation and omissions of material fact in selling complex, esoteric and risky tranches of [CMOs] to unsophisticated, elderly and retired investors.”

In shuttering its operations, Brookstone Securities also reportedly failed to pay nearly 200 of its affiliated reps and advisers, according to a June 15 story by Investment News.

Brookstone Securities is headquartered in Lakeland,Fla.; in 2011, the firm reported $27.3 million in total revenue.

Sales of structured products have landed Merrill Lynch in hot water with the Financial Industry Regulatory Authority (FINRA), with Merrill agreeing to pay a $450,000 fine.

As reported June 14 by Investment News, the settlement agreement between Merrill and FINRA was reached June 11. According to FINRA, Merrill did not have an automated compliance reporting system in place to flag potentially unsuitable concentrations of structured products in customer accounts from 2006 through March 2009.

During that time, FINRA says Merrill’s customers made 650,000 purchases of structured products. More than half of the products were issued by Merrill’s parent company.

Because structured products are unsecured debt obligations of the issuing firm, customers face an “issuer risk,” FINRA contends, a fact that “underscores the importance of ensuring that customers invest only an appropriate amount of their assets in such products.”

The elderly are becoming victims of financial fraud and abuse in growing numbers, according to a just released online survey by Investor Protection Trust. Findings from the survey show that 84% of 762 experts who deal with investment fraud/financial exploitation of America’s senior citizens agree that the problem of swindles targeting the elderly is getting worse today.

Another key finding from the survey: Nearly all of the respondents – 99% – believe that older Americans are “very vulnerable” (75%) or “somewhat vulnerable” (24%) to financial swindles.

The survey was released in advance of a White House meeting on elder abuse scheduled for today and two days ahead of World Elder Abuse Awareness Day on Friday.

Other findings from the IPT survey include the following:

•Nearly three out of four respondents (58%) deal with elderly victims of investment fraud/financial exploitation “quite often” or “somewhat often.”  Fewer than one in 10 (7%) say they never deal with such victims.

•Nearly all of the experts (96%) say the problem of elderly investment fraud/financial exploitation in the U.S. is “very serious” (70%) or “somewhat serious” (26%).

•More than nine out 10 respondents (93%) indicate that medical professionals can play a “very” or “somewhat” important role “when they are trained to spot and report the warning signs of elderly investment fraud/financial exploitation.”

“The message from those on the front lines of investor protection is clear:  Swindles targeting older Americans are a bigger problem today than ever before,” says Don Blandin, president and CEO of Investor Protection Trust.

“Advisers have an obligation to protect senior clients from financial exploitation, according to Robert Lam, chairman of Investor Protection Institute and chairman of the Pennsylvania Securities Commission. “They have a duty and responsibility to report [abuse] to the authorities, and they have some personal liability if they don’t,” he added.

Two months ago, Merrill Lynch was ordered to pay more than $10 million by a Financial Industry Regulatory Authority (FINRA) arbitration panel to two former brokers – Tamara Smolchek and Meri Ramazio – who had sued Merrill Lynch for deferred compensation they lost after leaving for Morgan Stanley in 2008.

Following the decision, Merrill Lynch went to court to try to get the award overturned on allegations of arbitrator bias.

As reported June 7 by Reuters, the detailed arbitration ruling in the case offers insight into the way in which Merrill Lynch is fighting claims from former brokers.

“Merrill has been very aggressive and has tried to make an example of former brokers who dared to question anything ‘Mother Merrill’ has done,” said Steven Caruso of Maddox Hargett & Caruso in New York, in the Reuters article. Caruso also is chairman of a FINRA advisory group that weighs in on arbitration rules and procedures.

At issue are years of deferred compensation held in stock savings plans. Typically, that money is only paid if a broker stays at the firm for a certain number of years. But brokers also get paid if they leave for “good reason” as defined by the compensation plans. More than 3,300 brokers left Merrill Lynch after its September 2008 merger agreement with Bank of America.

After Merrill denied their deferred-pay requests, many of the brokers are pursuing claims that the merger constitutes good reason for collecting their deferred pay.

Meanwhile, Merrill says the cases are without merit.

“Financial advisors who received stock awards understood that they would forfeit any unvested stock if they decided to leave the firm,” a Merrill spokesman said in the Reuters story. “Merrill Lynch’s acquisition by Bank of America alone didn’t trigger any change to that as an acquisition by itself does not provide any basis for these type of claims.”

But FINRA’s 16-page ruling that resulted in the $10.2 million award for former Merrill Lynch brokers Smolchek and Ramazio apparently deems otherwise. Not only do arbitrators disagree with Merrill’s stance, but they also detail the firm’s treatment of its brokers and its tactics during the hearings.

Merrill “made fraudulent misrepresentations and withheld information from claimants,” the arbitration panel said in part in its decision “and used other retaliatory and coercive tactics against (brokers) to accomplish its unlawful objective” of withholding pay.

Read the complete Reuters story here.