Fraud and Banking & Finance and Investing and Tim Durham and Law

Fair Finance investors aim ire at U.S. attorney

January 30, 2010

Fair Finance Co. investors who attended an informational meeting in Ohio Jan. 26 expressed outrage at Tim Durham, the man they suspect of looting the Akron-based company.

But they also have plenty of harsh words for Tim Morrison, the U.S. attorney for the Southern District of Indiana, for not pursuing legal action to lock down Durham’s assets and those of Fair. They fear that whatever’s left of the $200 million they poured into the business will vanish while FBI and U.S. Securities and Exchange Commission investigations continue.

Morrison is supposed to be one of the good guys. The career prosecutor has been with the U.S. Attorney’s Office for two decades. Before that, he was chief deputy prosecutor in Monroe County and supervising deputy prosecutor in Marion County, where he handled sex crimes and homicides.

Morrison’s office on Nov. 24 filed a lawsuit seeking to seize Durham’s Geist mansion and other assets, but dropped it six days later. Having [received] appropriate assurance [that assets] are not being dissipated, that litigation stopped,” he said at the time.

He hasn’t explained the nature of the assurance, which presumably came from Larry Mackey, the high-profile criminal defense attorney representing Durham. (Mackey, a partner with Barnes & Thornburg, was out of state at trial and unavailable for an interview with IBJ). But whatever it was, investors and their attorneys say it lacks the weight of a court order.

In response to the latest calls for an asset freeze, Morrison would say only, “The investigation is ongoing, and issues of asset forfeiture are part of the criminal investigation.”

Indianapolis criminal defense attorney Thomas Farlow said he finds the backtracking on the forfeiture lawsuit curious.

Farlow, an attorney with Frost Brown Todd who is not representing anyone in the investigation, noted that that the U.S. Attorney’s Office normally doesn’t bring such litigation unless it is confident it will win. And he said monitoring assets without a court order would be tricky, since Durham oversaw a web of companies, many of which owe money to Fair.

Prosecutors filed the suit a month after IBJ reported that Durham had used Fair almost like a personal bank since buying it in 2002. The story said he, his associates and related firm rung up more than $168 million in insider loans—debt that might imperil Fair’s ability to repay the Ohio residents who bought investments certificates.

The suit alleged Durham ran a Ponzi scheme. Instead of putting investor money into Fair’s core business—buying short-term consumer debt—it went toward repaying earlier investors, “thereby lulling the earlier victims into believing that their money was being [handled] responsibly.”

The filing of the case wasn’t the action of a renegade. Legal observers call Morrison deliberate and conservative. And because he’s a staffer, not a nominee of President Obama, he consults with the Department of Justice in Washington, D.C., on major decisions. He’ll step out of the top job once Obama picks a U.S. attorney for the district, and the Senate confirms the selection.

Other options

Ohio Congressman John Boccieri is trying to pressure Morrison into reviving the legal fight by rallying investors to the cause. At the information meeting, he asked investors to send their personal stories to freezefairfinanceassets@mail.house.gov.

But attorneys for investors are considering strategies for taking matters into their own hands, such as filing a lawsuit seeking the appointment of a receiver or putting the company into involuntary bankruptcy.

“The risk of having this go further without going into the federal courts is, you are going to have a dissipation of assets,” said David Mucklow, an Ohio attorney who attended the Jan. 26 meeting. He held an investor meeting two days later to discuss filing an involuntary bankruptcy.

Some other attorneys representing investors question that strategy because unsecured creditors—such as the Ohio investors who purchased investment certificates—are last in line for repayment under the bankruptcy process.

But Jim Knauer, an Indianapolis attorney who isn’t representing anyone involved in the investigation, said he’s shocked investors already haven’t taken steps to put the assets under court control.

Knauer noted that the largest source of funds available for recovery are the insider loans taken out by various Durham businesses. He said making sure someone is vigilantly trying to collect on those is more important than the priority of repayment.

“One wonders, because of the incestuous relationship, how zealously those claims are being pursued at the moment,” he said.•

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