Businesspeople across Indianapolis who accepted millions of dollars in loans from Tim Durham’s Fair Finance Co. have
a new reason to worry.
Now that the Akron, Ohio, company is in Chapter 7 bankruptcy, and a trustee is in charge of turning the company’s assets into cash, the borrowers can expect heavy-handed collection tactics.
“There’s a new sheriff in town,” said Charles Greer, a veteran Indianapolis bankruptcy lawyer and consultant who is not involved in the case.
The list of people who may have reason to squirm includes restaurateur Henri Najem and Jeff Osler, Durham’s brother in law and owner of Geist Sports Academy. Both are on a list of borrowers Fair submitted to Ohio securities regulators in November. Neither returned calls from IBJ.
Durham, Fair’s CEO and co-owner, might have given borrowers on the ropes more wiggle room because acknowledging loans were uncollectible would have forced the company to write them off.
Extending loans or reducing interest rates allowed Fair to continue listing them as assets on its balance sheet—fueling the impression the company was healthy. Fair had a strong incentive in recent years to appear on solid footing because it repeatedly sought and received approval from Ohio securities regulators to sell hundreds of millions of dollars in investment certificates to the state’s residents.
Of course, an accounting firm in charge of auditing Fair’s books would be expected to halt any such shenanigans. But Fair had no outside auditor. It used a form of securities registration that didn’t require audited financials. And though Ohio regulators could have asked for them anyway, they didn’t.
The trustee, Cleveland attorney Brian Bash, also won’t let personal relationships get in the way of collection efforts, legal observers said. Fair records list more than $168 million in related-party loans. Maximizing collection on those will boost the recovery for the purchasers of investment certificates, who collectively are owed more than $200 million.
Fair has been closed since Nov. 24, when FBI agents seized company records. The same day, the U.S. Attorney’s Office in Indianapolis filed court papers alleging Fair operated as a Ponzi scheme, using money from new investors to pay off prior purchasers of investment certificates.
But Bash may not hold all the cards. The list Fair submitted to regulators has the heading “loan receivables/investments.” If some really are investments, and the recipients are struggling financially, the trustee may have no grounds to collect.
And some people and companies contend the sketchy information on the list about them is wrong.
Scott McKain, an author and professional speaker who formerly was vice chairman of Durham’s buyout firm Obsidian Enterprises, said he doesn’t owe the $115,000 listed for him.
Indianapolis attorney Bob Hammerle said he is representing McKain and several other people who are working with investigators to get themselves removed from loan lists.
“There are any number of people who are stunned to find out they allegedly owed money,” Hammerle said. “Like Mr. McKain, they have no idea why they are listed.”
Joan SerVaas, Durham’s ex-wife and owner of Curtis Publishing in Indianapolis, said her firm doesn’t owe the $1.05 million that appears on the list. She said Curtis did borrow less than $100,000 to buy printing equipment about five years ago but paid it back.
“I think that list was where he was trying to define where the loans had gone,” SerVaas said. “He misidentified that one—that is what he told me.
“I don’t think he really had good records of where some of that money was going.”
Larry Mackey, an attorney for Durham, said he would not discuss financial specifics until investigators wrap up their work.
He said he believes the offering circulars Ohio residents received before investing were “true and accurate and any losses suffered were the result of our nationwide economic struggles and not fraud.”
Many of the firms and individuals on the list are showing the same financial strains.
MyGhetto.com, a social-networking site launched by the rapper Ludacris, one of Durham’s pals, appears to have shut down, casting uncertainty over whether it can repay the $170,000 Fair says it owes.
Firms tied to restaurateur Najem owe more than $1.5 million, according to the list. Najem, best known for his Bella Vita restaurants, has faced at least two lawsuits over the past year over unpaid bills.
Osler and his Geist Sports Academy owe $1.8 million, according to the list. The 5-acre property is listed for sale for $1.4 million and has more than $95,000 in taxes owed on it.
David Mucklow, an attorney who pushed Fair into bankruptcy, thinks Bash, the trustee, will turn over every stone.
“I think he will be aggressive, and he is competent,” Mucklow said. “He will do a fine job.”•