Legal Issues and Investment Losses and Fraud and Investing and Banking & Finance and Tim Durham and Law

Feds go after Fair Finance CFO, despite murkier motive

March 26, 2011

It is easy to see how prosecutors would attempt to vilify Fair Finance Co. co-owners Tim Durham and Jim Cochran if their fraud case against the pair advances to trial.

Both burned through millions of dollars provided by mom-and-pop Ohio investors—in part to fund lavish lifestyles. One of the more egregious examples listed in the March 15 felony indictment: In early 2008, when Fair’s finances were dire, Durham pulled out $150,000 for gambling.

In contrast, Fair’s chief financial officer, Rick Snow, the third man indicted in what prosecutors call the largest corporate fraud in Indiana history, isn’t accused of tapping Fair for a bevy of loans, then failing to repay the money.

When Snow moved to Indianapolis years ago, he received a swing loan to buy his house, but promptly repaid the money when his prior residence sold, said Tom Farlow, his attorney.

Farlow said Snow didn’t receive other loans and is guilty of nothing.

“He was an employee of the company, he did his job, and he did it well and correctly,” he said.

Tim Morrison, first assistant U.S. attorney, would not comment on the case against Snow, a certified public accountant who served as Fair’s CFO from 2002 until the company shut down in November 2009.

“The evidence will come in when it comes in,” Morrison said.

If Snow wasn’t awash in loans, what motive would he have to help orchestrate a fraud? Perhaps to continue receiving rich compensation, suggested Joe Esmont, an attorney for the trustee in Fair Finance’s bankruptcy liquidation.

In 2008, Snow earned $202,039 for serving as Fair’s CFO and another $111,240 for serving as CFO of Fair’s parent company, Fair Holdings Inc. He also may have received compensation for serving as CFO of two other companies Durham led—Indianapolis-based Obsidian Enterprises Inc. and Los Angeles-based National Lampoon Inc.

Farlow said: “His income was commensurate with others in the industry serving in those roles. It was not out of line.”

The 23-page indictment alleges that Durham, 48, and Cochran, 55, worked with Snow, 47, to devise and execute a scheme to defraud investors in Akron, Ohio-based Fair.

Authorities say company executives doled out related-party loans with abandon, leaving Fair unable to repay Ohio residents who purchased unsecured investment certificates. More than 5,200 investors are owed more than $230 million.

When an accounting firm in 2005 insisted that the related party loans were not arm’s-length transactions and had insufficient collateral, Durham, Cochran and Snow fired the firm, the indictment alleges.

The indictment indicates company officials in November 2009 were desperately trying to win approval from the Ohio Division of Securities to sell additional investment certificates.

On Nov. 13, 11 days before FBI agents raided Fair’s offices, “Durham and Snow had a telephone conversation in which they planned to ‘wipe off’ millions of dollars in bad debts so that they would not have to explain or justify the debts to the Division of Securities,” the indictment says.

A grand jury indicted Durham, Cochran and Snow on 10 counts of wire fraud, one count of securities fraud, and one count of conspiracy to commit wire fraud and securities fraud.

Each faces a maximum of 20 years in prison for each wire fraud count, 20 years in prison for the securities fraud count, and five years in prison for the conspiracy charge.

Big names behind Allison

The last Indiana company to launch an initial public offering—West Lafayette-based Endocyte Inc.—had to cut the offering price repeatedly to line up buyers.

Don’t expect a similarly bumpy experience for Speedway-based Allison Transmission Holdings Inc., which filed this month for a $750 million IPO.

Endocyte, which went public in February, suffered from not having a heavyweight underwriter, said David Menlow, president of IPOfinancial.com in Millburn, N.J. Handling the deal was Toronto’s RBC Capital Markets.

Allison couldn’t dream of more lustrous underwriters for its offering. They’re the biggest names on Wall Street: Merrill Lynch, Credit Suisse, Citi, Morgan Stanley, J.P. Morgan and Goldman Sachs.

Allison, which reported 2010 sales of $1.9 billion, has spent the past couple of years getting its financial house in order. It lost $300 million over two years before reporting a $29.6 million profit in 2010.

General Motors spun off Allison in 2007 to private-equity owners Carlyle Group and Onex. Allison expects that its two “sponsors” will continue to control a majority of voting rights after the IPO.•

ADVERTISEMENT

Recent Articles by Greg Andrews

Comments powered by Disqus