Fair Finance Co.’s bankruptcy trustee sued Shelbyville’s SCB Bank this week, charging it refuses to turn over hundreds of thousands of dollars it raised by auctioning off one of Tim Durham’s most valuable automobiles, a 1929 Duesenberg.
The spat stems from a $580,000 loan SCB extended to Durham on Oct. 23, 2009—one day before IBJ ran an investigative story questioning whether the Indianapolis businessman had the financial wherewithal to repay tens of millions of dollars that he and his businesses had borrowed from Fair Finance.
A month later, the FBI raided Fair’s Akron, Ohio, headquarters and Durham’s office atop Chase Tower in downtown Indianapolis—part of a probe that led to his indictment in March on felony charges of orchestrating a Ponzi scheme that defrauded investors of hundreds of millions of dollars.
Fair Finance’s trustee, Cleveland attorney Brian Bash, is trying to scrape together money to return to the 5,000 Ohio residents who purchased more than $200 million in unsecured investment certificates from Fair. He’s recovered about $2.3 million so far.
The lawsuit says SCB extended the loan to Durham and to Durham's Diamond Investments, and in return Diamond gave the bank title to the Duesenberg.
“This loan allowed Durham to keep his fraudulent empire on life-support for several more months while the FBI and the public demanded answers on the misappropriated Fair Finance funds,” according to the suit.
The Fair Finance trustee said providing that collateral was improper because Diamond years earlier already had pledged the automobile to Fair to secure millions of dollars it borrowed from the finance business.
Durham last year turned over his collection of classic automobiles to the trustee, who sold them at auction. However, the Duesenberg wasn’t part of that sale because the title was missing.
Bash later learned SCB had the title and, in January, the bank auctioned the Duesenberg for $1.1 million. SCB used proceeds to pay off the $592,043 then owed on the $580,000 loan. SCB pocketed another $197,731 to cover its attorneys’ fees and costs and then applied the remainder—$316,139—to pay down the balance Durham owed the bank under a home equity line of credit.
The trustee alleges Fair is entitled to the $316,139, since the car had not served as collateral on the home equity loan. He also is objecting to the $197,731 the bank is claiming in fees and expenses, calling them “grossly excessive and unreasonable.”
The trustee said in the lawsuit that he opted to sue after his attorneys “made concerted efforts to reach a negotiated resolution to this dispute ... but the bank was unwilling to turn over a single cent of the proceeds from the sale of the Duesenberg.”
SCB—owned by Shelbyville-based Blue River Bancshares—has not yet filed a response to the suit. In a statement issued Wednesday afternoon, Blue River CEO Russell Breeden III said the bank's action to collect on Durham's loans were appropriate and in step with loan documents and the law.
"While the trustee’s conclusions may make for good headlines, they are abusive, unfair and untrue, and the bank categorically rejects them. The bank should not be made a victim twice over—the first time by Diamond and Durham, and again by the trustee’s actions."
Durham and fellow Indianapolis businessman Jim Cochran purchased Fair in 2002. The pair, along with Fair Chief Financial Officer Rick Snow, are facing 12 felony counts. All have denied wrongdoing.
More of IBJ's coverage of Tim Durham and Fair Finance can be found here.