Bankruptcy and Legal Issues and Fraud and Banking & Finance and Investing and Criminal Charges and Tim Durham and Law

Wiretaps suggest Durham tried to sugarcoat Fair's woes

February 18, 2012
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Convicted financier Tim Durham, right, is set to be sentenced Friday.

Federal wiretaps of Tim Durham’s phone conversations in November 2009 reveal he was racing to cast Akron-based Fair Finance Co.’s finances in as positive a light as possible so securities regulators would let the company sell more investment certificates to Ohio investors.

Transcripts of the phone conversations, filed as exhibits in federal prosecutors’ criminal case against the Indianapolis businessman, capture Durham, Fair’s co-owner, discussing ways to recast company financials to mitigate Ohio securities regulators’ concerns about massive insider loans.

In a Nov. 13 phone call with Fair’s other owner, fellow Indianapolis businessman Jim Cochran, Durham excitedly reports that he’s figured out a way to make a huge chunk of bad debt “disappear from the balance sheet.”
 

Durham Durham

“I mean just basically we make … $28 million in loans just vanish,” Durham said on the call, according to a transcript.

Cochran asks whether the change is legal, and Durham assures him it is. “Brilliant,” Cochran responds.

The wiretaps disclose publicly for the first time the whirlwind of activity at Fair following IBJ’s publication of an Oct. 26, 2009, investigative story raising concerns about tens of millions of dollars in insider loans to Durham, business associates and money-losing businesses he partly owned.

The story appeared at a critical time. A 16-month-old securities registration that permitted Fair to sell high-interest investment certificates to Ohio residents was set to expire Nov. 24, and company officials were trying to persuade the state’s securities regulators to approve a new offering circular.

On the call, Cochran predicted regulators would give the green light, in part because the business would fail without the infusion, which would reflect poorly on regulators. The state had repeatedly approved the sale of new certificates since Durham and Cochran purchased the business in 2002.

“If they are going to blow us up, we’re going to blow them up. I mean, nobody wins and everybody loses. … It would be a catastrophic event in the state of Ohio, and I’m sure they don’t want that kind of headline.”

Cochran added: “I’m more concerned about the spin when the IBJ gets the next circular.” But Durham reassured him that “they can’t spin it—it’s going to look so much different than the one they just wrote [about].”

As court records now reveal, the FBI had begun wiretapping Durham’s phone calls in early November. And on Nov. 24—the day the old securities registration expired—agents raided Fair’s headquarters in Akron and Durham’s offices atop the Chase Tower in downtown Indianapolis. Fair never reopened, and a bankruptcy trustee now is trying to scrape together a recovery for the 5,000 Ohio residents who purchased more than $200 million in investment certificates.

Federal prosecutors a year ago charged Durham with operating a Ponzi scheme—relying on the sale of ever-more investment certificates to keep the business afloat.

Durham and the other two criminal defendants, Cochran and Fair Chief Financial Officer Rick Snow, deny wrongdoing. In court papers, Durham’s attorney, John Tompkins, argues the government took information out of context from the phone calls to obtain the search warrant for the raids. He’s asking the court to suppress evidence obtained in the raids as a result.

For example, Tompkins said the government used Durham’s comment about making $28 million in loans disappear in the affidavit for the search warrant, but didn’t cite another phone call in which he expressly instructed an executive to provide securities regulators with all assets and loans.

“This partial summary lacks content and context to such an extent that it shows a reckless disregard for the truth,” Tompkins said in a filing.

The transcripts filed in court suggest Durham himself did not have full command of Fair’s complex finances. He spent days personally contacting affiliated companies to gather information to submit to the state.

On some calls, he and other executives talked about running a tighter ship after selling more investment certificates. On others, they feared their world was about to come crashing down.

“If this doesn’t go through, we are going to be sued like hell,” Cochran told Durham five days before the FBI raid. “Is there any way we can go to jail here?”

Durham says no. “You can’t go to jail for taking real estate loans.”

The jury trial for Durham, Cochran and Snow is scheduled to begin June 8. Prosecutors estimate it will take four weeks.•
 

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