Fraud and Investment Losses and Banking & Finance and Criminal Charges and Courts and Tim Durham and Law

Durham lawyer wants lifestyle out of trial

June 2, 2012
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Convicted financier Tim Durham, right, is set to be sentenced Friday.

Tim Durham’s attorney is hellbent on preventing prosecutors from fixating on the things that made the Indianapolis financier a staple of TV news and gossip columns—his fancy cars, waterfront mansion and other trappings of a lavish lifestyle.

Durham Durham

It’s irrelevant, said John Tompkins, who in court filings and hearings before Judge Jane Magnus-Stinson has sought to restrict that kind of testimony. He said how someone spends money is no more a sign of guilt than charitable contributions are a sign of someone’s innocence.

“The only reason you want to talk about things like that is to try to make the jury feel alienated from Mr. Durham personally, as opposed to trying to prove to the jury that Mr. Durham did anything wrong,” said Tompkins, an attorney with locally based Brown Tompkins Lory & Mastrian.

The stakes in the trial, which begins June 8 and is likely to last at least three weeks, are huge. U.S. Attorney Joseph Hogsett calls it the biggest white-collar case his office has brought since he was sworn in 20 months ago—and perhaps ever. That’s based on the number of alleged victims and extent of their losses.

Prosecutors charge that, after buying Akron, Ohio-based Fair Finance Co. in 2002, Durham raided its coffers for personal expenses and to cover losses at money-losing businesses he owned. They say it was soon operating as a Ponzi scheme, relying on the sale of ever-larger amounts of investment certificates to Ohio investors to pay off earlier investors. Fair’s collapse in late 2009 left more than 5,000 Buckeye investors owed more than $200 million.

Twelve jurors and four alternates will hear the case. Veteran Assistant Attorney Winfield Ong will lead the government’s case against Durham, 49; Fair co-owner Jim Cochran, 56; and Fair Chief Financial Officer Rick Snow, 48.

Like Durham, Cochran is accused of pulling millions of dollars from the company under the guise of loans that were never repaid. Meanwhile, Snow is accused of helping conceal the company’s financial problems from regulators and investors. Cochran’s attorney, public defender William Dazey and Snow’s attorney, Jeffrey Baldwin of locally based Voyles Zahn Paul Hogan & Merriman, declined to comment.

While prosecutors would not discuss their strategy in detail, court filings show they plan to rely heavily on wiretapped recordings of Durham’s phone calls in late 2009, just before the government raided his office atop Chase Tower and Fair’s Akron headquarters.

Desperate quest

In those conversations, Durham and Cochran are on a desperate quest to win approval from Ohio securities regulators to sell additional certificates. Strategies they discuss range from overwhelming regulators with paperwork to recasting financials in a way that Durham said would make $28 million in bad debt “just vanish.”

At one point, Cochran predicts the state 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 for seven years.

“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 said on one call.

In another call, Durham and Cochran decide to close the cash-strapped business on Veterans Day with no warning, to prevent customers from cashing in certificates.

And in another, after Cochran described how he had put off an investor who wanted to cash in, Durham said, “Don’t use that explanation too often because it’s really not true.”

Tompkins said the government is guilty of “mischaracterization by abbreviation,” using snippets of conversations from the wiretaps to create a false impression of what occurred.

“If I wanted to pick and choose sentences here and there, I could give you five or six sentences where Mr. Durham can be heard saying, ‘We can’t guess about this, we have to get it right, we must be accurate—and paint a pretty glowing picture.’”

He said Fair “was a credit business trying to survive the credit crisis that was precipitated by the financial collapse of 2008,” not a firm that collapsed because of wrongdoing by his client.

Financial disclosures

Tompkins said all of Fair’s prospective investors received offering circulars that contained detailed information about the company’s finances. He said Fair employees even required investors to sign an acknowledgement that they had read and understood the document.

But in a trial brief in May, prosecutors said the offering circulars failed to come clean about the fundamental shift in Fair’s business that occurred after Durham and Cochran bought the company or about the extent of its financial problems.

Fair, founded in 1934, had long focused on buying finance contracts from health clubs and other businesses that offered extended-payment plans to its customers. But under Durham and Cochran, that business shrank and the insider loans ballooned.

After accounting firms in 2005 and 2006 raised alarms about Fair’s finances and advised company management on how to properly account for the insider loans, the defendants ignored the advice and dismissed the accountants, government filings say.

From then on, Fair did not have audited financials. Instead, it relied on a provision of Ohio law that allowed Durham to personally attest to the accuracy of the financials, records show.

“The defendants never disclosed to investors that their accountants had found such significant problems with the loans. Instead, they provided financial statements to the state of Ohio and to investors that made it appear that Fair’s revenue and assets were growing,” the government’s trial brief says.

“They also continued to funnel investor money from Fair into failed and failing businesses, continued to accrue interest, continued to extend the dates on which principal and interest payments needed to be made, and continued to ‘loan’ money to themselves, their families and acquaintances.”

The government plans to call about 20 witnesses while Tompkins plans to call nine. Under order from Judge Magnus-Stinson, the witness lists in the case have not been made public.

Durham has been under house arrest since his March 2011 indictment. Tompkins said his client “obviously is under a lot of personal stress but is looking forward to having the full story of what happened at Fair to come out.”

But that doesn’t necessarily mean Durham will take the stand. Tompkins, a veteran criminal defense attorney, said he never makes that call until the government wraps up its side of the case.

Regardless of whether Durham testifies, jurors will scrutinize his every move to assess whether he seems emotional or empathetic about the plight of investors who lost money, said Bob Hammerle, an Indianapolis criminal defense attorney not involved in the case.

“The government allegation is, he has bilked all these people for his own financial benefit. If the defense doesn’t embrace how bad he feels for the people who have invested, it’s going to make matters worse,” Hammerle said.

“It does not mean you admit wrongdoing. It means you care.”

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 for the securities fraud count, and five years for the conspiracy charge.•
 

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