Legal Issues and Fraud and Banking & Finance and Investing and Securities fraud and Courts and Tim Durham and Law

Donald Fair leads off government's case against financier Durham

June 11, 2012
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Indicted financier Tim Durham, right, and defense attorney John Tompkins listen to testimony Monday in Indianapolis. (IBJ sketch / Tina Hansford)

The man whose father founded Ohio-based Fair Finance during the Great Depression led off the federal government's case Monday against the Indianapolis men accused of looting the company and leaving its investors with $200 million in losses.

In testimony in U.S. District Court, Donald Fair said financier Tim Durham changed how Fair did business soon after he paid $20 million for the company in 2001.

Fair, 86, said he grew concerned when the new owners stopped using outside accountants, began making large investments in Durham-affiliated businesses, and started offering "higher rates of interest than I ever could imagine offering myself."

Under Durham's ownership, Fair ballooned in size from $50 million to $200 million before winding up in bankruptcy. Federal prosecutors allege Durham and co-defendants Jim Cochran and Rick Snow ran Fair as a Ponzi scheme that left about 5,000 mostly elderly Ohio investors with huge losses.

"It's been destroyed," said Fair, 86, of the company his father founded in 1934 to provide loans so workers could buy dump trucks and participate in Works Progress Administration projects. "If I may say, it seems to me they just screwed the company into the ground."

The testimony from Fair followed opening statements in which a prosecutor described Durham's stewardship of Fair as a "massive fraud scheme." But Durham defense attorney John Tompkins said what happened was "panic, fear, and bad decisions" following the onset of the 2008 financial crisis.

Tim Durham trial Day 1Testimony in Tim Durham's federal fraud trial began Monday. (Sketch / Tina Hansford)

"There is no massive scheme," Tompkins argued. "There is an attempt to make these businesses last through the financial catastrophe they were facing. Bad business judgment is not fraud, either."

Tompkins said the government intends to build its case around selective recordings from a wire tap that make Durham and his co-defendants look guilty.

Federal prosecutor Henry Van Dyck, who gave the government's opening statement, said Durham and his partners turned what had been a "straightforward" business involving consumer loans into a risky one lending money to floundering companies, all while diverting investor money to cover casino gambling tabs, mortgage payments and country club memberships.

When two sets of auditors in succession expressed concerns, Durham fired them. He also instructed Fair employees to lie to investors, Van Dyck said.

"During this trial, the government is going to take you inside a massive fraud scheme" perpetrated by defendants who told "lie after lie after lie," Van Dyck said. "You as members of the jury are going to hear the defendants' voices discussing a crime, when they didn't know anyone was listening."

Van Dyck said while Durham was hiding big losses and making loans to himself, his friends and family, the small investors in Ohio didn't know Fair's business had changed.

The scheme began to come apart when the state of Ohio didn't approve the company's request in late 2009 to sell another $250 million in investment certificates. Van Dyck also cited an IBJ story detailing the glut of insider loans at Fair Finance as a factor in the discovery of the fraud.

"When the music stopped and Fair Finance closed its doors, the defendants owed investors $200 million," he said.

Durham and his partners each face up to 20 years in prison for each wire fraud count, 20 years for the securities fraud count and five years for the conspiracy charge.

Durham has been under house arrest since his March 2011 indictment. The trial is expected to last three weeks.

For all of IBJ's coverage of Fair Finance and Durham, click here.

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