The results achieved by the army of attorneys trying to recover money for Fair Finance Co.’s investors look outstanding on paper: They’ve secured judgments totaling more than $48 million in 35 cases, in addition to the millions they’ve already collected through settlements.
But even Brian Bash, the trustee spearheading the recovery efforts, acknowledges, “Getting a judgment is one thing; collecting is another.”
Three years into the scorched-earth legal assault on former Fair CEO Tim Durham, other company insiders and Durham’s friends and business associates, the 5,000 Ohio investors who lost more than $200 million when the Ponzi-scheme-fueled company collapsed have yet to receive a penny. And it remains unclear when they’ll receive their first distribution.
Bash, a partner with the Baker Hostetler law firm in Cleveland, is careful not to make promises. “I’ve got to tell you, it is still too early to predict what we can do.”
Challenges abound. Perhaps the biggest: Many of the defendants pursued by Bash and his team have few, if any, assets. And those that do have the wherewithal to fight litigation for years.
Then there’s the reality that the lawyers and other professionals spearheading the asset-collection effort aren’t cheap. The biggest payouts so far—totaling $4.4 million—have gone to Baker Hostetler. After distributions to professionals, the trustee is holding about $5.9 million in cash.
Every week that goes by exacts pain on the Ohio investors who purchased unsecured investment certificates from Fair touting interest rates as high as 9 percent. Many are middle-class retirees who were counting on their Fair investments to help carry them through their final years.
Victim-impact statements submitted in November, just before Indianapolis federal Judge Jane Magnus-Stinson sentenced Durham to 50 years in prison, tell heartbreaking tales of hardship. Typical were Raymond and Ira Trover, a Beach City, Ohio, couple in their late 70s, who wrote, “We shut off our appliances and sit in the dark to save money.”
Bash knows investors are impatient.
“We try to respond sympathetically,” he said. “We understand what everyone is going through.”
Ohio bankruptcy Judge Marilyn Shea-Stonum is as antsy as anyone. She has rejected potentially lucrative contingency-fee arrangements proposed by the attorneys, and has insisted that investors eventually should get at least half of anything tracked down.
After Baker Hostetler filed to collect $7.4 million in fees covering work from the beginning of 2011 through August 2012, Shea-Stonum approved the $3.1 million in 2011 fees but said she would decide later what to grant for 2012.
“Claimants in the case can very reasonably ask, will this case be administered solely for the professionals?” Shea-Stonum said in a November hearing.
Three pending lawsuits might offer the greatest hope for big recoveries. One, against Fair’s deep-pocketed lenders, charges they turned a blind eye as Durham looted Fair—wrongdoing the lenders were shielded from because they held liens on the only company assets with real value.
Another case, against Dan Laikin, a Durham friend who formerly was CEO of National Lampoon Inc., could reap more than $5 million from the sale of two southern California homes, one formerly owned by Cher.
The third case targets National Lampoon. Bash alleges that Durham—a major investor in the Los Angeles company who followed Laikin as its CEO—funneled more than $9 million in Fair funds to the company over a decade.
The biggest settlement was with former Fair owner Don Fair, who was accused of keeping quiet about Durham’s fraud so as not to jeopardize millions of dollars in delayed payouts under a 2002 sale agreement.
But even that $3.5 million settlement drew a skeptical reaction from Shea-Stonum, given that the trustee originally had sought $150 million. She finally approved the deal in March, four months after Bash proposed it.
Durham writes to magistrate
In late March, Durham, 50, then an inmate at the Federal Transfer Center in Oklahoma City, wrote to an Indianapolis magistrate judge asking that a civil suit against him be put on hold while he awaits the outcome of his criminal appeal pending in Chicago.
The civil suit, filed by the Securities and Exchange Commission, includes allegations similar to those in a criminal indictment unsealed in March 2011.
A successful appeal could derail many of the allegations in the SEC suit, Durham wrote optimistically.
“The basis for the wiretaps and search warrants will be contested, which may result in the suppression of virtually all the evidence in the criminal case, which I assume would be much the same evidence to be used in the SEC case,” he wrote.
Magistrate Judge Tim Baker denied the request as unnecessary. A stay issued two years ago remains in effect, he noted. The SEC has asked it remain in place for another 90 days while it seeks to reach a settlement with Durham.•