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

Durham backers who exited early now taking financial hit

September 21, 2013

In late 2007, two years before Tim Durham’s financial empire collapsed, a group of prominent Indianapolis executives lost faith in Durham and pushed to get him to buy out their interests in his leveraged-buyout firm, Obsidian Enterprises Inc.

After some ferocious tangling behind the scenes, now exposed in court filings, Durham purchased those interests for their original price—a total of more than $580,000.

So the investors—which included then-Klipsch Group CEO Fred Klipsch, venture capitalist Brian Williams, wealth manager Robert Kaspar and CPAs Larry Greenwalt and Tom Sponsel—dodged a bullet, right?

Not so fast. The bankruptcy trustee for Fair Finance Co—the Akron, Ohio, firm that Durham looted to fund a Playboy lifestyle and prop up his other failing businesses—this month secured a settlement with the group for $400,000, about 70 percent of what they’d recovered.

Trustee Brian Bash won the settlement after challenging investors’ assertion that they acted in good faith and were unaware Durham was running a fraud funded by the middle-class Ohio residents who bought tens of millions in unsecured notes from Fair.

Unearthed during discovery was a March 2008 email from Williams to his attorney in which he suggests the group threaten to go public with breach-of-fiduciary-duty allegations against Durham in order to pressure him to settle.

The email observed that Fair got its money by selling investment certificates to “Joe Sixpack,” and it noted Durham had tapped Fair’s coffers to provide friends with “free money.”

“Fair Finance is the goose that has funded Tim’s golden lifestyle and we must threaten to kill it or we won’t get what we are owed,” Williams said in the email. “Tim has access to money to pay us.”

Williams, now director of global health care strategy for PricewaterhouseCoopers, declined to comment, and attorneys representing the parties in the lawsuit also would not elaborate.

However, the investors said in court papers that their unease grew out of Durham’s leaving them in the dark for years about how Obsidian was performing. The settlement notes the investors continue to believe they’re in the right.

Bash filed the suit in June 2012, alleging the payments to investors were fraudulent transfers that should be reversed. Had the case gone to trial, the trustee was prepared to show that the defendants “were skilled investors and sophisticated businessmen, at least some of whom figured out that Durham was operating a fraud scheme,” attorneys for Bash said in a court filing.

“The defendants devoted significant time to investigating Durham, his associates, his business interests, and piecing together the web that Durham used to keep his fraud alive.”

Beyond dispute is that the investors were unabashed about using hardball tactics in an effort to cash out. In December 2007, they demanded Durham buy them out for 10 times their original investment—even though, the trustee alleges, they were well aware Obsidian “had all but collapsed and retained little or no value.”

Durham initially balked at the threats. His attorney told investors that he had no obligation to buy them out and blasted their threats of litigation as “bad faith and possibly extortion.”

Durham, in fact, headed to court first, filing a lawsuit in April 2008 that accused the investors of “statutory intimidation.” The investors fired back with a countersuit alleging Durham had “shifted assets, acquired and disposed of assets, and hidden assets. All the shifts, acquisitions and concealing were done to Durham’s financial benefit and the detriment” of the investors.

Not surprisingly, attorneys for the trustee say in court papers, Durham “ultimately caved to the defendants’ demands, no doubt because of the information that the defendants had regarding the fraudulent scheme operated by Durham at Fair Finance.”

It wasn’t until October 2009, when IBJ published an investigative story about Durham’s teetering financial empire, that doubts about the Indianapolis executive became widely known. The FBI raided Fair’s offices a month later, and the company never reopened.

A jury in June 2012 found Durham guilty on 12 felony counts—a verdict he’s appealing. Judge Jane Magnus-Stinson sentenced him in August to 50 years in prison.

The Ohio investors who bought more than $200 million of Fair’s unsecured notes have so far recouped none of their losses.•

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