A Virginia businessman is suing Tim Durham, alleging he and other defendants committed fraud by manipulating the September auction of one of the Indianapolis businessman’s prized vehicles, a 1930 Duesenberg built for publishing scion William Randolph Hearst.

The plaintiff, James F. Scott of Charlottesville, Va., agreed to buy the vintage car for $2.9 million—a price Car Collector magazine called “amazing, particularly in these notoriously difficult times.”

The publication noted the price was $2.3 million higher than when it last changed hands, in 2003. After auction bids reached $850,000, just two people—Scott and Mark Hyman of St. Louis—dueled all the way up to the final price.

“The transaction has no relationship at all to ‘value,’” a Car Collector reporter wrote. “It’s just the stubborn determination of two bidders to have what I want when I want it, and having the resources to back it up.”

But now Scott—who participated in the auction at the Auburn Cord Duesenberg Automobile Museum in Auburn by phone—is crying foul. He alleges Hyman, owner of Hyman Limited Classic Cars, made his bids in consultation with Donald Lyons of Dowagiac, Mich.—“each of whom were stakeholders and/or owners of the automobile.”

The suit, filed Dec. 10 in U.S. District Court in Fort Wayne, doesn’t spell out the financial relationship between the pair and Durham, who in recent years publicly touted the car as one of the jewels of his 70-plus vehicle collection.

Durham attended the sale, according to the suit, as did Hyman and Lyons, who sat next to each other. The failure to reveal that sellers reserved the right to bid was in direct violation of Indiana law, court papers say.

“By bidding up the price of the automobile to $2.9 million, without disclosing to the plaintiff that they were the owners of or had a material financial interest in the proceeds of the sale, the sellers intentionally, artificially and surreptitiously inflated the price for the automobile,” the lawsuit alleges.

Worse, the suit says, the sellers have failed to provide Scott title to the Duesenberg, even though he has paid. According to the lawsuit, the auction house disbursed the full $2.9 million to Hyman. He then returned $1.95 million, and that money was routed to Lyons, a wealthy car collector who serves as Dowagiac’s mayor. The suit seeks to rescind the sale and seeks triple damages—a sum approaching $10 million.

It’s not clear how Scott’s account of what transpired might differ from that of Durham and the other defendants. Durham did not respond to voice mail and e-mail messages. Hyman and Lyons, who also serves as chairman of Dowagiac-based Lyons Industries Inc., did not return calls. An attorney for Scott, president of Charlottesville-based Emax Oil Co., declined to comment.

The suit is the latest in a string of legal challenges confronting Durham, 47, who’s facing U.S. Department of Justice and Securities and Exchange Commission investigations over transactions he helped orchestrate at Akron, Ohio-based Fair Finance Co. and Dallas-based CLST Holdings Inc.

The U.S. Attorney’s Office in Indianapolis alleged in court papers last month that Durham operated Fair Finance as a Ponzi scheme, using the sale of new investment certificates to Ohio residents to repay prior purchasers.

He and other insiders have borrowed more than $168 million from Fair. The company, meanwhile, owes holders of investment certificates more than $200 million—a debt many purchasers fear the company can’t pay.

It isn’t clear whether the Duesenberg sale is connected to the mounting financial pressures Durham is facing, or whether he is also selling off other vehicles.

His collection has included Auburns, Packards, Jaguars and other cars. He’s housed many at his 30,000-square-foot Geist mansion, which includes a two-level garage.

But casting off cars might not generate an abundance of cash. In a New York Times story two years ago on how the wealthy pay for cars, Durham said he favors leases over outright purchases. He said the strategy allowed him to deploy the cash in investments and put off steep sales taxes.

Rather than pay $1.5 million for his Bugatti Veyron, for instance, he opted to put down $400,000 and make monthly payments approaching $20,000 for five years.•