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Durham trial closing arguments provide clashing accounts

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The fate of Tim Durham and two co-defendants will land in the jury's hands after prosecution and defense attorneys on Tuesday offered spirited closing arguments in a standing-room-only courtroom.

The prosecution pulled together pieces of a case it presented over six days, describing Durham as "the mastermind" of a Ponzi scheme to defraud 5,000 Ohio investors in Fair Finance Co. of more than $200 million, while partner Jim Cochran acted as the front man who lied "to people's faces" about Fair's condition, and Chief Financial Officer Rick Snow served as the "backroom numbers guy."

"It's a sad, sad story—the demise of a great business," said Assistant U.S. Attorney Winfield Ong. "It took an extraordinary effort to crush the extraordinary edifice built by the Fair family."

Durham attorney John Tompkins described the government's case as a "well tailored, professionally edited" presentation of "evidence that fit their premise," which he compared to the notion the Earth was flat.

"Their premise isn't correct—you have to look deeper," he told the jury, arguing the financial crisis and a series of bad business decisions, not crimes, led to Fair's downfall. "Don't be fooled and drawn into this trap."

Cochran's attorney said his client's interests diverged from Durham's almost immediately after the pair purchased Fair Finance in 2002: Cochran sought a successful Fair, putting him in alignment with Fair investors including his mother and brother-in-law, while Durham saw it merely as a financing vehicle for his struggling businesses and flashy lifestyle.

Meantime, Snow's attorney said the government "lumped in" Fair's chief financial officer with its co-owners even though Snow didn't take out any loans from Fair, had little actual authority over its financials, and didn't 't have an ownership interest in any company.

The U.S. Attorney's Office gave its closing statements in two parts delivered before and after the defense closings. Ong led off and fellow Assistant U.S. Attorney Henry Van Dyck closed.

Ong said the conspiracy began with three "accounting bombshells" the defendants ignored in 2005 and 2006. The first two came when separate accounting firms raised questions about Fair's practices and the defendants fired the firms rather than follow their advice. The firms had questioned the health of Obsidian Enterprises, a major beneficiary of loans from Fair. Other issues: A glut of loans to insiders, and the practice of counting unpaid interest on the loans as income.

The third accounting bombshell came when the second accounting firm demanded Fair stop referencing an audit of its 2004 books as a tool to sell investment certificates to Ohio investors.

That was the last year an independent auditor reviewed Fair's books, Ong noted. Instead, Durham personally attested to the accuracy of financial figures prepared by Snow.

Business executives usually don't set out to commit fraud, Ong said, but at some point they "decide it's too hard to make money the honest way."

"They start to cheat, tell a little lie to get out of a bad situation," he said. "Rather than deal with the real situation, rather than disclose to investors, they began to lie and cheat."

With no auditors around, the lies and cheating at Fair Finance grew worse, Ong said. The "pillaging" to fund Durham's and Cochran's "fantasy" lifestyles continued even as Fair entered a "death spiral."

"In this world, assets weren't assets, income wasn't income, and Fair Finance investors weren't entitled to know the truth," Ong said. "While Fair was a remarkable company, it couldn't put up with this."

Ong compared the headquarters of Fair and Obsidian on the 48th floor of Chase Tower to the fake trading floor at Enron, a Potemkin village in business simply to provide cover from investors and regulators and prevent the discovery of the looting.

"In this case, the enemy was the Ohio Department of Securities, and investors," he said, noting that Fair's last-ditch application to sell more investment certificates contained several lies and a hidden $5.5 million collateral "plug" he described as a "blatant accounting fraud."

Tompkins, Durham's attorney, in his closing argument asked a series of questions designed to raise doubt among jurors over the government's claim the defendants ran Fair Finance as a Ponzi scheme. If Durham was looting Fair, why would he invest $28 million of his own money from 2005 to 2009 into companies indebted to Fair? How could men who had so many disagreements work together on such a fraud? Why would Durham destroy a business he co-owned that was profitable?

He blamed Fair's collapse in 2009 on a "perfect storm" of a bad economy, bad press and newly skeptical securities regulators in Ohio. Tompkins said the "fog of war" led the defendants to make several business mistakes. Among them were decisions to raise the cap on investments, which led to higher cash-out requests during the crisis; offer higher interest rates; and delay interest payments and redemption requests when cash-flow was tight, leaving investors leery.

"A scheme to delay (payments) is not a scheme to defraud," Tompkins said, adding that the move actually turned off investors rather than inducing them to invest.

Tompkins said the FBI raid of Fair and Obsidian on Nov. 24, 2009, was the "end of a storm" that would "only be made worse by an unjust verdict." He said no one will ever know what would have happened with Fair if the FBI raid hadn't undercut Durham's efforts to save it. 

He reminded jurors the defendants made no attempt to shred documents or flee.

Van Dyck shot back a few minutes later, asking whether the defendants would have kept the documents if the FBI hadn't taken the decision out of their hands.

He said Durham was "up to his neck in every single aspect of the scheme" but "he couldn't have done it by himself." Durham needed Cochran to "lie to people's faces" about Fair's condition and Snow to "falsify financial information." He said that included hiding the $5.5 million collateral "plug" in a category called "fixed assets," and claiming $17 million of bad debt had been reserved when it had not.

Van Dyck said there was no evidence of a run on Fair despite the financial crisis, and he scoffed at the suggestion Snow was just an employee following orders.

"Every step of this fraud, when Mr. Durham needed to lie about financials, he turned to Mr. Snow," Van Dyck said. "Did Mr. Durham keep him tied to a chair in his office and beat him with a stick" when he needed something?

"No," Van Dyck said, answering his own question: it was the carrot of a $400,000 salary that kept Snow on board for seven years.

Jeffrey Baldwin, Snow's attorney, said the government's case against his client was based on six letters: CFO and CPA.

"That's not evidence of participation in a fraud," Baldwin argued. "He didn't even have the authority to write a check. Some CFO when you can't even write a check."

Bill Dazey, Cochran's attorney, said his client was prepared to take "moral responsibility" for the huge investor losses at Fair. But whether he committed a crime is another matter.

Dazey reminded jurors that Cochran had challenged Durham repeatedly about his lavish spending and expressed worry Durham was sinking so much of Fair's money into troubled companies under the Obsidian umbrella. Cochran had asked that he share signature authority for every transaction, a notion Durham  dismissed as impractical.

Dazey asked the jury to excuse Cochran's purchase of three homes with mortgages paid by Fair.

"It is OK in America to want things," Dazey said, adding that Fair was the kind of business that could have given Cochran the lifestyle he wanted. "What was good for Mr. Cochran was also good for Fair Finance."

Dazey suggested to the jury that if there was a fraud scheme, Durham didn't share the plans with his business partner. If he was clued in to a scheme, Dazey asked, wouldn't he have cashed out his mother and brother-in-law from their Fair investment certificates?

"Mr. Cochran believed Mr. Durham could pull this off," said Dazey, a public defender. "There were plans in the works to get loans paid. You've seen enough to know now, it probably wasn't going to work."

The jury is scheduled to begin its deliberations Wednesday morning. If convicted on all counts, each defendant could face hundreds of years in prison.

To catch up on IBJ's coverage of Fair Finance and Tim Durham, click here.

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  • slight correction
    I’ll make one slight change to the post. If memory serves correct I believe Tim and friends bought Cellstar after negotiations had already started to sell to Brightpoint but was not yet public. If he had anything to do with convincing the sale is uncertain and immaterial.
  • Was Cellstar mentioned at trial?
    Several of us warned the SEC and others YEARS before anything ever happened to Tim. It played out on Yahoo stock boards for Brightpoint right in public for all to see. Amazing this was allowed to happen. I guess once Tim got outside of his political protection zone is when he eventually was prosecuted. I would like to know if the dealings in Cellstar were brought up at all? Originally Tim and friends made tens of millions buying Brightpoint for pennies and then using the media to help pump the stock. A few years later he bought into Cellstar and then convinced his buddies at Brightpoint to buy most of the assets at Cellstar. Then he became a board of director member at Cellstar and while there was several million dollars remaining in Cellstar he was able to get Cellstar to invest in some double talk loan deals with Fair. I wonder if any of this was ever paid back to Cellstar, I doubt it. I was a Cellstar shareholder. Cellstar had a LONG history of lies and corruption. So basically Tim was able to get on the BOD at Cellstar and then direct their remaining cash into his pocket. As to him being a flight risk....well he used to like displaying his jet and yacht online, sometimes boasting the Republican "fundraisers" held on the boat. Then we hear he sold the yacht. Then later it is disclosed the yacht is docked off the country of Turkey. Do ya think there are other hidden items.
    • Editor catch on to what you monitors have been up to?
      Whoa, that was great. I just watched you guys pull off three more comment boards. Editor catch on to what you monitors have been doing? Too late, I have copies. Proof of how you have been manipulating public opinion.
    • Patient in Ohio
      I am 1 of the 5000 Ohio victims of these guys. We invested $60,000 of our hard-earned savings we managed to scrimp together over 30 years of employment and it was gone so quickly. Many in Ohio lost much more than we, but it is devistating to all of us! We are so glad this is soon to come to an end so we can get on with our lives and maybe recoup a tiny bit of our losses on our taxes as a "theft"...we've waited so long to do this. These guys were forced into bankruptcy, but I fear the attorneys will eat up most of the $ they may find, in their fees, so if we get pennies on the dollar we'll be lucky. I'm going to bury any future savings in our back yard after this! I thank the IBJ for the wonderful coverage. It is almost as good as having been present to witness this. I'm anxiously awaiting the verdicts. The "laughing in our faces" I heard from some of the wire taps makes me want them put away for the rest of their lives...live it up behind those bars guys!
    • just thieves
      Bottom line..they are thieves, they spent money that wasn't theirs. LOTS OF IT!!! Period. They deserve the maximum sentence and that will not be enough.
    • Better link to Cochran's Florida estate sale
      http://advanceindiana.blogspot.com/2010/01/great-day-for-estate-sale-in-naples.html The video was pretty funny, too bad it's down--Cochran couldn't believe a reporter showed up...the sale was the day after the feds requested asset seizure.... http://www.indystar.com/article/20100116/BUSINESS/1160321/Durham-partner-s-big-sale-Everything-must-go
    • PS
      From yesterdays trial: Dazey asked the jury to excuse Cochran's purchase of three homes with mortgages paid by Fair. "It is OK in America to want things," Dazey said, adding that Fair was the kind of business that could have given Cochran the lifestyle he wanted. "What was good for Mr. Cochran was also good for Fair Finance." A $500,000 salary and mortgages on 3 multimillion dollar homes paid for by Fair's elderly investors--average deposit was what, $60,000--for someone making $25,000 a year and saving every penny--unsophisticated to what was happening behind the scenes--NO, this is NOT okay--it's always absurd to see how those who take from others justify it in their minds. Perhaps Cochran's attorney should have itemized his cars....why didn't Cochran turn over the proceeds of his Craigs List sale to the victims? Back to Fair to pay down debt? Because he didn't thinkhe would get caught. Enjoy this recap of a confidential estate sale listed on Craigs List for Cochran's exclusive third home at 298 Mooring Line in Naples--he paid $3.5M at the top of the market--no equity because as his own attorney said Fair was paying the mortgage--if he had worked for an FDIC bank he would be arrested on the spot for such outlandish and illegal behavior, a banker cannot simply help himself to depositor funds to pay for Sea Rays and Bentley convertibles and mansions galore.....but not in the world of Tim and Jim......how dare that reporter show up! It must be me in disguise....Greg Andrews in disguise! Brian Bash in disguise! PS--notice no proof sources offered by defense counsel? http://advanceindiana.blogspot.com/2010/01/blog-post_19.html
    • Roof Roof!
      Pretty funny considering the gravity of what happened to these victims. There are multiple parties who know the facts of this case. These boys should hope they get a federal conviction because if they don't I hear the State of Ohio will indict them over in Ohio on state charges, and those prosecutors will have the benefit of knowing any mistakes made in this case--and Ohio prisons are among the worst in the country. I cannot imagine wanting to be in an Ohio state prison versus a federal lockup--the reduction in time served is only good if you are still alive and in one piece--and considering over 5,400 victims lost their life savings it seems to be me someone somewhere over there has a friend or relative that would be at the state pen should they get convicted over there. By the way you might do the same asset check on Durham, and read the facts of this case. It's laughable that his attorney has the gall to say he pumped $28M of his own money into Fair. Um, no, I don't think so. Tim didn't have $28M to pump into Fair. He neverhad $28M. He did not make $30M and have $30M in the bank before Fair. He did not have factories running around the clock like he said in that news interview. Why the prosecutors did not show beginning and historical brokerage and checking account records for all three guys speaks to trial error--no questions if that had happened it would have been a slam dunk.
    • Get a Life
      It is apparent Legal Beagle, Observer, etc. etc. etc. that you are the author of many many posts on IBJ that pertain to this case. MOST of them actually. You even argue with yourself sometimes. You want to be judge, jury, whistleblower, watchdog, legal investigator, reporter, prosecution and trustee. Whatever will you do when justice is finally served.... and it will be... Seems to me the professionals are doing their jobs just fine. Or maybe you want more grounds for appeal so you have something to do.
      • Please let there be a Santa Clause
        As a former business associate of both Durham (client) and Cochran (boss) back in the mid-90s...these boys were at it back then with Carpenter. It looks like they finally may have what is coming to them as they never got caught and charged, although Cochran was released.
      • LB is all over this
        Legal Beagle you have nailed this. Is it true that Snow testified and Durham and Cochran didn't? Snow tied to defend himself since he is probably innocent of criminal actions but certaining could have done more as a whistle-blower.
      • Cochran's unlavish lifestyle
        I believe these are your proof sources: Cochran did not buy the Cambridge house on 13483 Marjac (house 1) until 12/20/2002--well into the third offering of $60M of certificates--at that point they had offered $180M of the worthless investment certificates http://www2.hamiltoncounty.in.gov/apps/reports/rptparcelinfo.asp?sparcelno=1315110009008000&stemp=&dSearch=houseno&dreport=parcelinfo&dReportName=Parcel%20Informati on On March 11, 2008 he bought a second, bigger house on the same street, 13400 Marjac, allegedly after a fight with his neighbor so he could show him up! He sure was worried about his investors, now wasn't he--he still owned the first house on Marjac! How many of you own two mansions on the same street--follow the math here.........these are houses that cost millions of dollars.........both in foreclosure and have been since the raid thought one of the houses on Marjac recently got a new owner FINALLY... ............................................................................................ http://www2.hamiltoncounty.in.gov/apps/reports/rpttaxhistory.asp?parcelno=1315110009019000 Cochran bought 9197 Spanish Moss, Bonita Springs, Fl in March, 2005--during the period he was receving millions in purported Fair loans. Only problem is--he didn't pay Fair a penny back when he sold the house, did he? Didn't make any loan payments for how many years? But paid no tax on those purported loans which in the legal sense really are distributions, and still couldn't live on these free loans and wires and $500k salary! But, this $350K house wasn't nice enough....no he went from this to a $3.5 MILLION dollar house at 298 Mooring Line in Naples, Florida--while having two mansions on the same street on Marjac over at Geist....do the math, and tell us again Cochran made it all through investments...what investments besides Brightpoint and Cellstar (timely investment considering Brightpoint turned around and bought them) did he make? 9197 Spanish Moss, Bonita Springs--value today about $300,000--I think he paid $350K odified Date: 3/30/2005 9:38:56 AM Record Date : 3/30/2005 9:38:56 AM Grantor: TOUSA HOMES INC ENGLE HOMES SOUTHWEST FLORIDA INC Grantee: COCHRAN JAMES COCHRAN SUSAN J Book Type: O Book / Page: 4645 / 1557 # of Pages: 1 Consideration: 443,227.00 Legal: L17,MARBELLA AT SPANISH WELLS http://www.leepa.org/Display/DisplayParcel.aspx?FolioID=10480761 From the above "second home" paid for during the Fair reign of terror to this: 298 Mooring Line, bought April 2007 for $3.5Million ... ......enter address in this link http://www.collierappraiser.com/ *** Yeah, poor Jim Cochran--he is just mad that Tim skimmed so much more! How dare he double cross him! Too bad the jury didn't see Cochran and Durham TAX RETURNS.......................... those personal tax returns tell the whole story--notice the defense didn't submit those
      • Just saying~
        Prosecution should have started out with the $1.65 BILLION in ever increasing offerings Tim and Jim did-not $400M where they netted $227M--but $1.65 BILLION...their pereonal checking account and brokerage records at inception of trial and finished it up with pics of Tim crusing LA in his "new toy" Bentley with Ludacris and the October 2009 Halloween party that was featured in Polite in Pics (link at end.) How the prosecution missed this is beyond me--it clearly would have eliminated any defense Durham had about "pouring $28 million of his own money"-his own? All his money came from Fair and he used the Fair money to make the "timely" trades on Brightpoint and Cellstar (bought by Brightpoint) --his only two successes--and he didn't even hold the Brightpoint as long as he said he did--that was just a cover for the Fair but I can see why the prosecution did not open the door for that one. *** in second box type FAIR FINANCE as two words. https://www.comapps.ohio.gov/secu/secu_apps/offering/offering.aspx Next post will detail Cochran--nice defense to claim his mother had certificates--but where are her cancelled checks? Do we really think Tim and Jim--who were living the lavish lifestyles--and giving millions for free to their friends and family with no UCC filings, no payments ever--suddenly would CHARGE his mother? No proof she paid a penny for that 'certificate" he ponied up as a defense nor was a custodian of records there to show that she had, in fact, paid anything. Notice Tim's mother's second home in Florida was just sold for a massive lost--$550,000--when he allegedly paid $1.1 Million--and she didn't pay a penny to Fair--despite the fact that he gave her over $800,000 in like 57 checks...

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