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Fair Finance trustee sues former owner for $150M

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Fair Finance Co.’s bankruptcy trustee has lowered the boom on the company’s former owner, Donald Fair, charging he aided and abetted Tim Durham’s fraud to make millions of dollars for himself.

The suit seeks more than $150 million from Fair, 85, who sold the Akron, Ohio, company to Durham and fellow Indianapolis businessman Jim Cochran in 2002.

Trustee Brian Bash charges in the suit filed Thursday afternoon that the new owners immediately began looting the business and were operating it as a Ponzi scheme by 2003.

The fraud was possible only because Donald Fair agreed to stay with the company for five years as chairman emeritus, with millions of dollars in payments not due until that contract expired in 2007, the suit suggests.

Donald Fair's continued role gave false confidence to the Ohio residents who purchased unsecured notes from Fair and now are owed more than $200 million, the suit alleges. And the delayed payments to Donald Fair gave him an incentive to keep quiet about how Durham and Cochran were running the business, according to the lawsuit.

“Don Fair was advised that the primary reason Durham and Cochran wanted to retain him as a senior officer for five years was to create the illusion that it was ‘business as usual’ after the sale,” the 57-page suit says.

Don Fair “knew, should have known or was willfully blind to the fraudulent actions of Durham and Cochran,” the lawsuit alleges.

In fact, Donald Fair knew that Durham had discharged two sets of auditors because of their concern over massive loans issued to Durham and other insiders and to failing businesses they owned, the suit says.

Durham and Cochran purchased Fair Finance using a line of credit, paying $16 million up front and issuing a $4.1 million note to Donald Fair payable in installments over five years.

According to the suit, in 2007, with $3.2 million still unpaid on the note, “Don Fair arranged to have himself paid this balloon payment by threatening Durham and Cochran that he would create a ‘run on the bank’ that would halt the Ponzi scheme if he wasn’t paid in full,” the suit alleges. “In essence, Durham and Cochran ‘bought’ Don Fair’s silence by paying him in full.”

In addition to the note payments, Donald Fair received $1 million in compensation and he or family trusts collected another $1 million in "performance-based earn-out payments" from 2002 to 2007, even though the company actually was insolvent during most of that time, according to the lawsuit.

The suit alleges Donald Fair received fraudulent transfers from the company and that he breached his contract, aided and abetted fraud and conspired with Durham and Cochran to commit fraud.

Patrick Keating, an attorney for Donald Fair, said Friday morning that his client “is extremely sorry for what happened to this company after he sold it. He had no reason to believe Mr. Durham or Mr. Cochran were dishonest or would otherwise engage in fraudulent activity.”

Keating said Fair’s title of chairman emeritus gave him no actual authority, and he was privy to no financial information beyond what was contained in the offering circulars that were distributed to prospective investors after being reviewed by Ohio securities regulators.

In an interview with IBJ in 2009, weeks before the company collapsed, Donald Fair expressed unease over how Durham and Cochran were running the company where he had worked for more than 50 years.

“I don’t like what I see,” he said at the time. “It is such a departure. It is not how we operated.”

Under Fair’s ownership, the company specialized in purchasing finance contracts from fitness clubs, time-share developers and other firms that offered customers extended payment plans. Under Durham and Cochran, that part of the business shrank while loans to insiders ballooned.

According to the lawsuit, Donald Fair in January 2002 wrote a letter to employees notifying them of the sale but downplaying its impact. "I'll still be around," he wrote, and would be under contract for five years. "This means that everything will remain essentially the same," he wrote.

The suit says Don Fair notified the company in November 2002 that he was resigning his "honorary" position as chairman emeritus. However, he didn't communicate that to noteholders or employees, according to the suit, and offering circulars through 2007 continued to represent that he "remained employed" by the company and continued to have a "substantial interest" in the business.

A grand jury in March 2011 indicted Durham, Cochran and Fair Chief Financial Officer Rick Snow on charges of wire fraud, securities fraud and conspiracy to commit wire and securities fraud. All three—who are scheduled for trial in June—deny wrongdoing.


 



 
 

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  • Carpenter Mfg
    Come on Gregg, drop the innuendo BS and bring the dirt. Personally, I think you are flogging an imaginary horse but I'm willing to listen to facts.
  • Carpenter Mfg.
    You know what, I keep hearing about theft from Carpenter and I have no idea what you are talking about. I wasn't an executive but I sure as hell was there, both in Mitchell and Richmond. In that time, Carpenter never had $20 mill worth of anything to steal.
  • Mr. Fair Should Have Asked Carpenter Manufacturing Executives
    Mr. Fair “is extremely sorry for what happened to this company after he sold it. He had no reason to believe Mr. Durham or Mr. Cochran were dishonest or would otherwise engage in fraudulent activity.”
    I believe him. He operated a business for 50 years with no infractions that we know of. Mr. Fair should have asked the executives of Carpenter Manufacturing in Mitchell, IN about Tim Durham's "activity" there. Tim Durham pulled $20+ million out of that company before it went bankrupt. Can we just lock Tim away and throw away the key already?
    • "Emeritus" means???
      I think we're forgetting what "emeritus" means in this case. There were not two Chairs of the Fair Finance board -- there was one. And only that chair was vested with any authority or responsibility. Sorry, but this one's a loser.

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