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Fair Finance trustee to make life tough for people on loan list

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Greg Andrews

Businesspeople across Indianapolis who accepted millions of dollars in loans from Tim Durham’s Fair Finance Co. have a new reason to worry.

Now that the Akron, Ohio, company is in Chapter 7 bankruptcy, and a trustee is in charge of turning the company’s assets into cash, the borrowers can expect heavy-handed collection tactics.

“There’s a new sheriff in town,” said Charles Greer, a veteran Indianapolis bankruptcy lawyer and consultant who is not involved in the case.

The list of people who may have reason to squirm includes restaurateur Henri Najem and Jeff Osler, Durham’s brother in law and owner of Geist Sports Academy. Both are on a list of borrowers Fair submitted to Ohio securities regulators in November. Neither returned calls from IBJ.

Durham, Fair’s CEO and co-owner, might have given borrowers on the ropes more wiggle room because acknowledging loans were uncollectible would have forced the company to write them off.

Extending loans or reducing interest rates allowed Fair to continue listing them as assets on its balance sheet—fueling the impression the company was healthy. Fair had a strong incentive in recent years to appear on solid footing because it repeatedly sought and received approval from Ohio securities regulators to sell hundreds of millions of dollars in investment certificates to the state’s residents.

Of course, an accounting firm in charge of auditing Fair’s books would be expected to halt any such shenanigans. But Fair had no outside auditor. It used a form of securities registration that didn’t require audited financials. And though Ohio regulators could have asked for them anyway, they didn’t.

The trustee, Cleveland attorney Brian Bash, also won’t let personal relationships get in the way of collection efforts, legal observers said. Fair records list more than $168 million in related-party loans. Maximizing collection on those will boost the recovery for the purchasers of investment certificates, who collectively are owed more than $200 million.

Fair has been closed since Nov. 24, when FBI agents seized company records. The same day, the U.S. Attorney’s Office in Indianapolis filed court papers alleging Fair operated as a Ponzi scheme, using money from new investors to pay off prior purchasers of investment certificates.

Flawed records?

But Bash may not hold all the cards. The list Fair submitted to regulators has the heading “loan receivables/investments.” If some really are investments, and the recipients are struggling financially, the trustee may have no grounds to collect.

And some people and companies contend the sketchy information on the list about them is wrong.

Scott McKain, an author and professional speaker who formerly was vice chairman of Durham’s buyout firm Obsidian Enterprises, said he doesn’t owe the $115,000 listed for him.

Indianapolis attorney Bob Hammerle said he is representing McKain and several other people who are working with investigators to get themselves removed from loan lists.

“There are any number of people who are stunned to find out they allegedly owed money,” Hammerle said. “Like Mr. McKain, they have no idea why they are listed.”

Joan SerVaas, Durham’s ex-wife and owner of Curtis Publishing in Indianapolis, said her firm doesn’t owe the $1.05 million that appears on the list. She said Curtis did borrow less than $100,000 to buy printing equipment about five years ago but paid it back.

“I think that list was where he was trying to define where the loans had gone,” SerVaas said. “He misidentified that one—that is what he told me.

“I don’t think he really had good records of where some of that money was going.”

Larry Mackey, an attorney for Durham, said he would not discuss financial specifics until investigators wrap up their work.

He said he believes the offering circulars Ohio residents received before investing were “true and accurate and any losses suffered were the result of our nationwide economic struggles and not fraud.”

Financial strains

Many of the firms and individuals on the list are showing the same financial strains.

MyGhetto.com, a social-networking site launched by the rapper Ludacris, one of Durham’s pals, appears to have shut down, casting uncertainty over whether it can repay the $170,000 Fair says it owes.

Firms tied to restaurateur Najem owe more than $1.5 million, according to the list. Najem, best known for his Bella Vita restaurants, has faced at least two lawsuits over the past year over unpaid bills.

Osler and his Geist Sports Academy owe $1.8 million, according to the list. The 5-acre property is listed for sale for $1.4 million and has more than $95,000 in taxes owed on it.

David Mucklow, an attorney who pushed Fair into bankruptcy, thinks Bash, the trustee, will turn over every stone.

“I think he will be aggressive, and he is competent,” Mucklow said. “He will do a fine job.”•

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  • owner
    various
  • Certificate Holder List
    How do I check to be sure I am on the certificate holder list. I have two CD's, one for $10,000 and one for $5,000 which both came due at the end of November 2009. Thank you for what you are doing.
  • Times Up
    Fair Finance could face 13,000 claims
    By Jim Mackinnon
    Beacon Journal business writer

    POSTED: 08:40 p.m. EDT, Mar 15, 2010

    There are more than 13,000 outstanding Fair Finance investment certificates valued at more than $208 million, according to the court-appointed trustee overseeing the Akron company in bankruptcy proceedings.

    ''That puts some perspective on the magnitude of the problem,'' said Cleveland lawyer Brian Bash.

    Bash, named trustee of the under-investigation accounts receivables and loan company a month ago, gave a status report Monday in federal bankruptcy court in Akron.

    The trustee's investigation into Fair Finance's records found 13,169 investment certificates outstanding as of Nov. 19, just before the FBI on Nov. 24 raided the company's offices and a related business in Indianapolis. The certificates are valued at $208,641,993.54, Bash said.

    ''We have a listing of all the investors, we believe, that exist,'' he said.

    Bash spoke as part of a conference telephone call in the courtroom before Judge Marilyn Shea-Stonum; he was not physically present. There were six onlookers in the courtroom, including Fair Finance investment certificate holders.

    The certificate figures mean that more than 13,000 claims will be filed as part of the bankruptcy proceedings, Bash said.

    By comparison, 16,000 claims were filed as part of the multibillion-dollar Ponzi scheme investigation of New York investor Bernie Madoff, Bash said. Bash and the trustee appointed to oversee the Madoff case work for the same law firm, Baker & Hostetler.

    Court records show federal investigators suspect the company has been operated as a Ponzi scheme. Fair Finance sold investment certificates that promised high rates of return to Ohio residents. The certificates were not government insured.

    No one has been charged or arrested under the ongoing investigation into Fair Finance and its related companies, owned and/or operated by Indiana businessmen Timothy Durham and James Cochran. The two men purchased Fair Finance in 2002 from the Fair family, who established the business in 1934.

    A group of certificate holders forced Fair Finance into involuntary Chapter 7 bankruptcy in February as a means to protect the firm's assets for eventual reimbursement.

    Assets, loans found

    The ongoing look into Fair Finance's records is uncovering assets, including loans made to other affiliated and unaffiliated businesses, that might be returned to creditors, Bash said. He also might auction off Fair Finance's computers and office equipment, he said.

    Bash said Fair Finance parent company Fair Holdings might be brought into the proceedings and he is looking at ''other entities'' as well.

    Bash said he is working to accommodate as many as 1,500 business accounts, including fitness centers and ''food purveyors'' that depended upon Fair Finance to manage their accounts receivables. ''They may go out of business if they don't get their money,'' he said.

    Bash said he has heard from certificate holders concerned that the co-owners of Fair Finance are selling off assets purchased with company money.

    ''No assets of Fair Finance are being dissipated,'' he said. The U.S. attorney's office in southern Indiana and attorneys for Durham and Cochran have also said that no Fair Finance assets are being reduced, he said.

    Bash said he also found 1,000 interest checks that were issued to certificate holders in late November but never mailed out.

    The investment certificate records were found during forensic investigations of paper and computer records, Bash said.

    Computer experts made copies, or mirror images, of the hard drives of 33 Fair Finance servers, he said.

    ''I learned the system could be accessed off premises, which gave me a terrible fright,'' Bash said. He took steps early on to prevent online access to Fair Finance's computers and is having all of the company's mail forwarded to his office, he said.

    Process takes time

    Shea-Stonum urged certificate holders to have patience with the bankruptcy process, saying she understands their emotions.

    Bash has been trustee for about a month, is still in the early stages of learning about Fair Finance and needs to conduct a careful investigation, she said. The trustee does not represent any particular creditor or holder of investment certificates and cannot do such things as provide tax advice, she said.

    ''I've asked the trustee basically to walk a tightrope,'' Shea-Stonum said. ''I want him to be as efficient as possible.''

    The federal bankruptcy process probably will allow for a more efficient collection of whatever Fair Finance assets remain than state court proceedings would, Shea-Stonum said.

    ''We want everything to happen instantaneously. But there are procedures to follow,'' she said.

    A Web site set up by the trustee should be a good means of communicating with certificate holders and other creditors, Shea-Stonum said. What is posted on the Web site is at the discretion of the trustee, she said.

    The Web site can be found at http://www.fairfinancetrustee.com and at http://www.kccllc.net/fairfinance.

    The site includes information on how certificate holders and others can file claims, read messages from the trustee and review copies of court documents.

    ''It is [the trustee's] Web page. What goes on his Web page is subject to his business judgment,'' Shea-Stonum said. She said she will not look at the Web site because she does not want to create legal issues.
  • You Can Run But You Can't Hide
    This is like the rats deserting a sinking ship. Deny everything!
  • Someone's lying
    Either Tim or his friends, me thinks both

    this is VERY interesting

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