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Fair trustee: Durham committed fraud of 'shocking proportions'

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Fair Finance Co.’s bankruptcy trustee on Monday filed a lawsuit alleging that Tim Durham perpetrated “a fraud of shocking proportions,” draining huge sums from the Akron, Ohio, firm for years to mask that his business empire had collapsed.

“Durham fired auditors who became too squeamish and operated [Fair] as a Ponzi scheme, enabling him to loot every last penny,” according to the sharply worded 49-page lawsuit filed in U.S. Bankruptcy Court in Akron.

By the time Durham and fellow Indianapolis businessman Jim Cochran bought Fair in 2002, his Indianapolis-based buyout firm—Obsidian Enterprises Inc.—already was effectively bankrupt, the suit says.

Trustee Brian Bash alleges in the suit that Durham bought Fair to fund Obsidian’s failing businesses—a collection of transportation and manufacturing firms—and to provide cash for other personal investments.

When Durham’s and Cochran’s purchase of Fair closed, Durham remarked that “this will be like taking candy from a baby,” the suit says.

From there, Bash charges, Durham began looting Fair at a “stupendous pace,” extending millions of dollars in credit to Obsidian businesses.

An attorney for Durham was not immediately available to comment on the lawsuit.

Fair's lending spree caused huge losses for the investors who financed the company—mom-and-pop Ohioans who bought unsecured investment certificates boasting interest rates as high as 9.5 percent. More than 5,000 Ohio residents are owed more than $200 million.

The related-party loans continued, the suit says, even though the firm’s outside auditor, BGBC Partners PC of Indianapolis, expressed deep concerns as early as 2002. The firm would not sign off on Fair’s financials for that fiscal year and was fired in 2005 without having completed 2003 or 2004 audits.

A different accounting firm, Indianapolis-based Somerset CPAs, issued 2003 and 2004 audits in the summer of 2005, but did not issue additional reports. In May 2006, Somerset issued an incomplete audit opinion that concluded Fair was not a going concern.

Fair did not undergo full audits from that point on, but was nonetheless granted approval by Ohio securities regulators to continue selling millions of dollars in unsecured notes to investors.

In April 2005, BGBC wrote a letter to Durham and Cochran explaining that it could not issue an unqualified audit report for 2003 or 2004 because Fair’s “conduct indicated it was not being run for its own benefit,” according to the lawsuit.

The letter said the “loans” to related parties actually were really “distributions to shareholders” because the likelihood of repayment was so low.

“The accusations in this letter are particularly impressive because Durham was one of BGBC’s five largest clients, producing between $250,000 and $300,000 a year for a four-partner practice,” the suit says.

By the end of 2005 at the latest, Fair was operating as a Ponzi scheme, the suit says, relying almost entirely on new sales of investment certificates to pay what it owed prior investors. By that point, according to the lawsuit, Fair was insolvent by at least $50 million.

That same year, Obsidian President Terry Whitesell wrote a memorandum to Durham “bemoaning the awful state of the subsidiaries, stating that the outside cash flow to them needed to stop, and the companies needed to ‘turn around or die,’” the suit said.

Obsidian and Fair continued to operate until November 2009, when the FBI raided their offices in Indianapolis and Akron. The raid came about a month after an IBJ investigative story highlighted the insider loans and raised questions about whether the firm had the means to repay holders of investment certificates.

The U.S. Attorney’s Office is conducting a criminal investigation of the company’s collapse. Durham has acknowledged that he owes Fair millions but has denied breaking the law. He noted that the offering circulars provided to prospective investors detailed the insider loans and highlighted other risks.

But the trustee’s lawsuit said Fair shifted assets among various companies to obscure its precarious financial condition. Non-performing loans often were moved to Fair’s parent, Fair Holdings Inc., “hiding their negative impact on [Fair Finance’s] financial condition, the suit alleges.

The trustee’s lawsuit asks the court to fold Obsidian and another Durham firm, Diamond Investments LLC, into Fair Finance’s year-old bankruptcy liquidation case.

The suit says purchasers of Fair’s investment certificates “could have realized a significant recovery” if Durham had liquidated the company years ago when it first become obvious that it was doomed.
 

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  • Easy Money
    Frauds, like Tim Durham and Bernie Made-Off, are nothing more than "slick salesmen" who know full well the fraud they are committing- and they laugh all the was to the bank at how gullable investors are! Let's see if this "Slick Willie" ever pays for the intentional damage he caused to his investors.
  • HAMMER TIME
    When the arrest is made they will execute it the same way the raid went down.They will click the braclets on the boy's at the same time.There won't be time to run.
  • CNBC - David Faber
    Wonder why he doesn't do a follow up of his previous story on TD? Maybe he is so embarrassed for falling for it hook, line and sinker.
  • lol
    Lesson learned. Never invest with a company that uses a teen fashion boutique to do their audits.
  • re
    Paul, Tim actually didn't hold his stock as long as claimed to. If you look at item 80 on the trustee lawsuit you'll see Madoff traded in his personal account at the very time Durham was. Whoda thunk, huh.

    Further the money Tim used to BUY Brightopint CAME FROM FAIR FINANCE INVESTORS--every penny of it. If you pull the Fair offerings you will a $60M offeirng at the beginning which freed up the cash and that is what Tim started buying the Brightpoint with.

    Tim was upside down on National Lampoon stock allegedly on margin. So why would he bet on the brother's company, just luck? HELLO? And on Cellstar right before Brightpoint bought them? His only two "successes" were CELL and CLST--and the money wasn't even his to purchase that stock with!

    And now we read the Popper lawsuit and Plopper admitted to the Star that the $250K tim gave him at the very time tim was gobbling up brightpoint was not, in fact, used for a mortgage but to "make an investment in a company" without mentioning the company.....HELLO

    all of them should be in prison, waht a loser group
  • brightpoint stock and Durham
    why dosen't someone look into the brightpoint stock purchases that made durham all his money
    • Purported loans
      please, there were no loans, which is why there were no deeds of trust and/or ucc filings.

      My theory: The week before the FBI raid Durham was tipped off the raid was coming, which is why someone hoofed it up to Elkhart to file that purported second mortgage L & BAB Equity against Brizzi's property, and why the Dan Laikin loan documents, sent to the Ohio Dept of Securities on the eve of the raid, do not make sense and have dates messed up, and why suddenly all these losers all had monies given to them back in 2003 which is beyond the legal statute for collection by any entity including the trustee.

      All of these people should be prosecuted for bankruptcy fraud to the fullest extent of the law.
    • Purported loans
      please, there were no loans, which is why there were no deeds of trust and/or ucc filings.

      My theory: The week before the FBI raid Durham was tipped off the raid was coming, which is why someone hoofed it up to Elkhart to file that purported second mortgage L & BAB Equity against Brizzi's property, and why the Dan Laikin loan documents, sent to the Ohio Dept of Securities on the eve of the raid, do not make sense and have dates messed up, and why suddenly all these losers all had monies given to them back in 2003 which is beyond the legal statute for collection by any entity including the trustee.

      All of these people should be prosecuted for bankruptcy fraud to the fullest extent of the law.
    • Concerned
      From what I gathered in the complaint, the assets of Obsidian subsidiaries were pledged to other lenders, sometimes even after they were pledged to Fair. Regardless of the timing of the pledges, other lenders all had perfected their leins prior to Fair's so if there are proceeds from auctioning / selling the assets, Fair would be pretty far down the line in recovering anything. The fact that Fair failed to safeguard its collateral is part of Mr. Bash's argument that Obisidian subsidiaries should be rolled into Fair. That's all fine and good, but they are all worthless in the end.
    • Obsidian
      So would Obsidian owned companies just be closed and auctioned as part of the settlement?
      • Obsidian
        So would Obsidian owned companies just be closed and auctioned as part of the settlement?
      • Why No Criminal Charges?
        How can the U.S. Attorney drag this out so long?

        Maybe Brian Bash should be appointed his replacement!!!!
      • Concerned....
        The suit states that all the Obsidian subsidiaries had long ago been run into the ground. The only thing keeping them afloat for years has been the cash siphoned from Fair. That's where the criminal case may come from. It is illegal to offer investment certificates in companies that are insolvent, no matter what the sales disclosures state.
        • Obsidian owned companies
          What happens to currently operating Obsidian owned companies if the court rules to "fold" Obsidian Enterprises into the bankruptcy and/or liquidation? Is there a time frame for the ruling to be published?
          • Glad to see
            that TD's ex wife was not mentioned in Bash's suit. She is really a lovely person.
          • Here's the filing today
            http://media2.wishtv.com/_local/pdf/durhamsuit.pdf
          • BGBC
            shoudl be called BIG GUYS boys cry--the big guys are the cpas at BGBC that said NO. NO NO NO. KUDOS.
          • Firm Name
            The name is actually BGBC not BCBG.
          • Need to hear the BCBG story
            Hey IBJ, Health Heros is nice but much more impressive would be Accounting Heros. I nominate BCBG and close the nominations. To be a four partner firm standing up to one of your largest clients who is paying for most of your salaries and rent and say "NO" is a value trait that needs to be honored and recognized more in the business world today. I don't believe the general population understands the commitment to ethics and doing the right thing that BCBG displayed in this case. Help us understand it IBJ by telling the BCBG story.
            • Congratulations to Mr. Andrews on his spectacular reporting
              Mr. Andrews--thank you. If not for you, another $250M offering would have been approved and yet more thousands of victims would have had lost millions. In the face of constant criticism, you persevered. You really are my hero, and that of so many people who did not become victims.

              It is sad for the victims but I hope the trustee goes after Somerset and everyone else who said nothing and allowed this scheme to happen. I'd like to publicly thank BCBG for doing the right thing and saying NO. I will send them corporate business because they have earned it.

              GREAT JOB TO THE IBJ!

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