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Disclosures key to feds' probe of Durham's Fair Finance

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Any case federal prosecutors pursue against Tim Durham or his associates likely would revolve around what his Fair Finance Co. disclosed—or didn’t disclose—to potential investors, legal observers said.

The FBI isn’t saying what it was after when agents swooped in to two Durham companies—Indianapolis-based Obsidian Enterprises Inc. and Akron, Ohio-based Fair—on Nov. 24 and hauled out bankers boxes full of documents.

But in a written statement, the FBI did urge “anyone who has had dealings with Fair … or has information or concerns” about the company to contact the agency.

And in an e-mail, Dennis Ginty, a spokesman for the Ohio Department of Commerce’s Division of Securities—Fair’s primary regulator—said: “The division will most assuredly assist the FBI in any way it can that will serve to protect the interests of Ohio investors.”

Durham

The dramatic FBI raids came a month after IBJ published an investigative story questioning whether Fair, which purchases customer-finance contracts from retailers and other firms, had the financial wherewithal to repay Ohio investors who had purchased $197 million in investment certificates.

The story reported that, since Durham bought the business from Donald Fair in 2002, he had used it almost like a personal bank to fund a range of business interests, some of them unsuccessful. The story noted that he and related parties owe Fair more than $168 million.

The company has since filed new financials with the Division of Securities that show its performance has declined during the economic downturn. They also show that insider loans have climbed to $177 million, and investment certificates outstanding have swelled to $207 million.


Meanwhile, customer-finance contracts—which used to be the source of most of the company’s profits—have dwindled to $24 million. That means paying back the purchasers of investment certificates mainly hinges on Durham’s and related parties’ paying back their massive insider loans.

“I hope they get all those investors paid off, but there is reason for concern about that,” said James Klimek, an Indianapolis securities attorney who reviewed the latest financials for IBJ.

Some of the investors are getting worried. Many have been purchasing or rolling over investment certificates for years, enticed by lofty interest rates. Fair has be

en paying as much as 9 percent on 24-month notes.

That’s more than triple what banks are paying on certificates of deposit with similar terms. But CDs come with a government guarantee. Fair’s investors—who are required to be Ohio residents and who primarily live in the northeastern part of the state—have no backstop if the company fails to pay what’s due.

Harley Himes, 82, said he and his wife live off the monthly interest payments they receive on their Fair certificates. He said they’re waiting to find out what happens next.

“I was an investor back when the original owner owned it,” said Himes, who lives near Wooster. “We didn’t have any problem with him. You kind of get used to a good thing. Then you find it is not such a good thing.”

Disclosures to investors

Durham has his primary office at Obsidian, a leveraged-buyout firm on the top floor of the Chase Tower downtown. It’s not clear whether the FBI is interested in Obsidian itself or only records held in those offices that relate to Fair.

Securities attorneys say the stickiest issue for Durham might be whether the Fair offering circulars provided to prospective investors included material misrepresentations or omissions.

Attorneys who have read through the circulars, which run more than 40 pages, say they’re difficult to decipher, especially portions disclosing details about insider loans and what serves as collateral for those loans.

“Are you telling enough about the entities receiving insider loans, and what kind of shape they are in?” asked Mark Maddox, an Indianapolis securities attorney who is considering representing investors in civil litigation against Fair.

If Fair failed, that in itself wouldn’t open Durham or associates to criminal prosecution for securities fraud or other violations, since there is no crime in running an unsuccessful business.

Though insider loans are controversial because of the potential for conflicts of interest, their prevalence also might not be problematic. That’s because the company was forthright in the “use of proceeds” section of recent circulars that some money would be used that way.

John Tompkins, an Indianapolis attorney representing the 47-year-old Durham, said his client is cooperating with investigators and believes he has done nothing wrong. He said Durham met with FBI agents and answered questions the day the raids occurred. He wouldn’t say what they discussed.

Future challenges

Pressures were intensifying on Fair Finance even before the raids. The company reported a loss of $1.78 million in 2008, in part because it added $2 million to reserves to cover potential loan losses.


The figures are contained in a proposed offering circular Fair filed with Ohio’s Division of Securities Oct. 29. The company sought a new registration because an existing one from July 2008 was set to expire Nov. 24.

But instead of signing off on the new registration, Mark Heuerman, registration chief counsel, sent a letter to Fair’s attorney saying “the offering is impossible to review under our standards without further documentation.”

He asked for additional information on a range of topics, including documentation that would help him untangle the morass of insider loans.

“Please include sequential transactions on multiple levels where related parties engage in further transactions with related parties,” he said.

Ronald Kaffen, an Akron attorney representing Fair, characterized the back and forth as routine.

“That’s sort of standard procedure. You make a filing. You get comments back, and you respond to those comments,” Kaffen said.

The company submitted its responses Nov. 24, and the Division of Securities is reviewing them. In the meantime, because Fair’s prior registration has expired, it can’t sell additional investment certificates.

That could help limit losses if Fair were to fail, since new investor dollars won’t be coming in the door. But Klimek, the securities attorney, said he wonders if Fair can keep going without those infusions.

In the proposed offering circular, the company acknowledges its concern over the “effect that the country’s economic downtown may have upon Fair’s ability to obtain sufficient capital to pay interest to investors and to repay investment certificates as they become due.”

As a result of that concern, the document says, Fair in February raised cash by selling several million dollars in consumer finance loans to an affiliate of CLST Holdings, a publicly traded Dallas company where Durham is a board member and major shareholder.

Fair also says in the circular that New York-based Fortress Credit Corp. in June reduced the company’s credit line from $50 million to $35 million.

And the company acknowledges it’s been selling off better-performing finance contracts to raise cash, leaving it with a portfolio of loans that may experience higher default rates.

“Fair has felt it necessary to liquidate a large portion of its finance receivable portfolio in order to provide sufficient funds to pay investor interest and to redeem certificates as they come due,” the circular says.

Further, Fair acknowledges that “at times” within the past year, it has delayed the repayment of principal on maturing certificates for 60 days—something the company has authority to do in months when payments due investors exceed 10 percent of its cash collections.

Fair said that as soon as economic conditions allow, it plans to jump back into the purchase of customer-finance contracts.

But in the interim, management is thinking entrepreneurially. Within the next 60 days, Fair plans to launch a division called Fair Communications, which will operate call centers for third parties out of excess office space.•

 

 

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  • no jail
    He will not do anytime.
  • what would a real company do
    The IBJ article came out over a month ago.
    The IBJ article did not make accusations, it asked questions. I have not read any clarification or dispute by Fair Finance.

    Financial firms require access to debt. If Fair Finance were well run and legitimately run, I would think a full and immediate explanation would have been given.

    I called Fair Finance today and got a recording.
  • Great job Russ!
    http://www.fox59.com/news/wxin-durham-wire-fraud-1128-09,0,6267217.story
  • Re
    Not too hard to figure out who is pretending to be Leon. Spending your time reading all the boards? Like that's really going to do you any good. You'd be better off reading the circulars....and some tax returns...of more than one person....and historical bank account and brokerage records of certain people......dontcha think?

  • Re
    You could start by telling the truth about your name, which isn't Leon. He's dead. But, hey, thanks for pointing out the "truth" will "unveil." TD can spin this any way he wants but it's obvious from your post that lots of spining is going on....but the allegations indicate the truth is he can't make the redemptions, he diverted money to himself; it appears he was tipped off about the raid (why is that not a surprise, Carl) because never in the history of Fair have all the offices been closed for the entire week of Thanksgiving. How timely considering the raid was Tuesday and he let the employees go home the preceeding Friday after work.

    It appears to be a fact that Tim had virtually no liquid net worth at all when he took over Fair--or the IRS wouldn't have had a lien against him. His only successes I can find, post Carpenter (and that was because of Buert) are his bets on Brightpoint and Cellstar, acquired by Brightpoint. And Brightpoint is run by his business partner's brother! You know, the business partner going to prison in January for pumping National Lampoon stock. Do you really expect any of us to believe Durham was clueless there?

    Spare the pump. It's over, the feds have the records, and I would expect charges to come. But, let's say you have a point--TD could prove us naysayers wrong, coudn't he? He could print out and publicize his investment statements before February 6, 2002, the day he started buying Brightpoint with funds entrusted to him by the Ohio investors. Guess what I bet you'll see? An upside down margin position on National Lampoon.He could print out his bank and brokerage statements starting the day he took control of Fair, and show us on a month by month basis where his income came from and where his expenditures were, and chart this against the inflow of funds from Fair Finance investment certificates sold. And, he would have these certified by two non-Durham related, reputable CPAs that are known for forensic fraud.

    But, he won't do that, will he? By the way Carl Brizzi could do the same--statements pre and post Durham.e
  • Friends?
    I don't need to research his background. I know what it includes. Just wait - the truth will prevail but of course you angry people will still believe what you want to. You're hopeless.
  • re
    Please. You sound like one of Durham's few friends and you also sound delusional. If you had really "researched" Durham you would have seen that in 2001, Durham was broke with two mortgages and a massive IRS tax lien (link attached.)

    The IRS has gotten him and it's over. The circular Andrews attached in this article shows you clearly Durham helped himself to almost $200M. The Feds Seizure Filing shows you he wired funds from Fair, upon receipts of investment certificates, directly to his personal accounts. He allegedly went to Vegas repeatedly and gambled, and guess what? It would have been okay if it had been his money. But, it wasn't.

    http://74.125.95.132/search?q=cache:pSYCsx2931YJ:caselaw.findlaw.com/data2/indianastatecases/app/05070102.nhv.doc+joan+durham+ihsaa&cd=1&hl=en&ct=clnk&gl=us

    How did anyone expect Tim Durham to manage hundreds of millions when he couldn't even manage $400K?
  • hey leon
    from what i know, this clown got most of his funding by either marrying into the ser vas family (who do you think bought,owned and ran Carpenter Bus) before he married into the family??? or by buying and selling companies, (which admidettly takes a certain amount of skill, one that I certainly don't have. But this clown -- and yes, he is an idiot, got caught up in the life style of the rich and famous, lived beyond his means, and now will have to face the conseuqences, which will likely mean the end of his wealth and perhaps some jail time. Idiot indeed.
  • Really?
    Really? You researched his backround and think he was a genious? His deals were with close friends and were sketchy at best. How about that great deal with Dan Laikin and National Lampoon? Isn't Dan going to prison? Is your genious friend next? Time will tell.
  • Homeless?
    What is Mike Rypel to do now??? No more allowance from daddy! Loser.
  • Hey "Joe"
    Maybe you should stop and think just for a moment... would Mr. Durham get to where he is in life if he was an "idiot"? Have you done any reading about his background? When I researched his background, all I see is that he has earned his fortune from several successful deals and expert decisions. If he buys expensive toys and has an extravagant lifestyle MAYBE it is from his own well deserved earnings; it has very little to do with that small company which is obviously made up of investors who panic easily and should not be investing at all, but instead just use a cookie jar. This investigation has certainly done far more harm to those investors than Mr. Durham has done... too bad "innocent till proven guilty" won't matter at all because Fair has already been killed, and not by Mr. Durham... even HE might not be able to revive it now.
    • Resuming business
      Nice statement for Durham's attorney to put out that business will be back to usual in a week, it will take months for the FBI sorts through this mess. Perhaps Tim's attorney should stop getting his face in the press and instead spend his time counseling his client that it's all over, and to start liquidating the airplanes, the cars, the mansions, the Frank Sinatra grammy (who in the world besides Durham would pay what Durham paid for that?) and get some cash so these elderly, rural Ohioans can have their life savings back.

      The man quoted in the article is 82 years old. 82! To Carl Brizzi and John Tompkins, I ask this: What if this were your father? Or mother? I am especially disappointed in Carl Brizzi. Carl, look at your life now. You had a beautiful wife, a respectable position in life, and you threw it all away because you started living the high life with a total schmuck. This weekend, a holiday for which we are all supposed to be greatful, I want you to do so some soul searching (if you even still have a soul) and ask yourself what you are going to do to redeem yourself, and I hope it starts with telling your buddy he had better start selling all the crap he bought with money that belonged to people like the 82 year old man in the article.
    • time for a garage sale
      methinks its time for durham to have a garage sale, getting rid of his 70 plus automobiles. it may also be time for some downsizing, as he is going to need some fast cash to satisfy these notes/clients......what an idiot!

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