An insurer for a Dallas company where Tim Durham serves as chairman has agreed to pay $5.5 million to settle a pair of lawsuits accusing the Indianapolis financier and other insiders of self-dealing.

If the settlement receives court approval, it would bring to a close a legal brouhaha that erupted after the company, CLST Holdings Inc., purchased millions of dollars in consumer-finance receivables from Fair Finance Co., an Akron, Ohio, firm co-owned by Durham.

The Fair Finance deals, struck about two years ago, gave the Ohio firm badly needed cash at a time it was struggling to repay investors who had purchased high-yield investment certificates.

Under the settlement, XL Specialty Insurance Co. would pay $550,000 to CLST shareholder Red Oak Partners, a New York investment firm that has been battling CLST in court nearly two years. The other suit is what's known as a derivative action, where shareholders sue on behalf of the company, pursuing claims against insiders. Because the plaintiff is effectively CLST, the insurer would pay the company $2.7 million. In addition, the law firm for the plaintiffs in that case, Robbins Umeda LLP of San Diego, would receive fees and expenses of $2.25 million.

Much of the money that would be paid to CLST ultimately could flow to shareholders. CLST, which was a wireless phone distributor before selling off those operations several years ago, is in the process of dissolving and distributing remaining cash to investors.

In the settlement, Durham and other insiders do not admit doing anything improper. But they agreed to a wide range of corporate governmance restrictions that reduce the chance of questionable conduct in the future. For example, though Durham could remain on the board, he would have to step down as chairman and could not vote on any matter untless doing so made the board unanimous.

CLST executives have denied there was anything wrong with buying the consumer-finance receivables and argued they thought they were making a good investment. But shareholders of publicly traded CLST called it nonsensical to make a big bet on consumer finance in the depths of the worst financial crisis since the Great Depression.

Outside shareholders weren’t alone in expressing outrage. CLST board member Manoj Rajegowda resigned in protest. A letter Rajegowda’s attorney sent the company said he “was not informed of this transaction, and most strenuously objects to it.”

Investigators from the Justice Department and Securities and Exchange Commission are scrutinizing Fair’s dealings with CLST as part of a broader investigation into the collapse of Fair. CLST, Durham and other insiders received subpoenas from the SEC in November 2009, regulatory filings show.

Around the same time, FBI agents raided Durham’s offices atop the Chase Tower in downtown Indianapolis and Fair’s headquarters and hauled out bankers’ boxes full of documents. The company never reopened afterward.

Filings with Ohio securities regulators show that after Durham and fellow Indianapolis businessman Jim Cochran bought Fair in 2002, they tapped it for tens of millions of dollars in loans to fund their lavish lifestyles and other business interests.

The insiders failed to repay the loans. That left Fair without the money to repay Ohio residents who bought unsecured investment certificates with interest rates as high as 9.5 percent. Fair slid into bankruptcy early this year, and now owes more than 5,000 investors more than $200 million.

Justice Department officials have declined to comment in detail. But in a court filing late last year, they alleged Fair operated as a Ponzi scheme, using money from new investors to pay what it owed prior investors, thereby “lulling the earlier victims into believing that their money was being [handled] responsibly.”

Durham acknowledges owing millions of dollars to Fair but has denied breaking the law. In court filings, he said the insider loans and other risks were detailed in offering circulars provided to prospective investors.

CLST's bet on consumer-finance receivables ultimately soured. The CLST legal settlement prevents further related-party deals. It says the board will not enter into any new deals with "directors or with any persons or entities who are affiliates of the directors."

According to a regulatory filing, XL Specialty will continue to provide insurance for CLST, but at a stiff price. XL’s premium for two years of coverage will be $1.4 million.