Federal officials who brought a 12-count indictment Wednesday against local businessman Timothy S. Durham and two other executives
tied to bankrupt Fair Finance Co. described the lengthy investigation leading to the arrests as the largest corporate fraud
case in Indiana’s history.
Addressing the media at an afternoon news conference, Timothy M. Morrison, first assistant U.S. Attorney for the Southern
District of Indiana, said complexities tied to the charges contributed to the roughly 18-month investigation.
“We have to get this right,” he said. “You have to prove it to 12 people without a reasonable doubt. Now
we look forward to proving the allegations beyond a reasonable doubt." (Raw video of the first several minutes and highlights
of the press conference appear below.)
Authorities said Fair Finance owes 5,200 Ohio investors $230 million.
A 23-page grand jury indictment, unsealed Wednesday, alleges that Durham, 48, and business partner James
F. Cochran, 55, worked with former Fair Chief Financial Officer Rick D. Snow, 47, to devise and execute a scheme to defraud
investors in the Akron, Ohio-based company.
The three men all were arrested Wednesday at their homes—Durham in Los Angeles and Cochran and Snow in Indianapolis,
Morrison said. Durham previously lived in a 10,700-square-foot home on Geist Reservoir.
Cochran and Snow have been released on their own recognizance following a Wednesday initial hearing in Indianapolis before
U.S. Magistrate Judge Kennard Foster. The Southern District of Indiana does not require a bond to be posted, Morrison said.
Durham, meanwhile, is awaiting his initial hearing in Los Angeles. All three men are facing felony charges of 10 counts of
wire fraud, one count of securities fraud and one count of conspiracy to commit wire fraud and securities fraud.
Each faces a maximum of five years in prison for the conspiracy count, 20 years in prison for each wire fraud count and 20
years in prison for the securities fraud count. In addition, each could be fined $250,000 for each count upon which they are
convicted.
The investigation was led by the FBI in Indianapolis with assistance from the fraud section of the U.S. Department of Justice.
The case will be prosecuted by Assistant U.S. Attorneys Winfield D. Ong and Joe Vaughn of the Southern District of Indiana, in addition to Assistant Chief Robertson Park and trial attorney Henry P. Van Dyck of the Department of Justice’s fraud section.
“We’re talking about holding companies and other types of businesses that we had to wade through,” Morrison
said while reiterating factors involved in the investigation. “It’s a very complex case.”
The Securities and Exchange Commission also filed separate civil securities charges against the men in federal
court.
Between February 2005 and November 2009, Durham and Cochran directed Fair to loan money to themselves and other insiders,
the federal indictment says, "which caused a steady and substantial deterioration in Fair's financial condition."
The three men then allegedly deceived and defrauded investors through misleading statements about the company's finances.
Durham's Indianapolis-based Obsidian Enterprises and DC Investments—co-owned with Cochran—were the primary
beneficiaries of the loans, according to the indictment. Those businesses in turn loaned money to a "variety of struggling
businesses and start-up ventures," including a car magazine, restaurants, a surgery center, a race car team and a luxury
bus leasing business. Many of those borrowers failed, the indictment says.
Durham and Cochran also "used a significant portion of the proceeds of these loans to maintain their lifestyles and
to pay for personal expenses."
According to the indictment, they spent lavishly. Durham, for example, wired $250,000 in Fair money in 2007 to remodel his
garage. He wired another $150,000 the following year to use at a casino. In addition, Cochran wired $50,000, also in 2008,
to pay country club fees.
In November 2010, FBI agents raided Obsidian's offices in Indianapolis and Fair's Akron headquarters.
The previous month, IBJ ran an investigative story highlighting the related-party loans and questioning whether
Ohio regulators had been derelict in repeatedly approving the sale of additional investment certificates.
The company filed for Chapter 7 bankruptcy protection in early 2010.
In a TV interview last year, Durham suggested Fair failed because it couldn’t withstand the bad publicity caused by
a surprise FBI raid of its offices that month.
But e-mails filed in Fair’s Chapter 7 bankruptcy case last month strongly suggest
company insiders knew years before Fair collapsed that it was in dire straits.
Fair’s bankruptcy trustee, Brian Bash, alleges Durham “utterly looted” the business through related-party
loans to himself, business associates and Indianapolis-based Obsidian Enterprises Inc., his holding company for a collection
of transportation and manufacturing firms.
Durham and Cochran bought the then-68-year-old business for $23 million in 2002, using almost entirely borrowed money.
They immediately began doling out related-party loans, adding to the debt load, while scaling back what had been Fair’s
profit-making business—buying customer-finance contracts from fitness clubs, time-share developers and other firms that
offered customers extended-payment plans.
Last month, Fair Finance Co.’s bankruptcy trustee filed a lawsuit alleging that Durham perpetrated fraud of “shocking proportions,” draining huge sums from the firm for years to mask
that his business empire had collapsed.
Snow, 47, has been chief financial officer of Fair Finance since 2002, according to the SEC complaint. The Fishers resident
was appointed CFO of Obsidian in 2003, and in 2009 was named interim CFO of National Lampoon, which Durham also controlled.
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Kudos to the whistleblower who worked with the IBJ and never quit despite all the crap this person got from Durham for turning him in, repeatedly, going from SEC office to SEC office and FBI office to FBI office and finally to the Department of Securities in Ohio and then finally to Greg Andrews who got it the first time, and had the courage to start outing Tim and his shenanigans, and took a lot of grief for it-- and finally also to the the IRS and Congressman Boccieri, both of whom "got it" the first time. TD has finally been arrested and as the US Attorney said yesterday yes, it took time but it's important this case is prosecuted correctly so Durham et al can never do this to another elderly person or any person again.
The government should add affinity and elder crime to their list of charges. It will be interesting to see if Ohio slaps state charges against Durham next. And, at some point one would think the IRS will charge criminal tax evasion. All par and appropriate for the course of the conduct of Tim Durham who didn't have a pot of cash despite what people wanted to believe when he "bought" this company.
I'd personally like to know how Carl Brizzi got the money to make the repairs on the Elkhart building he just stumbled into. Did that money come from his dividends on his Durham suggested buy of CLST or from Fair? I'd like to know the answer as well as how he just happened into that, as well as into purchasing massive amounts of Cellstar and Red Rock Pictures.
Last, in addition to seeing the government go after Brizzi and Daniels to return the stolen money donations, it would be nice to see bank and mortgage fraud added to the list of charges for all the various people who greedily accepted money without disclosing while financing their own remortgages etc that in fact they had received money from Fair/Tim/whatever entity he gave them the money from. Did anyone really think he was growing $1,000 bills on a tree in his backyard? HELLO.