IBJNews

Outlook improves for Fair Finance investors

Back to TopCommentsE-mailPrintBookmark and Share

A New York firm is contacting Fair Finance Co. investors seeking to purchase their bankruptcy claims—a sign that investors in the defunct business could secure a sizable recovery.

Investors in the Tim Durham-owned company this month began receiving letters from Woodbury, N.Y.-based ASM Capital offering to buy their claims for 5.25 cents on the dollar.

fair-finance-062512-15col.jpg Fair Finance investors faced locked doors on Dec. 7, 2009, at the investment firm’s Akron, Ohio, headquarters. One visitor took time to alter the door sign. (Photo courtesy of Akron Beacon Journal)

While few investors are swayed by that amount, they figure an investment firm wouldn’t have swooped in if its principals didn’t believe the actual payouts would be far greater than the offer.

So-called claims trading isn’t unusual in bankruptcy, especially in cases like Fair, where potential recoveries might take years to collect and many of the holders of claims are elderly.

“The people in that kind of business aren’t running charities,” said Doug Drushal, an attorney in Wooster, Ohio, representing about 200 purchasers of Fair Finance investment certificates. “They aren’t going to make an offer unless they think there is a pot of gold at the end of the rainbow they can grab onto.”

Fair, a consumer-finance company based in Akron, Ohio, halted payments on the notes after FBI agents raided its headquarters and Durham’s offices atop Chase Tower in November 2009.

The raid was part of a federal investigation that culminated June 20 with a jury convicting Durham on all 12 of the felony counts he faced. The jury found Fair co-owner Jim Cochran guilty on eight of 12 counts, and company Chief Financial Officer Rick Snow guilty on five of 12 counts. (Go to myibj.com/tim-durham for complete coverage.)

A grand jury indictment unsealed in March 2011 alleged that, after Durham and Cochran bought the business in 2002, they raided its coffers for personal expenses and to cover losses at failing businesses they owned.

The transfers, recorded as related-party loans, never were repaid, and prosecutors said Fair soon was operating as a Ponzi scheme, relying on the sale of new investment certificates to pay off prior purchasers.

The outlook for the more than 5,000 Ohio investors who hold over $200 million in Fair Finance investment certificates looked dismal until early this year, when bankruptcy Trustee Brian Bash sued two deep-pocketed financial firms he accused of aiding and abetting fraud.

Though by then Bash already had filed dozens of lawsuits seeking to recoup some of the insider loans and other transfers that investigators say gutted the business, many of the defendants had few if any assets. Even Kelly Burgan, an attorney for Bash, said a year ago that investors likely would recovery only a “teeny-tiny fraction” of what they were owed.

Attorneys for the trustee no longer will speculate on potential recoveries. During testimony in the Fair Finance trial June 18, Bash said he’d recovered $5.6 million, with just $518,000 coming from collections on the massive related-party loans prosecutors say brought down the company.

Under cross examination by Durham defense attorney John Tompkins, Bash acknowledged it is his “hope and belief” he’ll be able to recover much more.

Lawyers’ fees

Bash in March asked Ohio bankruptcy court Judge Marilyn Shea-Stonum to switch compensation for his counsel—the Cleveland law firm Baker & Hostetler—from hourly fees to contingency fees, with attorneys collecting one-third of recovered funds.

Investors interpreted the move as a sign the legal team is so optimistic it can haul down large settlements or court judgments that it is willing to give up a sure thing—millions of dollars in hourly fees—for the potential of a much bigger payoff. Experienced attorneys working on Fair litigation have been charging as much as $400 an hour.

After the judge rejected the proposal, the trustee this month proposed lower contingency fees—30 percent of the first $50 million recovered, 15 percent of the next $50 million, and 10 percent of all recoveries exceeding $100 million.

The judge has not ruled on the new request.

So far, expenses, including attorney’s fees, have eaten up the lion’s share of recoveries, and there have been no distributions to investors.

russell-donald-mug.jpg Russell

While the legal fees frustrate investors, they’re hopeful the lawsuit spree won’t be for naught. Buoying their spirits was a suit the trustee filed in February seeking up to $1.2 billion from two of Fair’s lenders—Rhode Island-based Textron Financial Corp. and New York-based Fortress Credit Corp.

The suit charges the companies, which have billions in assets, turned a blind eye to Durham’s fraud because they held first liens on the company’s only assets with real value—finance contracts it bought from health clubs and other firms providing extended-payment plans to their customers. As a result, they were positioned to collect what they were owed regardless of whether Durham looted the company.

The suit cites Textron e-mails sounding alarms about the extent of the withdrawals from Fair. One, sent by a Textron vice president to Durham in November 2003, expresses concern that Durham’s use of proceeds from note sales “as a piggy bank” to fund losses at other businesses was “wrong” and “could come back to haunt us.”

In March, Bash sued former Fair owner Donald Fair, saying he kept quiet about how Durham was running the company to ensure he received the full $20 million due from the purchase.

To collect the final $3.2 million in 2007, Donald Fair threatened to “create a ‘run on the bank’ that would halt the Ponzi scheme if he wasn’t paid in full,” the suit alleges. “In essence, Durham and Cochran ‘bought’ Don Fair’s silence by paying him in full.”

Including punitive damages, that case seeks more than $150 million.

‘Allegedly salacious quotes’

To no surprise, the lenders and Fair deny the allegations and are girding for battle. In a motion to dismiss filed in April, attorneys for Textron scoffed: “The trustee here has engaged in an ill-considered rush to judgment, ignoring the facts on the ground at the time, and cherry-picking documents and allegedly salacious quotes from documents, while ignoring clearly exculpatory information that does not fit the trustee’s theory.”

The trustee’s move to sue lenders with substantial resources “makes everybody a lot more optimistic,” said David Mucklow, an Akron attorney representing about 260 investors.

ASM, which specializes in buying claims in bankruptcy, believes the recovery for Fair investors ultimately will be greater than what it’s offering, but the litigation to collect that money likely won’t wrap up for years, said Jared Muroff, the company’s managing director of research.

“We do think … it is a good opportunity for investors to take money off the table now,” Muroff said. He said the offer is open to all but the smallest investors, those with less than $10,000 in investment certificates.

Firms in ASM’s field sometimes offer far more than pennies on the dollar. Reuters reports, for instance, that claims in the Bernard Madoff bankruptcy case are fetching around 60 cents on the dollar. The trustee in that case, Irving Picard, has recorded $9.1 billion through legal settlements, and his office has said creditors ultimately could get a full recovery on their more than $17 billion in allowed claims.

Mucklow, the attorney for Fair investors, isn’t impressed with ASM’s offer, in part because the contract appears to give it the right to claw back payments from investors under certain circumstances.

“I am cautioning my people to look closely,” he said. “If I were in their shoes, I would wait.”

James Coco, a certified public accountant in Medina, Ohio, who is owed $200,000, isn’t interested.

“Fifty percent would get my attention,” Coco said.

Donald Russell of Doylestown, Ohio—whose family lost $475,000—was more outspoken.

“It’s insulting, totally insulting,” he said of the offer. “My view is we have been patient for 2-1/2 years, and we are finally getting some answers. Now, at this point, we have these bottom feeders who are trying to victimize us some more.”•

ADVERTISEMENT

  • Take It!
    If I were you, I'd take the 5.25%. I'm sorry to tell you, but Durham blew your money on parties, Vegas trips, failed businesses. It's not just "sitting out there" waiting to be found. It's gone!! I even think AMS will take a bath on their 5.25%.

Post a comment to this story

COMMENTS POLICY
We reserve the right to remove any post that we feel is obscene, profane, vulgar, racist, sexually explicit, abusive, or hateful.
 
You are legally responsible for what you post and your anonymity is not guaranteed.
 
Posts that insult, defame, threaten, harass or abuse other readers or people mentioned in IBJ editorial content are also subject to removal. Please respect the privacy of individuals and refrain from posting personal information.
 
No solicitations, spamming or advertisements are allowed. Readers may post links to other informational websites that are relevant to the topic at hand, but please do not link to objectionable material.
 
We may remove messages that are unrelated to the topic, encourage illegal activity, use all capital letters or are unreadable.
 

Messages that are flagged by readers as objectionable will be reviewed and may or may not be removed. Please do not flag a post simply because you disagree with it.

Sponsored by
ADVERTISEMENT

facebook - twitter on Facebook & Twitter

Follow on TwitterFollow IBJ on Facebook:
Follow on TwitterFollow IBJ's Tweets on these topics:
 
Subscribe to IBJ
  1. Good Day I am Mr (Victoria Wright) from United state of America, i stayed in NEW YORK, and i have a broke up business, until i found this company email who help me to gain a loan for business,, and now i want to used this short medium to congratulate the below company for the fast and safe money they loan to me without any form of collateral, i loan 500,000USD from the company to save my business and lots more, i saw their mail on the internet, everyone always give testimony for what they did, so i quickly contacted them and they all did everything for me without stress and my money was sent to my account just 3 days later, i was surprise and i feel so glad, now i have a standard business control agent who help me, now i will advice those who need urgent loan to contact him at the bellow email:zenithfirm12@gmail.com

  2. NOTICE:This is to inform the general public that Vampires are real. My name is James Franklyn.,am an agent of vampire,am here to introduce our new world trend to you,a world of vampire where life get easier,we have made so many persons vampires and have turned them rich,you will be assured long life and prosperity,you shall be made to be very sensitive to mental alertness,stronger and also very fast,you will not be restricted to walking at night only even at the very middle of broad day light you will be made to walk.In case you are wildly oppressed by some unscrupulous persons we can still help you fight them.Your protection is assured immediately you join.Just contact the bellow email if you are interested we are here to attend to you anytime you want us. Contact the bellow email for more details. Email:vampirescreed@hotmail.com Sincerely: James Franklyn.

  3. Bravo! Someone else that is willing to speak the truth! Bravo!_____NBCSN is available in almost 2 MILLION more homes than just a few years ago, but Indycar STILL gets less total viewers than it did just a few years ago when NBC took over Versus. Attendance and ratings cratered with the end of season races (just when the title battle got "interesting" HAH!__________And now...new race in Basilia, where Miles celebrated the "rich history" of Indycar racing there. Rich history? What, 7 events in the 100 years of AOW? Yep, some history. Well, at least its an oval. It's not??? Are you kidding me??? Gosh darn road racin furriners.

  4. PURITY RAY LOAN OFFER........ Have you been denied by your banks,or are you in need of of an urgent loan to pay of your bills we are capable of giving loans @ cheaper rate to interested individuals, student, companies and members of the public in need of finance to settle bills, we do offer considerable loans which you can count on. For more information on our various types of loan,then you will have to contact PURITY RAY LOAN FIRM, to help you achieve your desire LOAN APPLICATION FORM TO BE FILLED BORROWERS INFORMATION * Full name:………………………. * SEX * ……………………………. * Country………………………….. * State:……………………………. * Land:…………………………….. * Occupation:…………………….. * phone number:…………………. * Telephone: ………………………….. * Age:………………………………. * Amount needed as loan:……… * Loan Duration:………………….. * Propose of Loan:……………….. * Annual revenue:………………… * Monthly Income:……………….. * Guarantee:………………………. * Payment: monthly or annually Email.....purityrayloanfirm@gmail.com Thank you and God bless Mr Purity Ray PURITY RAY LOAN FIRM we tend to serve you better

  5. Problem: most of the people responding to this article don't know about this service AT ALL! Why? Lack of awareness. This isn't IndyGo. This is CIRTA: might as well be the mattress company because they are asleep at the wheel - something like 3 directors over the last year? Playing with federal grant money is great! This "region" wants commuter rail service, has spent MILLIONS on Transportation studies yet can't even support a commuter bus line? This is largely for suburban riders to get to downtown - not for "service people to work in our hotels and restaurants" ! Get your head out of your backside!! These are professionals, students etc. that don't want to fight traffic, save some money on parking, gas, stress.... if CIRTA would put their federal money into widely promoting the sevive to Greenwood, Fishers & Carmel instead of finding directors and studies - this would be a successful service. Our family uses(d) it daily for the last several years - but the recent uncertainty & now unreliability due to cuts from Carmel has been a problem. Now, costs us an additional $350/month for gas & parking ( $4200/year) plus vehicle wear, service, environmental impact ... YES - this REGION needs this this type of service in order to keep growing and getting the people it needs to fill skilled positions in downtown Indianapolis. Think outside of your own car !!!

ADVERTISEMENT