IBJNews

Durham prosecutors wrap case with details on asset transfer

Back to TopCommentsE-mailPrintBookmark and Share

In the weeks before an FBI raid shut down Fair Finance Co., top executives led by Indianapolis financier Tim Durham devised a last-ditch financial maneuver they hoped would persuade Ohio regulators to allow them to keep selling investment certificates.

Executives decided to transfer $85 million in nonperforming loans and investments held by Fair's parent company, DC Investments, to Fair's own books. The rationale, they reasoned in e-mails and government-recorded phone calls, was twofold: The move theoretically would reduce the balance of related-party loans from Fair, and it would allow Fair to show more assets on its own balance sheet.

Many of the loans to be transferred involved businesses that already had closed, individuals with ties to Durham and partner Jim Cochran who didn't have the means to pay them back, and still-operating companies that came up well short of the collateral required for such loans, government witnesses testified Friday afternoon and Monday morning in U.S. District Court.

The prosecution in the fraud trial of Durham and co-defendants Cochran and Rick Snow was expected to rest its case Monday afternoon. Defense attorneys expect to finish their presentations Tuesday evening, allowing the jury to begin deliberations as early as Wednesday afternoon following closing arguments.

The big question is whether any of the defendants will take the stand. John Tompkins, Durham's attorney, on Friday said he hadn't made the decision yet whether to recommend Durham testify in his own defense, though he said ultimately that will be Durham's call. The other attorneys declined comment.

Durham, Cochran and Snow, Fair's chief financial officer, are facing 10 counts of wire fraud, one count of securities fraud, and one count of conspiracy to commit wire fraud and securities fraud. The government alleges they bilked more than 5,000 Ohio investors out of $200 million by turning Fair into a Ponzi scheme. If convicted, they face decades in prison.

In testimony Monday morning, William Bavis, a forensic accountant hired by the government, said Fair failed to own up to the fact that $17 million in loans to luxury bus company Pyramid Coach—a firm partly owned by Durham—were uncollectible. Bavis highlighted an Aug. 9, 2009, e-mail in which Snow told an accountant that "at some point we need to write those off."

But the loans were not written off when Fair submitted paperwork to state securities regulators in October 2009 seeking approval to sell an additional $250 million in investment certificates to Ohio investors.

In that filing, Fair listed its net worth as $5.6 million. Writing off the Pyramid loans would have left Fair with negative net worth of $11 million "and the company would be considered from an accounting perspective to be insolvent," said Bavis, managing director in the Baltimore office of Invotex Group.

The bad loans from Pyramid wound up in a grouping of $21.6 million of loans transferred to Fair and labeled as "previously reserved," even though Durham had not set aside any cash to cover the losses, Bavis said Monday. 

Bavis said other loans included in the "previously reserved" category included $1.3 million for a yacht Durham no longer owned, $424,000 for a jet he had sold, and a $470,000 loan to his mother, Mitza Durham.

The $85 million asset transfer essentially "liquidated" DC Investments, Bavis said.

On Friday, the prosecution took testimony from Jeff Osler, a former executive vice president at Durham's Obsidian Enterprises who is married to Durham's sister (the couple is getting a divorce) and for years took money from Durham for his home, business ventures and children's tuition, running up a tab of $1.3 million.

One of Osler's last assignments before the FBI raided Fair Finance and Obsidian in November 2009 was to prepare a list of loans and investments held by other Durham entities, including personal loans made by Durham and Cochran. Osler testified the plan was to move the loans to Fair's balance sheet, making Fair look stronger in terms of assets even though the loans weren't performing and had little chance for repayment.

Many of the $85 million in loans that wound up on Fair's books were for companies that had shut down years earlier, including for an embroidery business called DWA LLC and a tech startup called Inet Now, Osler testified.

The $1.3 million loan to Osler also wound up with Fair, though Osler testified he had no means to pay it back. He had a first mortgage on his home, leaving little equity to cover the second mortgage that purportedly secured the loan.

Defense attorneys pointed out mistakes in the accounting for loans, including a couple of Osler loans that had been assigned to Cochran. They also noted the final list of loans set for offload to Fair did not include some of the most obviously bad loans.

By the time the FBI raided Fair, the company had gone five years without audited financial statements. That's because independent accountants refused to sign off on the firm's books.

After the firm BCBG Partners declined in 2005 to issue an audit of Fair's 2003 financials, Somerset CPAs stepped in.

Despite its own concerns, Somerset wound up delivering audited financial statements for 2004, but it withdrew from a 2005 audit because of "changes in the financial position of the company and the required adoption of new accounting pronouncements," according to a July 2006 letter.

But the firm went a step further, asking Fair to stop using its 2004 audit in its materials shared with investors.

"We no longer felt comfortable with our opinion to be used in offering circulars," Somerset principal Ben Kimmerling testified Friday.

Fair's loans to related entities and individuals had increased, and its collateral had fallen in value, Kimmerling explained.

Somerset's draft 2005 financial statements showed a loss of more than $19 million by Fair. The statements Durham and Snow ultimately signed off on showed a profit of about $300,000.

ADVERTISEMENT

  • Durham, Cochran and Snow
    By jove! The picture of wrongdoing is very clear and it has been an excellent presentation of the Government's case. I anticipate little to no defense to all the Government's overwhelming evidence of guilt. I don't know how Durham, Cochran and Snow were allowed to operate like that for as long as they did and continue to rip more people off.
  • tough road for the defense!
    Jury deliberations for this should take about 30 seconds. Then, after Durham and fellow crooks are put away, maybe we can move on to more positive news stories about what some good people are doing...

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. Uh, sorry Johnnie, but you are incorrect. Despite the assertions by yourself and various defenders and captains, sports attendance is NOT off significantly at most sporting events in the US. Variances in attendance has been in the range of single digits, both + & - for years now. MLB has had most of its best overall attendance nubers in the last decade, and that trend has been consistent for most major sporting events. The number one issue cited by most fans when asked about attendance is the overall cost of attending. The presence of HD and big screen televisions in home doesn't even register, as a factor for not attending an event. VALUE in the product is the key, and apparently is something lacking in the current ICS. What other explanation is there when with what is routinely touted as the "best" racing on the planet, fans are staying away in DROVES. A "close" title battle into the last event at Fontana, with the "cars and stars" of the ICS, and who showed up? MAYBE 8K. Sorry, but HD TV isn't to blame for that kind of fan apathy.

  2. Do you need finance to establish your business ? Are you interested in getting a loan at 3% from our private company? If so please Email: suntrust_oil@blumail.org

  3. If she was worth the $ the public outcry over direct tv dropping them would have kept them on their dishes as we have seen with other companies. I too quit watching channel 13 after she showed up since I left channel 8 because of her all show rather than production results. When Randy on 8 corrected her she had a big head and incorrectly challenged his correction for pronunciation of a city. Other antics while she matures was too much for me with her very inaccurate forecasts. All the forecasters were predicting rain until Thursday except Chris. They predicted sunny on Thursday but instead of rain until Thursday upon which the sun would finally make it out in full glory Chris was right on the money just as I too predicted looking at the radar on weather.gov. One thing I love about Angela is the fear you can see in her every time it thunders in the winter. It far exceeds the entertainment value of her body language (high heel noise drags, depression, etc) when her forecasts are so incorrect. Her hair stands on end, you have to see it!!!

  4. Good Day, Apply For A Loan I am Mr Fernadez Antonio, a private Loan lender and a cooperate financial for real estate and any kinds of business financing. I also offer Loans to individuals, Firms and cooperate bodies at 3% interest rate We offer any kind of loans. email us via fernadezloaninvest@outlook.com LOAN APPLICATION FORM First name:......................... Middle name:......................... Last name:........................................ Date of birth (yyyy-mm-dd):....................... Gender:........................................... Marital status:................................... Total Amount Needed............................... Loan Duration.................................... Address:.......................................... City:............................................. State/province:................................... Zip/postal code:.................................. Country:.......................................... Phone:............................................ Fax:.............................................. Mobile/cellular:.................................. Monthly Income.................................... Occupation:....................................... Best Regard, Mr Fernadez Antonio.

  5. i will love to share my testimony to you all the people in world i got married to my husband about 2 year ago we start having problems at home like we stop sleeping on the same bed,fighting about little things he always comes home late at night,drinking too much and sleeping with other women out side i have never love any man in my life except him. he is the father of my child and i don't want to loose him because we have worked so hard together to become what we are and have today .few month ago he now decided to live me and the kid,being a single mother can be hard sometimes and so i have nobody to turn to and i was heart broken.i called my mom and explain every thing to her,my mother told me about DR.okoro how he helped her solve the problem between her and my dad i was surprise about it because they have been without each other for three and a half years and it was like a miracle how they came back to each other. i was directed to DR. okoro on his email:okorospell@gmail.com and explain everything to him,so he promise me not to worry that he will cast a spell and make things come back to how we where so much in love again and that it was another female spirit that was controlling my husband he told me that my problem will be solved within two days if i believe i said OK So he cast a spell for me and after two days my love came back asking me to forgive him i Am so happy now. so that why i decided to share my experience with every body that have such problem contact Dr okoro the great spell caster on his email addresses spellcasterforlove@outlook.com

ADVERTISEMENT