The men who presided over Fair Finance were at their wits end by late 2009.

In government-recorded phone calls and intercepted e-mails introduced as evidence in U.S. District Court this week, they come across as exhausted, angry and determined.

Defense attorneys will argue that's because Tim Durham and co-defendants Jim Cochran and Rick Snow were working around the clock to save Fair from the recession, bad press and inquiries by skeptical regulators in Ohio, where the company was based.

But the prosecution's evidence suggests the defendants were desperate for another reason: They wanted to preserve their outsize lifestyles and prevent authorities from discovering how they had used cash from Fair investors to pay for cars, homes, parties and country club memberships.

By 2009, Fair co-owners Durham and Cochran had fallen behind on mortgages for their mansions, overdrawn their bank accounts, and missed payments on income and property taxes, their own e-mails show.

Credit card companies including American Express slashed their available credit lines, prompting Cochran to complain in one e-mail he couldn't even afford a hotel when he visited Fair Finance headquarters in Akron, Ohio. His credit score had fallen to 510, he wrote.

Durham responded that his was probably lower. "I don't even want to look," he wrote on Sept. 8, 2009.

In another message, Cochran complained about having to sell his Corvette and live on only $10,000 for a period of 25 days.

"I don't have cash to go to McDonald's for my kids," he wrote.

The prosecution opened their fraud case this week with testimony from Fair employees and investors who lost a total of more than $200 million in what the government describes as a Ponzi scheme. Now prosecutors are trying to hang the defendants with their own words, introducing e-mails and playing wiretap recordings that detail the final days at Fair before an FBI raid on Nov. 24, 2009.

Fair's leaders were trying desperately to win authorization from the state of Ohio to sell another $250 million in investment certificates and persuade concerned investors to stay the course. Some sought to cash out after Fair fell behind on interest payments and the investors learned most of the company's assets were tied up in related-party loans.

As its existing authorization to sell certificates wound down, Fair began taking cash deposits from investors while promising to issue investment certificates later, against the advice of its own counsel, the prosecution alleges. Fair employees were told to blame computer errors or state regulators for delayed payments. Fair's owners also allegedly discussed ways to dress up the firm's financials, including showing loans for businesses that already had closed to appease regulators.

Still, the executives felt confident the state of Ohio had no choice but to allow Fair to continue.

"If they're gonna blow us up, we're gonna blow them up," Cochran vowed in a phone call with Durham on Nov. 13, 2009, according to a transcript provided by the prosecution. "I mean nobody wins and everybody loses, but we lose the worst. But at the end of the day, I mean, they gotta [expletive] put this thing on the street without a doubt. Fifty-four hundred investors aren't gonna ... [expletive] ... I mean it would be a catastrophic event in the State of Ohio. And I'm sure they don't want that kinda headline."

Durham and Cochran had relied on Fair for capitalization of both their businesses and lifestyles, FBI Special Agent Dennis Halliden said in testimony Wednesday. But the homes, cars and other fancy accoutrements did not provide nearly enough collateral to offset the loans they had taken from Fair.

Cutting back

During a brief respite in Fair's ongoing cash-flow crisis, Cochran confronted Durham about his lavish spending and failure to heed the "signs of a poor economy."

In a July 14, 2009, e-mail, he questioned Durham's decisions to spend $12,000 for two nights in a condo for New Year's Eve and for throwing lavish parties in Las Vegas and on a rented yacht.

"These costs are ultimately paid by Fair upstream of funds .. .assigned to Obsidian [Enterprises, Durham's buyout fund] and never paid back," Cochran wrote. "With the reprieve of funds this week, you should work on clearing the garage of cars, because these funds won't last and we'll be back to the strugglin position."

Cochran suggested the companies start a round of layoffs and asked Durham to consult him on every bill that got paid. He also asked for $104,000 to pay  property taxes, $71,000 for unpaid income taxes and $193,000 for hurricane windows for a home in Naples, Fla.

Durham agreed they needed to cut back, and said he had "flushed in" about $5 million over the previous 18 months by selling two antique Duesenberg cars and other assets he had bought with his own cash but later "secured to defaulted Fair money."

"So if I spent 4K on a weekend boat trip or got comped on a vegas trip, then I don't feel bad about it," Durham wrote. (You can read this entire exchange here. Warning: There's some profanity.)

The partners agreed to put aside their differences in an attempt to keep Fair in business; Cochran's mission was to "save" investors who had requested to withdraw their funds from Fair.

"Go baby go," Durham cheered Cochran in an e-mail after Cochran persuaded an investor with $98,000 in Fair to cancel a cash-out request.

Getting creative

In a phone call on Nov. 9, 2009, Cochran and Durham complained that Fair's employees weren't smart enough to say the right things to hold onto investors concerned about late interest payments.

"It's like [expletive] Larry, Curley and Moe over there," Cochran said, according to a transcript.

But the partners decided they couldn't "address" the situation by firing or reassigning anyone.

"These guys know a little bit too much," Cochran said. "They can take it ... bust us."

"No. We can't," Durham agreed. "We've got to get through this."

A few days later, on Nov. 13, 2009, Durham called with an idea to make some of Fair's bad debt disappear by distributing the debts to the partners.

"This is the answer," Durham said. "I mean, it's just basically we make twenty-five, twenty-eight million dollars in loans just vanish."

"Halle-[expletive]-lujah," Cochran said.

"Yep. Yep," Durham answered.

"[Expletive] brilliant," finished Cochran.

In another call, between Durham and Chief Financial Officer Snow, Durham suggested he could resign as chairman of a subsidiary company to which Fair had loaned millions. At that point, Durham said, the loan balance would no longer have to be classified as "related-party," allaying some concern among investors.

"I don't know what the related party rules are but that makes sense," Snow answered.

Setting priorities

Durham and Cochran were feuding as early as 2005 over how to use Fair to restructure their struggling business empire, e-mails show. Cash flows from Fair would rise and fall depending on how willing Ohioans were willing to invest at a given time.

In a March 2005 note, Cochran complained that millions of dollars in loans to Durham-led firms Obsidian and DC Investments put Fair in a "poor position." But his primary concern was not Fair investors.

"Through the years, you have to agree, there has been no benefit in it for me. I am in all this debt that has no benefit to me," he wrote, before ending with: "Tim, it's time for me to look out for me ... because no one else will."

Cochran wrote in a September 2008 e-mail exchange with Durham that his assets including homes weren't enough to offset the loans he had received from Fair (about $8 million), which would pose trouble in a potential audit.

He said Obsidian couldn't afford to pay its employees without money from Fair. He also noted loans of $14 million "we'll never recover" from Fair investors to Obsidian subsidiaries including Danzer Industries, Speedster Motor Cars and Champion Trailer.

But he wasn't writing Durham to discuss how to handle the loans or account for them with Fair. He was asking for a raise.

"It is really time for me to bring in $1 million per year," Cochran wrote. "In retrospect, it is time for this type compensation ... as strange as that seems from me. With the new fundings, it will easily support this comp. package."

At the time, his pay was $8,365 per week, or about $435,000 per year.

One month later, Cochran asked for another $22,000 from Fair to pay his taxes to the IRS, and $43,000 to pay the fourth installment of his $175,000 initiation fee at Grey Oaks Country Club in Naples. Fair had paid the other installments, too.

"This is full equity and I am assigning the full equity amount to (Fair)," he wrote.

Boom and bust

By December 2008, Durham and Cochran were trying to sell homes and cars to raise cash, sublease Obsidian's office space on the 48th floor of Chase Tower, and sell off National Lampoon Inc. They also discussed ways to collect on loans to friends and family members (most of whom had never made a single payment). In early 2009, Durham suggested they take themselves off the payroll, taking loans from Fair instead, to minimize payroll taxes.

"My credit report will go real bad ... altho, saving a company is more important," Cochran wrote on Dec. 31, 2008, after discovering he had not received money from Fair to pay a mortage payment on his home in Naples.

The finances had turned around a bit by early 2009, in part because Fair instituted a 60-day hold for investors wanting to cash out their certificates. The move "generated" $1 million in "additional cash," Durham wrote.

On the afternoon of May 4, 2009, with a subject of "$$$$$$$$," Cochran told Durham in an e-mail he was "running on fumes" and needed some "moolah."

About an hour later, Durham authorized a transfer of $10,000 from Fair to Cochran.

Cochran responded that he still had his mortgages to pay.

The following month, Cochran asked for $16,000 for "May mortgages," $20,000 for "Corvette payment to Susan's sister," $5,475 for "cement coping of pool," $2,200 for "landscapers (3) of the homes," and $10,000 for "normal bills."