IBJNews

Trustee seeks $1B from Fair Finance's lenders

Back to TopCommentsE-mailPrintBookmark and Share

Fair Finance Co.’s bankruptcy trustee finally has found some deep pockets to go after in his quest to recover money for the small-time Ohio investors who lost more than $200 million when the Tim Durham-led company failed two years ago.

Trustee Brian Bash on Tuesday afternoon sued Fair’s lenders—Rhode Island-based Textron Financial Corp. and New York-based Fortress Credit Corp.—seeking up to $1.2 billion in actual and treble damages.

The suit charges the companies turned a blind eye to Fair CEO Durham’s fraudulent activities because they were making millions of dollars on their lending relationship and held first liens on the only Fair assets with real value.

It accuses the two companies, which have billions in assets, of aiding and abetting theft, fraud and insiders’ breaches of fiduciary duty.

“The sad tale described in this complaint would not have been possible without the knowing and active assistance of [Fair’s] lenders,” the suit alleges. "Neither Textron nor Fortress cared about the harm being caused” to the company and its creditors because they were almost sure to be paid.

A Textron spokeswoman declined to comment. A Fortress spokesman told the Akron Beacon Journal that his company was aware of the suit but does not discuss litigation.

The 141-page lawsuit is Bash’s most aggressive push yet to recover money for the Ohio residents who bought unsecured notes from Fair boasting interest rates as high as 9.5 percent. Payments ceased to all 5,000 noteholders when the company collapsed in November 2009.

Bash has filed dozens of suits since early 2010. But most seek to recover relatively small sums that were transferred out of Fair at a time the trustee alleges it was insolvent. And many of the defendants are Durham friends or business associates who appear to have few assets.

Both Bash and federal prosecutors allege Durham and fellow Indianapolis businessman Jim Cochran looted the Akron, Ohio-based business after acquiring it in a 2002 leverage buyout.

Authorities charge that almost immediately, Durham drained tens of millions from the company by making loans to himself and failing businesses he owned. They say millions also went toward Durham’s mansions, a yacht, part ownership of an airplane and extravagant gambling trips.

The suit charges that by December 2003, Fair already was operating as a Ponzi scheme reliant on the sale of additional unsecured notes to Ohio residents to stay afloat.

Textron provided a $22 million line of credit that financed the purchase of Fair from then-owner Donald Fair. Since its founding in 1934, the business had focused on buying finance contracts from fitness clubs, time-share condominium developers and other firms that offered their customers extended-payment plans.

That core business shrank under Durham, while insider loans ballooned.

According to the lawsuit, Textron’s vice president of portfolio management sent an e-mail to Durham in November 2003 expressing concern that Durham’s use of proceeds from note sales “as a piggy bank” to fund losses at his other businesses was “wrong” and “could come back to haunt us.”

Fearing Durham’s Ponzi scheme might soon collapse, Textron in July 2006 forced Fair to sell off customer accounts—its collateral on the loan—and repay it in full, the lawsuit says. Seven months later, Fortress stepped in as the new lender.

“Notwithstanding the risks involved in loaning to a company that was operated as a Ponzi scheme, Fortress was motivated to make [the loan] because of the substantial fees and interest payments that would be charged to [Fair] for access to the line of credit,” the lawsuit alleges.

A grand jury in March indicted Durham, Cochran and Fair Chief Financial Officer Rick Snow on charges of wire fraud, securities fraud and conspiracy to commit wire and securities fraud. All three—who are scheduled for trial in June—deny wrongdoing.

ADVERTISEMENT

  • Lawyer eats Lawyer
    All this talk of who sues the lawyers and the lawyers getting rich! Didn't you notice that until he was convicted Tim Durham was a lawyer? That's right! So it all starts with a lawyer. What I want to know is if Mr. Bash has finished looking into all the loose ends. Seems like there is a lot unaccounted for still. Will those people he's sued already be able to slip free through bankruptcy? It seems someone should be able to pay down on debts. Why should they wriggle free if student loans and medical bills can't be bankruptcy?
  • Fair Finance
    The lawyers do deserve payment but not too much that the investors don't get a fair share. And further more I think they should give us the courtsey to know the status of each individual so we know that they know who each 5000 of us are so when they are able to pay something we know we won't be missed out of the opportunity to receive what is owed to us.
  • Another name in the pot
    Brizzinator, throw Henri Najem's name into the pot of people who benefited from CLST (Bightpoint). How do you think the he was able to totally gut the old Blue Heron and transform it into Bella Vita? He had vendors requesting COD on deliverys and bouncing employees paycheck and all of a sudden he had enough money to create a new restaurant?
  • Lawyers' Fees
    Of course, legal fees are given priority status in bankrtupcy. Even if Bash hires a friend to do the work on a small contingency of 35%, expenses will be paid by the estate.
    • Well, well
      So it's finally gonna come out as to exactly what happened when Fortress too back receivables and then conveniently sold a similar sized pit to CLST, which was controlled by Timmy after he, Carl Brizzi, allegedly John Bales and other psychic friends just happened to buy the stock shortly before Brightpoint bought their assets.

      Hmmm....
    • Really
      JEB, yeah, I hate lawyers too. They want to get paid for what they do. Why not ask, "what happens if this suit doesn't net any money? What do the lawyers get then after all of their work?" The answer is a big fat zero.
      • $800 Million
        Who gets the left over $800 million dollars...the attorney? Attorney's are awesome...what was I thinking when I went into the field I am in? I should have been an ambulance chasing crook. Who sues them when they take too much money from an entity and turn a blind eye? They do it every day.

      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:
       
      thisissue1-092914.jpg 092914

      Subscribe to IBJ
      1. Cramer agrees...says don't buy it and sell it if you own it! Their "pay to play" cost is this issue. As long as they charge customers, they never will attain the critical mass needed to be a successful on company...Jim Cramer quote.

      2. My responses to some of the comments would include the following: 1. Our offer which included the forgiveness of debt (this is an immediate forgiveness and is not "spread over many years")represents debt that due to a reduction of interest rates in the economy arguably represents consideration together with the cash component of our offer that exceeds the $2.1 million apparently offered by another party. 2. The previous $2.1 million cash offer that was turned down by the CRC would have netted the CRC substantially less than $2.1 million. As a result even in hindsight the CRC was wise in turning down that offer. 3. With regard to "concerned Carmelite's" discussion of the previous financing Pedcor gave up $16.5 million in City debt in addition to the conveyance of the garage (appraised at $13 million)in exchange for the $22.5 million cash and debt obligations. The local media never discussed the $16.5 million in debt that we gave up which would show that we gave $29.5 million in value for the $23.5 million. 4.Pedcor would have been much happier if Brian was still operating his Deli and only made this offer as we believe that we can redevelop the building into something that will be better for the City and City Center where both Pedcor the citizens of Carmel have a large investment. Bruce Cordingley, President, Pedcor

      3. I've been looking for news on Corner Bakery, too, but there doesn't seem to be any info out there. I prefer them over Panera and Paradise so can't wait to see where they'll be!

      4. WGN actually is two channels: 1. WGN Chicago, seen only in Chicago (and parts of Canada) - this station is one of the flagship CW affiliates. 2. WGN America - a nationwide cable channel that doesn't carry any CW programming, and doesn't have local affiliates. (In addition, as WGN is owned by Tribune, just like WTTV, WTTK, and WXIN, I can't imagine they would do anything to help WISH.) In Indianapolis, CW programming is already seen on WTTV 4 and WTTK 29, and when CBS takes over those stations' main channels, the CW will move to a sub channel, such as 4.2 or 4.3 and 29.2 or 29.3. TBS is only a cable channel these days and does not affiliate with local stations. WISH could move the MyNetwork affiliation from WNDY 23 to WISH 8, but I am beginning to think they may prefer to put together their own lineup of syndicated programming instead. While much of it would be "reruns" from broadcast or cable, that's pretty much what the MyNetwork does these days anyway. So since WISH has the choice, they may want to customize their lineup by choosing programs that they feel will garner better ratings in this market.

      5. The Pedcor debt is from the CRC paying ~$23M for the Pedcor's parking garage at City Center that is apprased at $13M. Why did we pay over the top money for a private businesses parking? What did we get out of it? Pedcor got free parking for their apartment and business tenants. Pedcor now gets another building for free that taxpayers have ~$3M tied up in. This is NOT a win win for taxpayers. It is just a win for Pedcor who contributes heavily to the Friends of Jim Brainard. The campaign reports are on the Hamilton County website. http://www2.hamiltoncounty.in.gov/publicdocs/Campaign%20Finance%20Images/defaultfiles.asp?ARG1=Campaign Finance Images&ARG2=/Brainard, Jim

      ADVERTISEMENT