Path to Fair Finance funds full of detours, roadblocks

Let’s take an imaginary trip to Vicksburg, Miss., home of one of Tim Durham’s larger companies, in a quest to
recover money for investors in Fair Finance Co.

The journey begins with promise. Records show Durham’s U.S. Rubber Reclaiming Inc. owes Fair Finance—and by extension
the Ohio investors who funded the bankrupt Akron business—$15 million. Recouping that money would put a dent in the
more than $200 million owed the 5,000 investors—a largely blue-collar, elderly lot who can’t afford big losses.

Yet this trip appears destined to have an unhappy ending. We’ll likely return home with fond memories of the breathtaking
views of the Mississippi River that Vicksburg offers, but with little or nothing for Fair’s investors.

Durham mug Durham

Even worse, we learn a few things about Durham’s business empire that make us pessimistic about the prospects of recovering
money from other industrial firms partly owned by the beleaguered Indianapolis businessman. Those companies, which turned
to Fair for tens of millions of dollars in financing, range from trailer-makers to a manufacturer of truck bodies.

U.S. Rubber Reclaiming, the oldest rubber recycling company in the United States, caught our attention because it went on
the sale block last month. Durham’s locally based buyout firm, Obsidian Capital, has owned it since 2001; the prior
owner was his former father-in-law, Indianapolis businessman Beurt SerVaas.

It’s a distress sale by any definition. Auditor Somerset CPAs in Indianapolis last year expressed “substantial
doubt” about its ability to stay afloat, and court records show U.S. Rubber is in default on a $3.2 million loan from
New York-based Webster Business Credit Corp.

The bank “is no longer interested in continuing their lending relationship,” according to a sales flier distributed
by the investment banking firm soliciting offers. Webster has reason to want out—U.S. Rubber’s president told that the firm had lost its biggest buyer for reclaimed butyl, Akron-based Goodyear Tire. An investment banker
told the publication U.S. Rubber probably would close if no buyer emerges.

And here’s the worst news of all: Webster, which was so worried about getting its money that it’s pulling the
plug on the firm, is first in line for repayment. Fair is in the precarious second position.

“You are astute that being in a junior position is not a good place to be,” said David Mucklow, an Ohio attorney
who is helping bankruptcy Trustee Brian Bash recover money for Fair Finance investors.

It’s a tough job. Records filed with securities regulators show Durham used Fair like a personal bank after buying
it in 2002, with money flowing to support an ostentatious lifestyle and an array of business interests.

Related-party loans now top $168 million, and represent the primary asset in the bankruptcy case. Attorneys in Fair’s
bankruptcy say it’s premature to estimate how much they might be able to recover for Fair’s investors, who purchased
unsecured investment certificates that were supposed to pay as much as 9.5 percent.

Durham, 47, contends offering circulars provided to prospective investors disclosed the risks. But criminal investigators
are trying to build a case he duped them. In a court filing late last year, the U.S. Attorney’s Office in Indianapolis
alleged Durham was operating a Ponzi scheme, using money from the sale of new investment certificates to pay off prior purchasers.

What seems clear is that many of Durham’s firms are teetering, casting doubt on what collateral bankruptcy attorneys
will be able to seize and liquidate to repay creditors.

For example, Muncie-based First Merchants Bank said in a lawsuit late last year that a Durham trailer-maker, Sturgis, Mich.-based
Classic Manufacturing, is in default on a nearly $1 million loan. The loan is guaranteed by another Durham trailer-maker,
Bristol, Ind.-based United Expressline Inc.

Meanwhile, United Expressline owes Fair more than $3.5 million. But as with U.S. Rubber, Fair is second in line for repayment.

Other collateral problems also could hinder efforts to collect on loans. For example, court records show Durham late last
year sold a 1930 Duesenberg automobile even though it was pledged to Webster as collateral on the U.S. Rubber loan.

In addition, some of the paperwork bankruptcy attorneys need to go after borrowers is incomplete or so far hasn’t been
located, said Kelly Burgan, an attorney representing Trustee Bash.

“We are seeing some problems with documentation,” Burgan said.•

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