Investors in Fair Finance Co. haven’t received much in the way of good news since the Tim Durham-owned company halted
interest payments and stopped cashing in investment certificates in November.
But here’s some that’s more than a little surprising: Durham, the Indianapolis businessman who purchased the Akron, Ohio, finance company eight years ago, is cooperating with attorneys in Fair’s 4-month-old bankruptcy case. He’s facing up to the reality he owes the company a bundle and is shoveling over assets.
“He acknowledges he has an outstanding loan and is turning over property and proceeds [from asset sales] toward reducing those obligations,” said Kelly Burgan, a Cleveland attorney representing the trustee overseeing the company’s liquidation.
Those include prized Peter Max paintings that adorned his Geist Reservoir mansion. He already has turned over some artwork to the bankruptcy trustee and plans to turn over more, setting the stage for a court-supervised auction.
Durham, who has spent most of his time in California since FBI agents raided company offices two days before Thanksgiving, recently put the 10,000-square-foot Geist home on the block for $5.5 million. And he’s been selling off his exotic car collection, which exceeded 30 vehicles at its peak.
Yet the company’s 5,000 investors—all Ohio residents, many elderly and living on modest incomes—are unlikely
to receive a big slice of the $200 million they’re owed, at least anytime soon.
Here’s the harsh reality: Some of Durham’s most valuable assets have first liens against them, denting the amount that might ultimately flow to Fair. The home, for instance, serves as collateral on a $1.9 million line of credit from Shelby County Bank. Assuming the house fetched the asking price—a fanciful thought in this slumping market—Fair gets a few million.
And the professionals in bankruptcy court who’ve launched an assault on Durham’s assets aren’t doing charity work. Their fees are sure to run into the millions of dollars. Burgan, a partner with Cleveland’s Baker & Hostetler, bills at $400 an hour. Jay Jaffe, a Baker & Daniels partner in Indianapolis who’s helping with the case, has an hourly rate of $500. A forensic accountant and forensic computer expert each charge $250 an hour.
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, friends and business associates, as well as other companies he owned. The records show he withdrew tens of millions under a line of credit and that he and associates borrowed even larger sums through businesses they controlled.
Related-party loans now top $168 million and represent the primary asset available to repay investors, who purchased investment certificates with interest rates as high as 9.5 percent. But it’s far from clear how much is actually collectible, and some of the loans are poorly documented, exacerbating the challenge.
Given the realities, trustee Brian Bash, another partner at Baker & Hostetler in Cleveland, must strike a balance between being aggressive and picking his battles carefully.
“You don’t want to launch an expensive lawsuit pursuing an entity that doesn’t have any assets,” Burgan said.
Still, asset collection would be far tougher were Durham not cooperating. In one of the most significant developments, his attorneys consented to turn over all the assets of two related firms that borrowed from Fair and then loaned to insiders—a move that eases the way for the trustee to chase down some of the biggest borrowers.
“I think there will be recoveries made, and there are already things starting to fall into place,” said David Mucklow, a Green, Ohio, attorney hired as special litigation counsel in the bankruptcy.
But no one dares estimate what the recovery might be, or how long it might take. The best Mucklow would do was call the expected recovery “substantial.”
Silent on strategy
Why the 47-year-old Durham chose to cooperate is sheer speculation, since his attorney, Gary Sallee of Indianapolis, is not returning calls. Perhaps Durham feels for investors. Or he could be positioning himself for favorable treatment by the Justice Department—which for months has been investigating whether he operated Fair as a Ponzi scheme, selling new investment certificates to pay off prior purchasers.
But this much is clear: His acknowledgment of debts doesn’t mean he’s acknowledging wrongdoing. In a filing early this year, his attorneys said offering circulars provided to prospective investors included an abundance of information disclosing the potential risks. That their bets ultimately soured goes with the territory, the filing suggested.
Buyers “assumed the risk of purchasing unsecured investments,” it said.•