It’s been nearly a year since Fair Finance Co.’s bankruptcy trustee and his legal team began their quest to recover money for investors in the defunct, Tim Durham-owned firm.
It may be a whole lot longer before the investors—who bought more than $200 million in unsecured investment certificates boasting interest rates as high as 9.5 percent—see a significant recovery. That’s if they ever see a significant sum.
Indeed, trustee Brian Bash and his fellow attorneys at Baker & Hostetler in Cleveland have yet to publicly implicate anyone who appears to have the cash to substantially reduce the staggering losses.
Attorneys early on sued Carmel businessman Dan Laikin, a former director of Akron, Ohio-based Fair, alleging he was among the largest recipients of the insider loans that “utterly looted” the business.
The suit says Laikin owes more than $19 million. And while the trustee may win, collecting on the debt is another matter. Laikin, former CEO of Los Angeles-based National Lampoon Inc., isn’t the ideal defendant. He lost millions when that company cratered, and right now he’s in prison, serving a 45-month sentence for trying to manipulate Lampoon’s stock price.
And Fair’s co-owners—Durham and fellow Indianapolis businessman Jim Cochran—appear to have burned through most of the millions they drained from Fair. Banks last year filed to foreclose on Durham’s Geist Reservoir mansion, which is up for sale for $5.5 million, as well as two $1 million-plus Geist Reservoir homes owned by Cochran.
The latest targets of a trustee lawsuit—Durham’s sister, Dana Osler, and her estranged husband, Jeffrey—don’t appear to have deep pockets, either. A suit filed Jan. 14 says they defaulted on a loan from Fair and owe $1.2 million.
Seven days earlier, Bank of America sued the Oslers, saying they defaulted on a 2007 mortgage on their home (on Geist Reservoir, of course) and owe $1 million.
The trustee has had some good news lately. An auction of most of Durham’s exotic car collection on Jan. 21 raised more than expected—$2.2 million. The trustee likely will receive about $1 million after expenses and the payoff of a bank lien on one of the cars.
But that money won’t flow into investors’ pockets. Instead, it will help pay for the attorneys and other professionals chasing assets. Baker & Hostetler, for instance, hasn’t submitted a bill since its attorneys came aboard last March.
“We are trying to be as efficient as possible” to maximize the recovery for investors, said Kelly Burgan, a partner with the firm who bills at $400 an hour.
Creditors of bankrupt companies understandably find professional fees frustrating, since they take a bite out of recoveries. But the attorneys didn’t create this mess; they’re only trying to clean it up.
Baker & Hostetler isn’t saying how much it will bill, but fees in similar cases ultimately run into the millions of dollars.
Fair collapsed in November 2009, after the FBI raided its offices. On the same day as the raid, the U.S. Attorney’s Office filed court papers alleging Fair operated as a Ponzi scheme, using money from new investors to pay what it owed prior investors, thereby “lulling the earlier victims into believing that their money was being [handled] responsibly.”
The Justice Department’s criminal probe continues. Durham and other executives deny breaking any laws.
Investor recoveries in cases of this type typically are small, with 10 cents on the dollar considered “unusually good,” said Mark Maddox, an Indianapolis attorney who represents investors in disputes.
Investors in Bernie Madoff’s notorious Ponzi scheme are in line for a stunningly high recovery of $10 billion—nearly half what investors lost in the scheme. The payout largely stems from a settlement in which the widow of a longtime investor chipped in $7.2 billion.
So far, Fair’s bankruptcy is unfolding in more typical fashion, with plenty of finger-pointing but few hard assets.
Plaudits, digs for Daniels
Mitch Daniels is getting great national press these days—at least about his ideas. His appearance is another matter.
Pundits wondering whether he will seek the GOP nomination for president cast him as a serious thinker with a long list of achievements.
“His record of accomplishment is dazzling,” Washington Post columnist David Broder wrote in October.
Added New York Times columnist David Leonhardt this month: “Of all the Republicans talking about the deficit these days, Mitch Daniels … has arguably the most credibility.”
But nearly every profile of Daniels includes a dig at his appearance and suggests he lacks charisma. Leonhardt noted he’s only 5 foot 7, with a combover. Newsweek went further, calling Indiana’s governor “very slight, very balding and very unimposing.”•