A federal judge in Ohio has snatched away one of the Fair Finance Co. bankruptcy trustee’s most celebrated victories, a $33 million judgment issued against Indianapolis businessman Dan Laikin.
Rather than accept recommendations issued last fall by a bankruptcy judge who presided over Laikin’s civil trial, Judge Patricia Gaughan concluded Laikin did not get a fair opportunity to defend himself and ordered a new trial.
The ruling is a big setback for bankruptcy Trustee Brian Bash, who has yet to provide any recovery to the more than 5,000 Ohio residents who lost more than $200 million when the Tim Durham-led company collapsed in 2009. A jury later convicted Durham of operating Fair as a Ponzi scheme, and he now is serving a 50-year prison sentence in Kentucky.
Laikin, 52, was a close friend of Durham’s and also was a former board member of Akron, Ohio-based Fair. Bash’s 2010 suit charged Laikin drained millions from that company in the form of a line of credit he never repaid.
But Gaughan’s 32-page order said that before trial, bankruptcy Judge Marilyn Shea-Stonum sanctioned Laikin so severely for abuses during the discovery process—including the mysterious disappearance of his laptop and BlackBerry—that she unfairly hamstrung his defense.
“Although defendant’s conduct is certainly sanctionable, there is simply no evidence (other than lost time and resources) that the discovery failures in this case caused such prejudice so as to warrant precluding the vast majority of defendant’s defenses at trial,” Gaughan wrote in her Aug. 1 ruling.
Lawyers for Laikin and Bash declined to comment or did not return calls. Court papers say the two sides are in discussions on the scope of a new trial while simultaneously holding settlement negotiations.
If the $33 million judgment had stood up, it’s unclear how much of the debt Laikin, a former CEO of Los Angeles-based National Lampoon, would have been able to pay. Laikin at one time had two Southern California mansions, one formerly owned by Cher, but in recent years had fallen on hard times. A federal judge in 2010 sent him to prison for orchestrating an ultimately unsuccessful scheme to pump up the slumbering stock price of National Lampoon. He was released last year.
Judge Shea-Stonum had ruled Laikin owed more than $19 million in principal and more than $13 million in interest. But attorneys for Laikin argued he owed nothing because in 2002 he had transferred shares of National Lampoon and Indianapolis-based BrightPoint Inc. to Durham as collateral that was later sold for at least $16 million. Both men had bet on BrightPoint—led by Dan’s brother, Bob—in the early 2000s, before the cell phone distributor staged a turnaround that sent its stock soaring.
As a result of the sanctions imposed on Laikin, he was prohibited at trial from introducing evidence that any of the BrightPoint stock sales from 2004 to 2007 should be credited toward his loan balance.
Laikin’s attorneys had cried foul in court filings, arguing the judge had “completely ignored” the repayments, despite a paucity of evidence that any discovery abuses the trustee alleged actually had undercut his case.
Durham’s mom pleas poverty
Bash in 2012 sued Durham’s mother, Mitza Durham of Seymour, charging she received more than $830,000 in transfers from Fair in the four years before it collapsed.
It’s not clear what became of that money, but a new settlement the trustee has reached with Mitza shows he’s convinced it’s long gone. Under the deal, Mitza agreed to sign a $500,000 consent judgment, but the trustee agreed to forgo collection for at least a year, and permanently if her net worth stays below $60,000.
A court filing says the trustee is agreeing to the deal because of the “likely difficulty in collecting any judgment” and Mitza’s “limited financial means.”
It’s the same issue that has vexed Bash at every turn. He’s filed dozens of collection lawsuits, but many of the defendants have documented having few or no assets.
Bash has a handful of lawsuits pending with potentially large recoveries, including one seeking $72 million from Fair lender Fortress Credit Corp., which is accused of turning a blind eye to Durham’s fraud because it held collateral protecting it from losses.•