It appears that the bulk of the approximately $1.8 million recovered so far in the ongoing Fair Finance scandal will go to pay legal and professional fees incurred last year.
The lawyers and professionals involved in the Fair Finance bankruptcy have submitted interim bills of more than $1.7 million. The bills, still awaiting approval in U.S. Bankruptcy Court in Akron, cover just 2010 expenses.
If approved as submitted, that would leave about $100,000 left over for this year’s expenses or which could be distributed to more than 5,300 Ohio residents and organizations that bought more than $200 million in uninsured investment certificates from Akron-based Fair Finance. The trustee in the case, Brian Bash, said last month there might be as much as $78.5 million more that can be recovered on behalf of the investors, many of whom are elderly and live in the Akron area.
Professionals, such as lawyers, are first in line to be paid in the bankruptcy process. The court is scheduled to act on the interim fee and expense requests on Sept. 13.
Fair Finance co-owners Timothy Durham and James Cochran are awaiting trial next year in Indianapolis on federal criminal charges that they operated the well-established Akron financing company as a Ponzi scheme after buying it in early 2002 from the Fair family.
Baker & Hostetler’s Cleveland office, where Bash works, submitted the largest bill: $1.34 million. Beachwood forensic accounting firm Howard L. Klein Co. submitted a 132-page bill seeking more than $309,000, while lawyers David Mucklow and Michael Moran filed paperwork seeking about $80,000.
Baker & Hostetler’s ranged from a low of $125 an hour for law clerks to a high of $680 an hour for one of the firm’s top partners.
The law firm’s bill shows that two of its lawyers who have been working with Bash on the bankruptcy filed the two largest amounts. Bash, a partner at the firm, is not listed on the bill.
Kelly Burgan, a partner in Baker & Hostetler and Bash’s counsel, is listed as putting in 1,343.7 hours, at $400 an hour, for a total of $537,480.
Joe Esmont, an associate who works closely with Burgan and Bash, is listed as putting in 1,675.8 hours, at $220 an hour, for a total of $368,676.
That doesn’t mean the individuals named in the document get those amounts of money — the funds, if approved by the court, will be used to pay for the law firm’s overall expenses.
Esmont said in his case, he receives a salary from the firm; the billable hours attributed to him are not what he will be paid.
Baker & Hostetler’s 319-page document shows in minute detail the expenses and billable hours it said it had last year. Among the items, the firm asks to be reimbursed for having its lawyers do interviews with news reporters.
“Baker & Hostetler has taken a conservative approach to staffing and administrative costs,” the firm wrote. “The magnitude and complexity of this case, however, has required the nearly full-time attention of two attorneys, in addition to substantial work by other attorneys, in order to conduct the review, analysis and administration necessary to investigate and recover assets for the benefit of the estate.”
A look at expenses
The numerous line items include the following:
• “Review information provided from confidential sources regarding assets.” ... $200.
• “Investigate historical ... trading prices based on tip ...” $132.
• “Document review of FBI records ...” $968.
• “Review Cayman Island entities for possible assets or accounts.” ... $242.
• “[Review] FBI document production for evidence of hidden assets, especially investment accounts and dealings with tax haven countries.” ... $1,122.
• “Media calls to drive up participation in [art] auction.” ... $264.
• “Order state-level lien search in Delaware regarding National Lampoon Inc. ... $66.
• “Met with Ohio Division of Securities regarding status of investigation by the Commission’s forensic accountants.” ... $1,400.
Esmont said the bankruptcy team was concerned early last year that there might be hidden, offshore accounts holding Fair Finance money.
“If we had found a Cayman Island’s account, you would have heard about it,” he said. “We have not found anything to date but are always keeping our eyes peeled to how assets may have been diverted.”
The bill shows the legal team holding numerous discussions on topics such as selling Durham’s art and car collections, filing lawsuits and other legal documents to recover assets, holding office and telephone conferences and such mundane things as making phone calls, writing correspondence and e-mails and reviewing documents and e-mails.
The bill also shows the legal team corresponding and talking with the FBI, the Securities and Exchange Commission and the Department of Justice.
Klein’s bill showed, among other things that he, the trustee’s legal team and representatives from the FBI, U.S. Attorney, SEC and Ohio Division of Securities met April 12, 2010; Fair Finance was forced into bankruptcy in February after FBI raids on its offices in late November 2009.
The law firm’s document said that trustee Bash has already recovered “some significant assets.
The trustee also has additional claims which the trustee believes have strong merit and will result in substantial additional recoveries.”
That includes legal action involving comedy movie maker National Lampoon Inc. in California, which Durham had been running.
Esmont said the National Lampoon name alone has a lot of value.
“We are hopeful National Lampoon will be able to bring in some money,” he said. “We believe there may still be additional assets out there.”
Jim Mackinnon can be reached at 330-996-3544 or email@example.com.