Don Fair remembers his first impressions 10 years ago of Indiana businessmen Timothy Durham and James Cochran.
Fair, now 84, was looking to sell the family business, Fair Finance Co., which his father, Ray, started in Akron in 1934. Fair was just 8 years old at the time. And just eight years later, he was working side by side with his dad. The father-son partnership lasted for decades, with the senior Fair dying in April 1980 at age 82.
Durham and Cochran were ''really likable,'' Fair said of that first meeting in Cleveland in early 2000.
''Durham is the shaker and the mover and attorney by education,'' Fair recalled. ''Cochran, very affable, good-looking man. Both of them in their early 40s. [Cochran] was sort of the operations man. Durham would give the direction and Cochran would fill it out.''
The parties reached a deal in late 2001 and closed in early 2002 for an undisclosed amount.
Fair, then in his mid-70s, was pleased that the well-established business, with its niche in loans and processing accounts receivable, was in the hands of capable, experienced executives. He retired believing that Fair Finance would continue servicing its customers and keeping its longtime employees and their benefits intact.
Fair said he stayed largely away from Fair Finance other than informal contact with employees and retirees. But he said he became increasingly concerned as he reviewed the latest offering circulars for the investment certificates that Fair Finance sold to Ohio residents. The documents, he said, showed the company had evolved into a different kind of business.
And Fair said he was flabbergasted by the FBI raid of Fair Finance's East Market Street headquarters last November and allegations that the company was being operated as a Ponzi scheme by Durham and Cochran.
The business that largely prospered over the decades was forced into bankruptcy proceedings this year with more than 5,300 creditors seeking to get back at least a portion of more than $200 million in investments. And federal officials say they are still investigating Fair Finance, its owners and related companies.
Founder is truck salesman
The path to that first meeting with Durham and Cochran started a long time ago.
Founder Arthur Ray Fair, a World War I veteran, was a truck salesman whose territory was Ohio, Kentucky, West Virginia and Indiana in the 1930s. He moved his family to Akron in 1934, formed a partnership with two other men and opened a car dealership, Akron Motor Sales, at Arlington and Exchange, initially selling Studebaker, then Dodge and Plymouth.
The nation was in the grip of the Great Depression and his father wanted to sell trucks to people going to work on jobs for the Work Projects Administration, also known as the WPA, Fair said.
''At that time, financing for used vehicles was limited,'' he said. ''There were a couple of occasions when my father couldn't get a truck financed for sale that he made for whatever reasons.''
Banks weren't interested in loans, he said. Because his father was frugal, he had saved up a little capital and was able to finance some sales himself, Fair said.
''And that was the start of Fair Finance, quite by accident,'' he said.
Financing for used cars
His father a few years later got a sizable loan for that time from Goodyear Bank and expanded into financing used cars. In 1940, Fair Finance obtained state licensing to provide consumer loans of up to $1,000.
This was an era when people did not have credit cards and instead used the services of licensed lenders, Fair said.
''That went along fairly well,'' he said.
When World War II ended, automakers and banks started financing cars and trucks in earnest as manufacturers ramped up production.
''It became more and more difficult to maintain a place in the market financing used cars,'' Fair said. So Fair Finance expanded its loan offerings and did very well for years, he said.
It was in 1949 that Fair Finance began selling subordinated debentures — what it later called certificates of investment — to the public, Fair said. As the popularity of the short-term investments grew, Fair Finance was able to pay off all of its bank debt, Fair said. The debentures, which were not government insured, gave Fair Finance the capital it needed to grow.
''We always maintained a modest living scale and kept putting money back into the business,'' Fair said.
Strong debt-to-equity ratio
Fair Finance kept a debt-to-equity ratio of 6-to-1, Fair said, meaning it operated with six dollars of debt to one dollar of equity. Many banks had debt-to-equity ratios of 12- or 15-to-1, Fair said. By that measurement, Fair Finance was managed conservatively, he said.
But the company also needed to reinvent itself as credit became more readily available to consumers in the 1960s and '70s, he said. Competition increased and demand for Fair Finance's consumer loan services decreased.
And there was more.
''Here we are going along very well. We had a really difficult time at the end of the '70s and early '80s, when industries started leaving Akron,'' he said. ''There goes our customer base. And we were tied to this area politically, economically, geographically. It was not a happy situation. By then I was running the company.''
Fair decided to basically do away with providing direct consumer loans and instead focus on managing accounts receivable for other businesses.
''I recognized a need to buy contracts from various dealers, fitness clubs, consumer buying clubs and so forth, and to do it on a national basis,'' he said. ''It brought us business from throughout the United States. We were a niche operator. The banks were not interested. There was a need for our service. We were successful because we took care of our dealer network and provided them with the capital they needed.
''For years we had nothing but finance receivables, In the meantime, our certificates were well received. We had a limit of the amount that we would receive from any one family of $50,000.''
There were two reasons for that limit, Fair said.
One was, he didn't feel comfortable seeing a family put most of its money into one investment.
Also, Fair Finance didn't want to be tied into an interest rate that would be expensive for the business if rates dropped.
''We would pay a rate of interest generally 11/2 percent to 2 percent more than a savings and loan,'' Fair said. ''The savings and loans would pay a point or more than banks. Our rates were sort of in line with our position in the financial market. That's how we set our rates, based pretty much on the savings and loan rate.
''We were able to make money because we were able to control our losses. Most of our contracts were an [annual percentage rate] of 18 to 24 percent, depending on the states in which we were operating.''
The total value of outstanding Fair Finance investment certificates was never more than $50 million while he ran the company, Fair said.
Amish in Wooster customers
Fair Finance did a lot of business going back decades with Amish and Mennonite families, Fair said. He opened the Fair Finance office in downtown Wooster in 1955. Amish residents in the area became customers after seeing the company's advertisements in local newspapers.
''They were very loyal,'' Fair said. ''Oftentimes they would have one member of the family, usually a girl, come in and collect checks for four or five families in our Wooster office.''
The Amish would come into downtown Wooster on Wednesdays and hitch their horse and buggies to a livery stable about a block away from the Fair Finance office, Fair said. ''Wednesday was their shopping day in Wooster.''
Most of the people who bought Fair Finance certificates, the Amish included, were not sophisticated investors, Fair said.
Fair Finance was successful, he said, because of his father's philosophy that you leave money in the company every year. ''He started out with nothing and built it up to sizable equity in 50 years or so. We were pretty conservative.''
Starter house is finisher, too
Fair said he and his wife continue to live modestly. They have been in their same Akron-area home for 55 years, he said.
''That house is our starter house and finisher house,'' he said. ''It was not our desire to move into something pretentious. . . . We basically are conservative people, except for automobiles. I go a little nutsy over automobiles.''
He said he owns both antique and luxury vehicles and, until four or five years ago, was a licensed pilot who flew both prop planes and gliders.
He and his wife have two children, neither of whom wanted to join the family business, Fair said. Neither did any other relatives, he said.
''That left me without an heir apparent,'' Fair said. ''So, what to do? I'm 65 and get up to about 70 years of age and I realize I had to find a buyer for Fair Finance.''
No banks were interested, he said, even though Fair Finance at the time took in about $80 million in receivables. Banks didn't want to understand his business, he said.
''It was recommended that we contact a broker that specializes in selling and buying businesses,'' Fair said. He contacted a brokerage in downtown Cleveland which, after discussions, said it would seek a buyer.
''A while later, they introduced us to Tim Durham and Jim Cochran,'' Fair said. ''This was about 2000, early in 2000. They came down to Cleveland first.''
Backgrounds were appealing
Fair said he liked their business backgrounds and ideas to grow Fair Finance. Durham and Cochran told him they were thinking of using Fair Finance to finance privately owned school bus operations across the United States, Fair recalled.
''That appealed to us. We thought, that's a great opportunity, to get involved in the finance of school buses,'' Fair said. ''Finally, in 2000, they made us an offer. As with any transaction involving attorneys at both ends of the line, it takes forever. We actually made our agreement in [late] 2001.''
The sale closed in early 2002. Fair said he sent out a letter on the sale to all certificate holders. The deal also included an agreement to continue Fair Finance with the same staff, bonus program for employees, vacation, health and other benefits, Fair said.
''Starting out, they kept their word. The company was doing well. It was growing. The employees were happy. It looked like a good fit there,'' Fair said.
Cleaned out his desk
As part of severing his relationship with Fair Finance, Fair said, he and his wife also divested any investment certificates they had. A friend of his at the time told him, ''When you leave your business, clean out your desk. That was our thinking — clean out our desk,'' Fair said.
He also said he refrained from reading the offering circulars until years later.
When he started looking again at the documents, he saw that Fair Finance was becoming involved in financing art work and classic cars.
''I can't be too critical of them,'' he said. Art can be be a profitable business, as can financing classic cars, he said.
The offering circulars also showed Fair Finance appeared to be making loans to many businesses and was constantly borrowing more and more money, he said.
''They were making complete disclosure of all the loans, the terms and so forth,'' Fair said. ''As the saying goes, a rolling loan gathers no loss. I think they were just rewriting these loans.''
The maximum outstanding amount in certificates grew to more than $200 million, according to the circulars Fair read. And where the maximum people could loan the company was $50,000 when Fair owned and ran Fair Finance, it had grown to $200,000.
''I don't know how they were doing, profit-wise,'' Fair said. ''It was hard for me to judge, frankly. I could see where the receivables were current. But I suspect there was no cash coming back into Fair Financial to pay the interest. . . . I was uncomfortable reading the offering circulars toward the end.''
Some of what he read upset him, he said. But since he no longer was affiliated with the company, there was nothing he could do, Fair said.
When he and his father ran Fair Finance, they were required to submit annual audited statements to the Ohio Division of Securities to get re-authorization to sell investment certificates, Fair said.
Fair said he told prospective investors they needed to read the offering circular and if they didn't understand it, to find someone who did and have that person explain it. The average consumer does not read the document, which can be long and boring, he said.
''There's an awful lot of verbiage in there about the various enterprises and so forth,'' Fair said. ''I had information available through the offering circulars. I was getting these offering circulars and I could see it was not a consumer finance company per se; it was more of a commercial lender.''
FBI raid dooms business
Then on Nov. 24, the FBI raided the Akron offices and those of its corporate parent, Indiana-based Obsidian Enterprises. Seizing the computers and records probably doomed the business, Fair said.
''No way could the offices function and collect the receivables they had on the books. It was a very dramatic step,'' Fair said. ''The thing that disturbs a lot of us, there doesn't seem to be any justifiable cause except an assertion. Nothing concrete. How long has it been? Five, six, seven months? That upsets me quite a bit.''
While 10 years have passed since selling the business, Fair is reminded of it almost daily. His home office is almost an exact replica of where he worked at Fair Finance, including desk, lamps, wall hangings, drapes and more.
''It's all the original,'' Fair said. Even the furniture is in the same place as it was at the headquarters.
A framed wall decoration holds the three original Fair Finance stock certificates showing how many shares belonged to his father, mother and himself when the company was incorporated.
Durham and Cochran discovered the stock certificates in office records, had them mounted and framed and gave them to him as a gift, Fair said.
''This was a nice thing for them to do,'' he said. ''I didn't even know they existed — this was back in 1940.''
His desk displays a copy of the company creed he and employees came up with in the 1980s: ''We are sensitive to the needs and feelings of our dealers, customers, investors, employees and community; serving them to the best of our ability with concern and dedication.''
Fair said he does not want to go and look at the now-closed headquarters on East Market Street.
He also said his feelings on what is happening now are largely irrelevant — what matters is how everyone else is being affected. Based on what he has read in news reports over the months, Durham and others might have done ''outrageous things,'' he said.
''I'm just numb from the whole thing,'' Fair said. ''I don't know what's going to happen. I agonize for the thousands of investors who had their money in Fair Finance, for the employees who lost everything, for our dealer network.''
Jim Mackinnon can be reached at 330-996-3544 or email@example.com.