When federal officials in Indiana last week sued to seize major personal assets of Fair Finance Co. co-owner Timothy S. Durham, they alleged that he was involved in a years-long Ponzi scheme to defraud Ohio investors.
On Monday, however, the feds in effect said ''never mind'' and withdrew their civil complaint in U.S. District Court for the Southern District of Indiana.
Nonetheless, the federal investigation continues, said Timothy M. Morrison, U.S. Attorney for the Indiana district.
''The complaint is what it is,'' he said. ''That's not a document designed to produce charges.''
The complaint, filed Nov. 24, alleges that money from investors in the Akron-based Fair Finance — also known as Fair Financial — was moved to companies controlled by Durham in thousands of transactions to support other investments.
Ponzi schemes, named after 1920s fraudster Charles Ponzi, involve using new money from investors to pay interest and principal to existing investors. The schemes collapse when the new inflow is unable to pay off existing investors.
The FBI on Nov. 24 raided the Akron headquarters of Fair Finance Co. on East Market Street and a related business in Indianapolis.
The Akron headquarters remained closed and empty Monday as a steady stream of customers stopped by to try to check on investments.
''I know that Fair is trying to get put back together,'' said Ron Kaffen, an Akron attorney who has represented Fair Finance since the early 1980s in its regulatory dealings with the state. The FBI took the company's computer servers, which also operated the firm's
phone system, he said.
Kaffen said he is not representing the company regarding the federal investigation and said he did not know when Fair Finance might reopen.
Investigators are checking into whether Fair Finance is able to pay its customers. The company's investments, which were sold only to Ohio residents, are not federally insured.
Morrison said he filed the civil lawsuit to prevent what he called the ''dissipation'' of assets that included a mansion, an expensive Bugatti luxury automobile and bank accounts at Akron-based FirstMerit, Cleveland-based KeyBank and others. He said the lawsuit, which technically was filed against properties and not individuals, was withdrawn after he was satisfied that the assets were safe.
''We're all back to Square One,'' Morrison said. ''The larger issues remain.''
Morrison said his office has not accused or charged Durham or anyone else with a crime, although the withdrawn complaint alleges a Ponzi scheme.
The search warrants used in last week's raids remain sealed. If federal charges are filed, then it is likely the search warrants will be unsealed, he said.
Efforts on Monday to reach Durham's attorney in Indiana were unsuccessful.
A loss in 2008
The Indiana documents said Fair Financial had total assets of $241 million, with loans to Durham and related businesses of $192 million.
Unaudited statements showed Fair Financial lost about $1.7 million in 2008, while having net income of $129,845 for the first half of this year, the complaint said.
Morrison's filing said: ''Timothy S. Durham and his companies and associates have been involved in a scheme to defraud numerous persons of money by convincing those persons to buy 'investment securities' . . . from Fair Finance, an Ohio company.''
Morrison's complaint said ''that the money given to buy the investment securities will be invested in low-risk, high-yield, short-term consumer debts and the investors will receive high regular interest payments on their investments. In fact, that money was not invested in the types of investments represented to the investors.''
Instead, the document says, the money was used to make interest and redemption payments to ''earlier victims of the scheme.''
Federal Reserve records show 6,400 transactions from May 2004 to May 2009, in which millions of dollars from Fair Finance flowed to its parent company in Indiana, Fair Holdings, and then to 21 companies controlled by Durham and Fair Financial co-owner James Cochran.
In 907 transactions over that five-year period, $84.2 million went from Fair Finance to Fair Holdings, according to the complaint. And of that money, the lawsuit alleges, among other transactions, that $5.4 million went to Durham-owned Speedster Inc., a classic car replica maker, and $1.4 million went to classic car auctioneer RM Auctions. The complaint said Durham owns about 70 classic and exotic cars.
Few people wanted to talk Monday at the headquarters at 815 E. Market St.
Some gathered at the front entrance, where a sign taped inside the glass door said, ''DUE TO UNFORSEE CIRCUMSTANCES, FAIR FINANCIAL SERVICES IS TEMPORARILY CLOSED. WE LOOK FORWARD TO SERVING YOU UPON OUR REOPENING.''
A sign last week in the same spot said the offices were closed for Thanksgiving week and would reopen Monday.
Fair Finance, founded in 1934 by Akron car dealer Ray Fair, was sold by the Fair family in 2002 to a company run by Durham and Cochran. Cochran, also of Indiana, is chairman of Fair Financial.
Some of the customers at the Akron offices said they had driven to other Fair Finance offices earlier in the morning, only to find them closed as well.
Keith Berlin, 56, from Clinton, said he invested about $19,000 with the company. He said he had been getting a monthly interest check.
'''We were smart enough, mainly my wife, not to put any more in there,'' he said. ''I wouldn't have a problem if the owners fell on hard times and [could] not make a go of this.''
But if the closing is related to criminal activity, Berlin said, ''they should be locked up and the keys thrown away.''
He said he hopes that no crimes have been committed. ''I hope it's something fixable and the outcome is good.''
Investors with Fair Finance who have concerns or information to share may call:
• The Ohio Division of Securities investor protection information hot line at 800-788-1194 and 614-466-6140.
• The FBI at 800-CALL-FBI.
Jim Mackinnon can be reached at 330-996-3544 or firstname.lastname@example.org.