Fair Finance was run as a Ponzi investment scheme and its owner, Indiana businessman Timothy S. Durham, perpetrated ''a fraud of shocking proportions and consequences,'' the Akron company's bankruptcy trustee says in a new lawsuit.
''The trustee will establish that Timothy Durham purchased Fair Finance Company [in 2002] so that he could loot it . . .'' trustee Brian Bash alleges in a lawsuit filed in U.S. Bankruptcy Court in Akron. ''At the time Durham's purchase of the debtor [Fair Finance] closed, Durham remarked that 'this will be like taking candy from a baby.' ''
About 5,300 Northeast Ohio residents and organizations bought more than $200 million in investment certificates from the now-bankrupt company. Federal investigators say they are investigating Fair Finance, its owners and executives, following allegations in 2009 that the company was being run as a Ponzi scheme.
''Durham admitted to Fair's attorney in 2008 that between 89 percent and 93 percent of new money brought in from investors was 'used to repay' debts to other investors,'' the new civil lawsuit says. ''By the time the trustee was appointed, the debtor [Fair Finance] only had about one-tenth of a cent in liquid assets for every dollar of unsecured debt.''
The 49-page lawsuit spells out in detail how the trustee believes Durham and others took money from Fair Finance and used it to prop up failing companies and also to make insider loans. The suit also includes hundreds of pages of exhibits.
''Indeed, by the end of 2005, at the latest, the debtor [Fair Finance] had become a Ponzi scheme and was insolvent by at least $50 million. By that point if not significantly earlier, the debtor [Fair Finance] did not have the money to pay its investment certificate holders except by taking proceeds from new investors,'' the lawsuit says.
Bash said that Fair Finance Co.'s Ohio parent, Fair Holdings, and its Indiana corporate parent, DC Investments, ''primarily served as conduits for Durham to loan [Fair Finance] money to friends and privileged insiders.''
Durham, who now runs comedy movie-maker National Lampoon in California, has not been charged with any crimes.
Jim Mackinnon can be reached at 330-996-3544 or jmackinnon@thebeaconjournal.com.
