On Thanksgiving morning in 2009, Cindy Scott was anything but thankful for Fair Finance Co.
Just two days earlier, she had gone to the small investment and loan company's Cuyahoga Falls office to try to cash out money that belonged to her four children.
Instead, she found a sign on the door saying the business was closed for the holiday week.
By then, Scott had been hearing warnings from other investors that the 75-year-old Akron-based company was in trouble.
Still, Scott wasn't thinking about Fair Finance when she woke up before dawn on Thanksgiving morning to stick a 14-pound turkey in the oven for the family feast later that day.
Soon after the holiday turkey started roasting, Scott clicked on her computer with her cup of coffee in hand to catch up on the news. A headline on the Akron Beacon Journal's Web site instantly grabbed her attention: Raided Akron finance company emptied.
Tears welled in her eyes as she read the details.
The Akron headquarters of Fair Finance Co., raided Tuesday by the FBI, were empty on Wednesday.
And then she cried.
Her children had faithfully saved birthday and Christmas money and invested it with Fair Finance rather than spend it.
''These kids saved money,'' she said. ''That was theirs.''
And the fear is, it's all gone.
Scott and more than 5,000 other primarily Northeast Ohio holders of uninsured investment certificates were attracted to Fair Finance because it historically paid much higher rates than banks did.
Word of mouth over the years helped sell the certificates, backed up with Fair's decades of not missing payments.
What many of those people now say is, they didn't realize Fair changed ownership in 2002, when businessmen Timothy Durham and James Cochran purchased the company.
And most of the thousands certainly didn't know that the more than $200 million they entrusted with Fair Finance went to money-losing businesses and personal interests that included political contributions, youth hockey, Peter Max-commissioned paintings, mansions and dozens of fancy cars.
At the same time federal authorities loaded trucks with the computers and files from Fair's Akron-area offices and those of its parent company in Indianapolis, the Securities and Exchange Commission cast a wider net with subpoenas for Durham and other executives at Texas-based CLST Holdings, ''regarding Fair Finance.''
Legal action
Reaction to the Nov. 24, 2009, events was swift.
In the days afterward, investment certificate holders would drive to Fair Finance offices and look through locked doors and windows, seeking their money and answers.
David Meyer, a Columbus attorney, acted within two weeks.
On Dec. 4, 2009, he filed a lawsuit in Summit County Common Pleas Court on behalf of an Akron couple who had invested with Fair Finance for years. The lawsuit, which alleged $197 million in damages, sought class-action status. Meyer argued that there should be a state-court appointed receiver to run Fair Finance and protect the assets.
More than 1,000 people crowded into the Hilton Hotel in Fairlawn in early January to listen to Meyer make back-to-back presentations about the potential class-action lawsuit he had filed.
U.S. Rep. John Boccieri, D-Alliance, called for federal and state officials to freeze all of the assets of Fair Finance.
Meanwhile, Durham's 98-foot yacht, Obsidian, was docked in Turkey and for sale for $4.8 million, according to the Jan. 26 Indianapolis Business Journal. Durham reportedly paid $7 million for the boat barely six years earlier.
Boccieri held an informational meeting on Jan. 26 at Ohio State's Fisher Auditorium in Wooster. He told the standing-room-only crowd of more than 1,000 that the FBI had many people on the investigation.
And then Green attorney David Mucklow proposed forcing Fair Finance into bankruptcy.
Mucklow and fellow attorney Michael Moran pitched their idea to about 400 people Jan. 28 in a meeting at Green High School. Because many of Fair Finance's assets were not in Ohio, they argued, it made sense to put the company into federal bankruptcy, not state receivership, so that assets could be found across state lines.
Mucklow and Moran found about 100 people at the meeting willing to support filing the involuntary bankruptcy action.
Reports continued that Durham and Cochran were selling off possessions.
A blog by an Indianapolis attorney, Advance Indiana, spotted Durham's $1.8 million Bugatti Veyron for sale on eBay for nearly $1.3 million. Indianapolis television news reported that a bank eventually repossessed the pricey sports car from Durham — it was leased — and auctioned it off.
Media also reported that Cochran advertised on Craigslist that he would hold a three-day sale in mid-January of household furnishings and a speedboat at his $3.5 million home in Naples, Fla.
On Feb. 8, the Mucklow and Moran petition in U.S. Bankruptcy Court in Akron forced Fair Finance into bankruptcy.
The company balked, initially saying it preferred the state receivership option under the lawsuit filed by Meyer — an action that might have limited any investigation.
Durham and Cochran eventually agreed not to fight the bankruptcy while saying they had done nothing wrong or illegal.
''To be clear, neither Fair nor its officers are liquidating or otherwise improperly dissipating assets to defraud creditors,'' Fair Finance's lawyers wrote in response to one of the civil lawsuits. Fair Finance and parent Fair Holdings had been cooperating with ''the FBI, the United States Attorney for the Southern District of Indiana, the Securities and Exchange Commission and the Ohio Securities Division,'' they wrote.
Investigation continues
Allegations that Fair Finance had been milked in a Ponzi scheme by Durham and Cochran were withdrawn by the the U.S. attorney's office in Indiana shortly after they were filed, leaving some to wonder whether the federal action precipitated Fair's collapse.
''The Fair Finance investigation is continuing. That's about as good as I can do,'' Tim Morrison, first assistant U.S. attorney in Indianapolis, said this month. Morrison, the acting U.S. attorney at the time of the FBI raids last Nov. 24, said he can't say any more.
If the federal investigation was over, ''we'd tell you that,'' Morrison said.
The federal search warrants — which often offer clues to the scope of the investigation — remain sealed from public scrutiny. The Akron Beacon Journal has joined with other newspapers in court action seeking to unseal the documents.
However, news stories, related lawsuits and publicly filed reports by the bankruptcy trustee continue to provide Fair investors with new clues.
In March, Cochran was arrested at his Indiana home, jailed over a weekend and charged with misdemeanor counts of battery involving his wife and son.
In April, Fair Finance's court-appointed bankruptcy trustee, Cleveland lawyer Brian Bash, released a list of all the Ohio note holders and other creditors, offering the first hint of the impact on the Akron-Canton area.
Of about 5,300 creditors, two-thirds had addresses in Summit or Wayne counties. Among them were churches, pastors, retired bankers, fraternal organizations and unions, and farmers.
Millions loaned out
Bash said his ongoing investigation, using a forensic accountant, shows Durham began loaning Fair's money to his companies with often ''no hope of repaying them.'' Money was also loaned to Durham's friends, Bash told investors.
The day of the FBI raids, Fair Finance had just $565,060 in bank accounts while owing investors $771,782 for notes about to come due, on top of other immediate expenses of $401,888, Bash told investors. When combined with expenses due on Nov. 30, Fair Finance had a $1.2 million shortfall.
His accounting of Fair investments shows that $16 million went to Durham's family and friends; another $2.8 million was spent on resorts and gambling; $630,000, on jewelry; $14 million, on real estate; $10.3 million, on motor vehicles; $3.3 million, on interior design; and $898,000, on political donations.
Durham also was known to be generous in the Indianapolis community. His biography shows he supported causes and organizations such as the Indianapolis 500 Festival, Jewish Community Center, Cystic Fibrosis Foundation, Leukemia and Lymphoma Association, Indianapolis Symphony, Indiana Historical Society and more. His friendship with rapper Chris ''Ludacris'' Bridges included raising funds for the musician's nonprofit Ludacris Foundation, which seeks to help youths ''through education and memorable experiences.''
While most of the Fair money can be attributed to Durham, there are others whose names are being pulled into the investigation.
The Hamilton Southeastern Hockey Club, for example, a youth hockey organization in suburban Indianapolis, owes about $158,000, according to the report. Federal tax statements filed with the IRS show that Cochran has served at least three years as president of the club.
All told, Bash has said that Durham owes $54 million to Fair Finance; his company Obsidian Enterprises owes $31 million; and Daniel Laikin of National Lampoon, now in prison, owes $23 million.
Lawyer defends owners
While Durham and Cochran have never returned calls for comment from the Beacon Journal, the Columbus lawyer representing them in the civil lawsuits said his clients have done nothing wrong.
''It's a tragedy. Everybody loses,'' said Dennis Concilla of the firm Carlile Patchen & Murphy. ''There are no winners here.''
He blamed the demise of Fair Finance on the economy and the federal government's intrusion into Fair's daily business.
''There was a difficult time with the economy,'' Concilla said. ''I haven't seen anything that leads me to believe there was fraud.''
Bankruptcy trustee Bash has not been able to prove wrongdoing, Concilla said. Public documents show where the money went, he said.
''Yes, there were some personal loans that went to Durham, Cochran and others,'' Concilla said. ''The bulk of the money went to finance companies that made up the bulk of Obsidian Enterprises.''
When the federal government forced Fair Finance to close, the various Durham companies lost value and couldn't pay their obligations, Concilla said. ''I would say he [Durham] tried to do the right thing.''
Durham has tried to cooperate with investigators since the Fair closing; as evidence, Concilla pointed to Durham's voluntary delivery of his motor vehicle and art collections for auction.
The civil litigation probably will take years to resolve, Concilla said.
Concilla said Durham also has retained Roy Black, a well-known Florida criminal defense lawyer. Black also has represented William Kennedy Smith, artist Peter Max, broadcast commentator Rush Limbaugh, actor Kelsey Grammer and most recently Helio Castroneves, three-time Indy 500 champion and winner on the Dancing With the Stars TV show.
'Christmas is over'
When Beverly Barabas discovered she wouldn't be getting her monthly interest checks from Fair Finance anymore, she knew her holiday plans were ruined.
The widow from Wadsworth had come to rely on the couple hundred dollars a month she received from her $30,000 worth of Fair Finance securities to help make ends meet.
Her first investment was in 2003, several months after her husband's death. The money came from his life insurance.
While her bills increased, her income from Social Security stayed the same.
Without the investment income from Fair Finance, buying presents for her two daughters and seven grandchildren would be impossible.
''I'm sorry,'' she told her family last holiday season. ''Christmas is over. I can't do it.''
Shortly after acquiring Fair Finance, Durham said in an interview that he wanted to die as the richest man on Earth, the Indianapolis Business Journal reported.
In a CNBC cable television report in 2008 about America's new rich people, Durham invited a reporter and camera crew to his yacht, the Obsidian, moored in Miami. Indianapolis Monthly magazine was there, too. The magazine article reported that a laptop sat open on the bar, receiving e-mails with business opportunities. A business partner gave him papers to sign. Durham's girlfriend, ''Miss January'' 1997 Playboy Playmate Jami Ferrell, an Indiana native, lounged on deck.
''They ask me if I consider myself a materialist,'' Durham told the magazine. ''I said, 'Without a doubt! Look around.' Does anyone not consider himself a materialist? Who doesn't want his stuff? This country is founded on the idea of people wanting stuff.''
At the time — a little over two years ago — he said he was worth $75 million.
But in recent weeks, Durham told an Indianapolis television station that he now has lost almost all of his net worth.
Durham said he feels terrible for the Fair Finance investors. He also told the TV station that he has not done anything wrong.
Paying investors
Meanwhile, forensic accountants are still looking at computer and paper records to find out where all of the Fair Finance money went and how much, if any, can be returned.
''We have made substantial progress on the document review,'' Kelly Burgan, Bash's legal counsel, said recently. ''There are certain activities we are focusing on.''
Burgan declined to provide details, other than to say she expects that there will be court filings within the next couple of weeks that ''will provide substantial insight'' into what was happening with Fair Finance.
The FBI over the summer seized Durham's car collection and put the vehicles under Bash's oversight. Most of Durham's prized cars will be auctioned in January in Arizona, with the proceeds going to Fair.
Bash also persuaded Durham to turn over his personal art collection, which included works by contemporary artist Peter Max as well as pieces by Picasso, Renoir and Normal Rockwell. The art was auctioned Oct. 16 in Cleveland and raised more than $400,000. But in an unexpected twist, the largest bidder, a Florida art dealer who submitted winning bids of more than $260,000, now says there technically never was a sale and is balking at paying.
Burgan said it is still too early to say how much, if any, money will be returned to the holders of the investment certificates.
''It may be zero,'' she said. ''I think we would be lucky to recover anything like 25 cents on the dollar.''
Burgan cautioned that she can't give a credible estimate until the trustee recovers significant assets. To get creditors 25 cents on the dollar, for example, the trustee has to recover $40 million, she said.
The auctioned-off artwork brought in a relatively small amount of money, she said.
''I do think there are additional assets and claims to recover,'' Burgan said. ''We still don't have a sense or amount on the value. . . . We think we have good claims. It's complicated. It's frustrating.''
Unauthorized sales
Dan Sciury is among the Fair Finance investors who is of special interest to investigators.
After losing the majority of his retirement savings, Sciury scrapped plans to move from his two-story home in Canton to a ranch-style house that would have been kinder to his post-surgery knees.
The son of Italian immigrants had been investing money for himself and two of his children in Fair Finance since the late 1990s.
''It's very traumatic to lose most of what you've worked all your life for,'' he said.
Ohio investigators asked him to sign an affidavit detailing how he was permitted to invest more than the maximum $200,000.
''I thought it was an internal decision,'' Sciury said. ''I didn't know it was something controlled by the state.''
According to a review of filings in bankruptcy court, Sciury was one of about 60 investors who purchased more than $200,000 in securities.
In many cases, investors exceeded the limit by hundreds or a few thousand dollars. But a few people had investments topping $300,000. The top investor — a Tuscarawas County man in the heart of Amish Country — sank $500,000 into Fair Finance.
''Fair Finance's offering expressly limited individuals to a maximum of $200,000 investment such that a sale in excess of that amount would be an unauthorized, unregistered sale by Fair Finance and could represent securities fraud by Fair Finance,'' Dennis Ginty, a spokesman for the Ohio Division of Securities, said in an e-mail.
Under state statute, unregistered sales and security fraud can result in civil, administrative and criminal sanctions.
Ginty declined to say whether the state is investigating Fair Finance, citing the confidentiality statute.
He did say, however, that ''the division does not believe that investor victims would be charged for exceeding investment limits.''
For Sciury and his family, the damage is already done.
One of his children had been relying on interest payments from Fair to help cover the monthly mortgage on a home.
''I still, to some degree, have to believe if the FBI had not come in and raided the place . . . we would still be getting our interest payments to this date,'' he said. ''Maybe not. Maybe it was just the inevitable.''
Despite his frustrations, Sciury tries not to dwell on his losses.
He continues to serve in a part-time post as president of the AFL-CIO Hall of Fame Central Labor Council and runs a local DJ and karaoke service called Pro-Star Productions.
The union still is exploring options to get back the $100,000 it invested in Fair Finance.
''Whatever years I've got left, I want to be happy,'' he said. ''There's nothing I can do about it.
''Hopefully, it's a great lesson to others — be careful with unsecured investments.''
Dealing with losses
As the Fair Finance case unfolds, one of the last people to invest in Fair Finance fears the bulk of his $40,000 is lost forever.
Raymond Warner, a 90-year-old retired liquidator and antiques dealer from Ravenna, bought investment certificates from Fair Finance exactly one week before the FBI raided its Akron headquarters.
In just seven days, his money was gone. He never received a single interest payment.
Now Warner doubts he'll get much — if any — back.
He's seen enough bankruptcies while working decades in the liquidation business to know the pitfalls for creditors.
The case, he estimated, ''won't be closed for another year or two years. And then all the attorneys are going to get their money first. It's a sad deal.''
Tom Ries, 72, put his plans for a Florida retirement home on hold.
The retired tire mold engineer from Wadsworth had invested about $75,000 in Fair Finance, with plans to use the money and the thousands of dollars in interest to buy a permanent winter home.
He and his friends who also invested are waiting — and hoping — they'll eventually get some of their money back.
But like Warner, he's doubtful.
''We're all thinking we'll probably get 10 cents on the dollar,'' he said.
Another longtime investor, Sarah Lockhart of Green, has had to cut back on trips and other expenses since losing monthly interest payments on her six-figure investments.
''It's not going to break you,'' her accountant told her. ''But it's going to crimp your style.''
The 64-year-old also tries to keep the loss in perceptive.
''I didn't get diagnosed with terminal cancer,'' she said. ''It's just a bump in the road.''
Still, she can't help but feel angry, especially for other investors who are really struggling.
''How can people like that sleep . . . ?'' she asked. ''It's a shame. It's just unbelievable to me that they can take our money — especially how they took these elderly people's money — and use it like it was theirs to spend.''
In the 2008 CNBC interview, Durham was asked what he would say to middle-class folks who question his lifestyle.
Durham had just provided a tour of his 30-car garage, filled with millions of dollars in autos.
''I don't want to apologize for it,'' Durham said of his lifestyle as he sat in a chair on the lawn of his $2.8 million home. ''I think it's what a lot of people strive for. Everybody wants to live the American Dream.''
Cindy Scott of Cuyahoga Falls just wanted to get her children to college.
When her family woke up Thanksgiving morning last year, Scott broke the news to the children, ages 6 to 17.
As investors go, they were nowhere near the largest.
But with more than $9,000 at stake — most of it children's savings toward college and other future expenses — it was a very personal blow.
''Will we get any?'' asked her oldest son, then a junior in high school who was planning for college.
''I don't know,'' she replied honestly, adding, ''You'll still go to college.''
A few months later, her husband lost his job and ended up getting a lower-paying position.
It's been hard for the family to get ahead.
But Scott is determined to find a way to repay her children the money they lost — somehow, someday.
''I feel like I have to pay them back,'' she said. ''They trusted me.''
Cheryl Powell can be reached at 330-996-3902 or
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Jim Mackinnon can be reached at 330-996-3544 or
jmackinnon@thebeaconjournal.com
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