Forcing Fair Finance Co. into bankruptcy might be the best way for investors in the Akron company to recover their money, two bankruptcy lawyers said Thursday night.
An involuntary bankruptcy would freeze the company's assets and help investors get judgements against Fair Finance's owners more quickly than other legal processes, said David Mucklow and Michael Moran.
The two lawyers made their proposal before about 400 people in the Green High School auditorium. The Akron-based consumer loan and investment firm has been closed since a federal investigator's raid Nov. 24.
Mucklow, whose practice is based in Green, wondered if the amount of money involving Fair Finance is as high as the $1.65 billion in offerings the company put out since being sold in 2002.
''It was a much smaller company when the Fair family [had] it,'' Mucklow said.
In 2002, when the company was sold (to Indiana-based business executives), there were no insider loans. It was a pretty clean balance sheet, he said.
Mucklow said other lawsuits may continue during bankruptcy proceedings. It is possible a judge could stay those lawsuits, including a class-action suit, or move them from state court and into federal court where they will become part of a bankruptcy action, he said. He said that U.S. Bankruptcy Court in Akron would be the most appropriate place to file the case.
More than half of the people in the audience raised their hands at the end of the program saying they wanted to proceed with the bankruptcy action.
Moran, a Cuyahoga Falls lawyer, said Fair Finance has essentially been put out of business.
The company might not have filed for bankruptcy on its own ''because it consolidates the power of people who want to know what is going on,'' he said. A bankruptcy filing would also limit the ability of Fair Finance to transfer assets to others, he said.
''Bankruptcy provides a forum for investigation,'' Moran said.
''Sometimes the [FBI] investigations can last quite a while. That's not a slap against anyone,'' he said. While the investigations go on, Fair Finance assets might be going places, he said.
Which option best?
Some in the audience asked whether the bankruptcy filing or class-action lawsuit would be in their best interests.
''The intent [in bankruptcy] is to get control of the assets and freeze them,'' Mucklow said. ''One of the problems in this case is, we don't know who the certificate holders are. We don't know that they kept good records. We heard some of the certificates were sold with cash and kept off the books.''
Class-action lawsuits can go on for years before a judgment. But a bankruptcy filing can be done in weeks, Mucklow said. ''Your pie is shrinking. The value of the assets is being lost.''
Bankruptcy filings are a faster process than lawsuits, Mucklow said.
In a class-action suit, ''you have to get a judgment before you can collect,'' he said.
Bankruptcy court can, for instance, go after loans involving Fair Finance co-owner Timothy Durham, Mucklow said.
Fair Finance has deep pockets and is fighting the actions against it, he said.
''They are using your money to fight you,'' Mucklow said.
Mucklow said that he and Moran need a ''war chest'' to pursue that action, he said.
''We tried to make it affordable. We know people don't have a lot of money,'' Mucklow said. ''We are trying to have strength in numbers.''
Mucklow and Moran asked people to pay a flat fee depending on how much money was invested.
Mucklow asked audience members to complete a form handed out prior to the meeting.
Cash for certificates
At Mucklow's prompting, a handful of people in the audience raised their hands to say that they paid for Fair Finance investment certificates with cash.
Mucklow also said he heard that Ohio residents bought certificates for relatives who live outside the state, and that he wanted to know about that.
Gene Ruckman, a 67-year-old Wadsworth resident, said he is dead set against the government closing down Fair Finance and freezing its assets.
The self-employed software salesman said he has been a Fair Finance investor since 1999 and said that the company never missed a payment to him until November, when the FBI raided the firm. Fair Finance has $165,000 of his money, he said.
''It's a lot of money,'' he said.
Ruckman said he does not believe the company was being operated as a Ponzi scheme, as federal investigators have alleged in court documents.
''I'm mad at the government. I'm not mad at Fair Finance,'' Ruckman said. ''Is it Fair Finance's fault or the FBI's fault?''
Mucklow said the bankruptcy process could allow Fair Finance to reopen if it is determined that the company is not insolvent.
Jim Mackinnon can be reached at 330-996-3544 or jmackinnon@thebeaconjournal.com.
