Billion. With a “b.”
Fair Finance trustee Brian Bash says two companies that financed Indianapolis businessman Tim Durham’s purchase and operation of the now-bankrupt Akron company owe the estate more than $1 billion in actual and treble damages.
To be more precise, Bash, a Cleveland attorney, is seeking nearly $1.2 billion, saying the companies helped Durham and others run Fair Finance as a Ponzi scheme, according to a 152-page lawsuit filed Tuesday afternoon in U.S. Bankruptcy Court in Akron.
The lawsuit says Bash has an email showing one financial executive worried in late 2003 that Durham was using Fair Finance as a “piggy bank.”
Bash is suing Textron Financial Corp. of Providence, R.I., and Fortress Credit Corp. in New York City. Textron Financial loaned Durham $22 million, with $16 million used to buy Fair Finance in 2002 from the Fair family, according to the court document.
The lawsuit is one of many filed by Bash in recent days and weeks seeking the return of millions of dollars in Fair Finance money. With the filing of the Textron/Fortress lawsuit, the amount of money Bash seeks far exceeds the $223 million Ohio investors lost by buying uninsured Fair Finance investment certificates.
Named in the latest wave of lawsuits are:
• Brian “Kato” Kaelin, who came to fame during the O.J. Simpson murder trial and who Bash says owes Fair Finance $23,700;
• Former January 1997 Playboy Playmate of the Month Jami Ferrell, who Bash says owes $174,415;
• And a foundation run by rap music star Ludacris that owes $30,000, according to Bash.
The trustee is also suing to get money from Durham’s mother.
But the big money lawsuit was the one filed Tuesday.
Bash is seeking at least $316 million and as much as $950 million from Textron and at least $72 million and as much as $223 million from Fortress.
The $223 million that more than 5,000 Ohio investors lost by buying Fair Finance investment certificates “would not have been possible without the knowing, and active participation of Textron, and, later, Fortress,” according to the lawsuit.
Fair Finance was forced to file for bankruptcy two years ago today after FBI raids on Nov. 24, 2009, permanently closed its offices.
The Textron loan was repaid in 2007, with Fortress providing subsequent financing to Durham, according to the lawsuit.
“By no later than November 2003, Textron knew, should have known, or was willfully blind to the fact that Durham was using the debtor [Fair Finance] to defraud thousands of unsophisticated individual noteholders out of millions of dollars, and that continuing to allow [Fair Finance] to draw down on its line of credit allowed Durham to continue his fraud scheme,” the lawsuit reads in part.
By no later than May 2005, Textron should have known that Durham was operating Fair Finance as a Ponzi scheme, the suit says.
“And, no later than 2006, Textron actively conspired with Durham to hide the impact of Durham’s self-dealing from [Fair Finance’s] regulators and individual noteholders to conceal the fraud,” the lawsuit said.
The lawsuit said that Fair Finance was run as a Ponzi scheme dating to at least December 2003. Indiana residents Durham and co-owner James Cochran used Fair Finance money through such vehicles as insider loans to prop up other failing businesses and to pay for lavish lifestyles that included mansions, expensive cars and even a quarter ownership interest in a jet, according to the lawsuit.
“Textron’s Vice President of Portfolio Management sent Durham an e-mail in November 2003 expressing Textron’s concern that Durham’s use of proceeds from the sale of V-Notes [Fair Finance investment certificates] ‘as a piggy bank’ to ‘fund losses of [Durham’s] affiliates’ was ‘wrong,’ ” the lawsuit says.
A Textron spokesman said the company’s legal department was aware of the litigation and was reviewing the lawsuit. Textron does not comment on active legal proceedings, the spokesman said.
The lawsuit said Durham approached Fortress in 2007 for financing. Fortress knew, or should have known, about “a number of bold red flags indicating that Durham had been operating [Fair Finance] for years as a massive fraudulent scheme,” according to the lawsuit.
Fortress could not be reached for comment Tuesday.
Textron Financial and Fortress agreed to loan money to Durham and Fair Finance because the loans were highly profitable to the company, the lawsuit said.
Bash seeks a jury trial in the case.
“The sad tale described in this complaint would not have been possible without the knowing and active assistance of the debtor’s [Fair Finance’s] working capital lenders, Textron and Fortress,” the lawsuit says. “Neither Textron nor Fortress cared about the harm being caused to the debtor and the debtor’s creditors because they, as lenders, were being regularly paid, were fully secured by the debtor’s only valuable assets, and were turning substantial profits on their business relationships with the debtor and Durham.”
Fair Finance, a consumer loan and accounts receivables company whose history in Akron goes back to 1934, made a profit of $3 million in 2001, according to Bash. The company was properly run and in excellent financial health until after its sale in early 2002, he said.
Durham, Cochran and former Fair Finance Chief Financial Officer Rick Snow are scheduled to go on trial in Indianapolis on June 8 on federal criminal charges that they ran Fair Finance as a Ponzi scheme.
Jim Mackinnon can be reached at 330-996-3544 or email@example.com