The Ohio Division of Securites says it needs a lot more answers from Fair Finance executives before deciding whether the Akron-based financial firm can sell up to $250 million in new securities to investors.
Federal investigators continue to look into whether the company, run by an Indiana businessman since 2002, has defrauded Ohio investors.
In its seven-page letter dated Dec. 3, the Ohio Division of Securities asks for additional information and clarification by Dec. 11 on Fair Finance's 60-plus page ''circular'' first submitted in late October and amended on Nov. 24 in which it seeks state permission to sell new investments. Circulars are intended to provide essential information to potential investors before they spend any money.
The FBI raided the Akron offices and related offices in Indiana on Nov. 24 and took the businesses computers and files. Court records showed that investigators suspect a Ponzi scheme involving the firm and its officers, including Indiana businessman Tim Durham. Fair Finance offices remained closed today.
''The issuer [Fair Finance] has failed to provide investors with material information regarding the risk of the underlying portfolio and lending practices,'' the letter from Mark Heuerman, registration chief counsel, reads in part.
The risks include:
• ''In many instances, the issuer amended loans to increase the amount available despite a deteriorating financial condition and without performing any additional due diligence.''
• ''The Chief Executive Officer, Tim Durham, appears to have unfettered discretion to amend a loan for Fair and related parties without involvement or approval by other parties, officers, directors or employees of the affected entities party to the loan.''
• ''The issuer may engage in high risk loans where substantial uncertainty exists as to the ability of the borrower to repay principal.''
• ''Loans were often made with unaudited or no financial information from the obligor.''
In addition, the state raised questions about the parent company of Fair Finance, Fair Holdings. Durham became co-owner of Fair Finance in 2002 when the Fair family sold the business it founded locally in 1934.
The company provides loans and manages accounts receivables for businesses. Its investment certificates are not government insured.
''The total shareholders equity of Fair Holdings is negative,'' the letter said. ''The offering circular states that investors should consider the financial status of Fair Holdings Inc. As Fair Holdings has negative shareholders equity and could be deemed an issuer or joint issuer of the securities, please disclose the insolvency of Fair Holdings on the cover page of the prospectus.''
Jim Mackinnon can be reached at 330-996-3544 or jmackinnon@thebeaconjournal.com.
