The three federal criminal convictions last week in the years-long $200 million Fair Finance scandal might help just a little bit in the lawsuits seeking to recover investor money and damages that have sprung from Fair’s ongoing civil proceedings, Akron-area bankruptcy experts say.
“It certainly doesn’t hurt to have a criminal conviction,” said Marc Merklin, lawyer at Brouse McDowell in Akron whose specialties include bankruptcy.
But last week’s convictions of Timothy Durham, James Cochran and Rick Snow in U.S. District Court in Indianapolis probably will not directly lead to getting more money back for Northeast Ohio residents, many of whom lost their life savings by investing in now bankrupt Fair Finance Co., Merklin and others said.
“It won’t make it easier to find assets,” Merklin said.
Fair Finance trustee Brian Bash, through his lawyer, Kelly Burgan, declined to comment. Burgan said they did not want to discuss or disclose anything that touched on the trustee’s strategy to recover Fair Finance assets for creditors.
Indianapolis businessmen Durham and Cochran bought Akron-based Fair Finance in 2002 and hired Snow, then Fair’s independent accountant, as chief financial officer of Durham’s Indianapolis-based corporate parent. FBI raids on Nov. 24, 2009, closed Fair Finance’s offices for good, with the business forced into bankruptcy in February 2010. More than 5,000 Ohio residents who had bought more than $200 million in Fair’s uninsured investment certificates lost their money.
The three men were found guilty of defrauding investors by running Fair Finance as a Ponzi scheme in a trial that started June 11. The federal jury started deliberating shortly before 10 a.m. June 20 and about eight hours later found Durham guilty of all 12 charges against him; Cochran was ruled guilty of eight of 12 charges; and Snow guilty of five of 12 charges. All three were found guilty of conspiracy and of securities fraud; Durham was found guilty on all 10 charges of wire fraud, with Cochran and Snow found guilty on fewer wire fraud charges.
Bash has filed lawsuits seeking to recover more than $1 billion in actual and triple damages from Fair’s former financing arms, Textron Financial Corp. and Fortress Credit Corp., as well as from former Fair Finance owner Don Fair, whose father, Ray, founded the business in 1934 in Akron.
Bash earlier this year filed lawsuits seeking as much as $950 million from Textron Financial, $223 million from Fortress Credit and $150 million from Fair.
The trustee has recovered about $5.6 million so far, according to court records.
The civil and criminal cases involving Fair Finance are separate issues, said Jon Groetzinger, visiting professor of law at Case Western Reserve University.
“There are things that came out in the criminal case that may be useful to the trustee,” Groetzinger said. “The courts will have to decide how much of the criminal case can be used in civil cases. … The criminal trial is separate from this [civil] action. The judge here could allow evidence from the criminal trial, if appropriate, into civil proceedings.”
The trustee has a lower burden of proof in the civil litigation than the U.S. government did in making its case against Durham, Cochran and Snow, Groetzinger said.
The convictions should make it easier for the Fair Finance trustee to prove his case in the ongoing civil lawsuits, Merklin said. “That can put some pressure,” he said.
Marc Gertz, who heads the bankruptcy and commercial law department at Goldman & Rosen Ltd. in Akron, said one downside of a criminal conviction is that it makes it less likely for a trustee to be able to recover assets — if there are any — from the person or people convicted.
As for other parties named in civil lawsuits, “I don’t think it has a whole lot of effect,” Gertz said.
In the Fair Finance case, the trustee had alleged that there was a Ponzi scheme and fraud, with the result that there was a criminal conviction, Gertz said. No one is alleging criminal wrongdoing by any of the other parties involved in the civil lawsuits, Gertz said.
Recovery of funds difficult
Because of the complicated lawsuits and issues, it could take years for Fair Finance creditors to get back any money that remains to be found, Gertz said.
“The problem with these sort of schemes is, the money is often gone. It’s spent,” Gertz said. “That’s unfortunate.”
In one bankruptcy case in which he was trustee, it took seven years until funds could be distributed, Gertz said. “Nothing happens fast. I’ll tell you that,” he said.
Gertz said Fair Finance is an unfortunate case for thousands of people in the greater Akron area.
The people who lost their savings may get some sense of satisfaction in seeing the three convictions, he said.
“These were not rich folks,” Gertz said. “These were mom and pop investors. They ended up losing everything. It makes you want to cry. I hope the trustee can do something for these folks.”
Jim Mackinnon can be reached at 330-996-3544 or firstname.lastname@example.org