There may finally be enough money to partially repay more than 5,000 Ohio investors defrauded out of $205 million in a Ponzi scheme orchestrated by the owner of bankrupt Fair Finance Co. in Akron.
An interim payment could be made by the end of the year, according to court records.
The bankruptcy trustee has reached a $35 million settlement with New York City-based Fortress Credit Corp., which provided financing to the long-running financial services company.
“The settlement, if approved, will allow the trustee to reconcile creditors’ claims and, thereafter, make every effort to carry out a first interim distribution to unsecured creditors of the Fair Finance estate by the end of the 2015 calendar year,” court documents say.
The proposed $35 million settlement amounts to approximately 17 cents on the dollar for creditors.
Trustee Brian Bash, attorney with Cleveland law firm BakerHostetler, alleged in a lawsuit filed in February 2012 that Fortress turned a blind eye to Fair Finance’s questionable business practices and finances in agreeing to extend credit to the company.
The proposed $35 million settlement, filed Monday in U.S. Bankruptcy Court, still needs final court approval. The court is scheduled to act on May 28.
The settlement agreement calls for no admission of liability.
Bash argued that the proposed settlement is in the best interests of the estate and creditors. Fortress had made a strong argument that any recovery be capped at $5.7 million, records show.
“Moreover, further litigation against Fortress would involve a significant investment of fees and costs which the trustee believes would, at a minimum, continue into the next two (if not three) calendar years in light of likely potential appeals following a potentially lengthy trial against Fortress,” one document said.
Of millions of dollars recovered in years-long litigation, all of the money to date has gone to pay legal and related expenses.
Indianapolis businessman Tim Durham purchased family-owned Fair Finance Co. in 2002 with partner James Cochran. Durham, Cochran and senior employee Rick Snow were given lengthy federal prison terms following their convictions in Indiana in the Ponzi scheme.
More than 5,000 Ohio residents purchased uninsured investment certificates, which paid high rates of interest, from Fair Finance. Investor money was supposed to provide capital to Fair Finance but instead funded lavish lifestyles of Durham and Cochran.
Many people invested their life savings with Fair Finance. Records show 680 investors placed $100,000 or more with the business.
Fair Finance was forced into Chapter 7 bankruptcy in February 2010 following FBI raids on its Akron-area offices just before Thanksgiving in 2009. Fair Finance, which dated back to 1934, never reopened.
The Fortress Credit settlement is the largest Bash has secured since filing dozens of lawsuits.