Friday, December 04, 2009

Class Action Suit Filed Against Durham's Fair Finance

Investors wisely aren't waiting around for the government to take action to recover their investments in Tim Durham's Fair Finance Company for them. Attorneys for investors filed a lawsuit in Ohio to rescind approximately $200 million worth of certificates of investment Fair Finance sold to Ohio investors over the past couple of years. The IBJ's Greg Andrews reports:

The case, filed in Summit County, Ohio, appears to be the first investor lawsuit filed since the U.S. Attorney's Office alleged in court papers late last month that the business was operating as a Ponzi scheme, using the influx of money from new investors to pay off existing ones.

Attorneys with Maddox Hargett & Caruso of Fishers and David P. Meyer & Associates of Columbus allege that Fair Finance offering circulars provided to prospective investors contained material misrepresentations and omissions. They also charge that insiders breached their fiduciary duty to investors, and unjustly enriched themselves.

The suit alleges that Durham and co-owner Jim Cochran have used Fair like a personal bank since buying it in 2002, pulling tens of millions of dollars out in the form of related-party loans. Fair, which was founded in 1934 and historically made money by purchasing customer-finance contracts, obscured the fundamental change in its business in the offering circulars, the suit alleges. Fair Finance used "a tangled web of financial transactions to conceal the withdrawal of the funds ... for their own enrichment.," according to the suit.

"Upon buying the company, the two out-of-state owners promoted the same values and business models to deceive investors into investing tens of millions of dollars of their hard-earned life savings in the company even though the new owners had no intention of continuing to operate the business as the Fair family had for so many years."

Investors, who were required to be Ohio residents, purchased investment certificates, ranging in term from six months to two years, that paid interest rates substantially higher than those for certificates of deposit. But unlike CDs, the securities have no government guarantee if Fair fails to pay.
Look for more explosive details concerning Durham's Ponzi scheme to emerge in this weekend's edition of the IBJ. Also, I'm not sure what this was all about, but I found this news report on a robbery of a Cellstar warehouse back in September, 2007 in Coppell, Texas interesting:

Coppell police were searching for three men who broke into a cell phone warehouse early Wednesday and bound a security guard with duct tape.

The men wore ski masks as they approached the security guard sitting in his vehicle around 3 a.m. at Cellstar in the 600 block of Royal Lane. The men forced the security guard from his SUV, bound him with duct tape and placed him back in the vehicle, said Sharon Logan, a Coppell police spokeswoman.

The masked men then went into the warehouse, Ms. Logan said.

During that time the security guard freed himself and got out of the vehicle as the robbers were leaving the warehouse, she said. The robbers fired at least one shot before fleeing in a white sedan.

The security guard was not injured.

Police were investigating. Cellstar representatives declined to comment.
A lawsuit in Dallas, Texas I told you about earlier this year accused Durham and other business partners of engaging in various self-dealing activities after they took control of the parent holding company, CLST Holdings a couple of years ago. This week, we learned the SEC is investigating CLST Holdings and Durham.

4 comments:

Diana Vice said...

When it rains, it pours!

Craig said...

Gary scoops again! That Dallas breakin is scary and creepy.

Does anyone remember the breakin at the AIG insurance office at the Pyramids? AIG was the office that wrote Brightpoint that bogus insurance policy.

That questionaire from Ohio, combined with the subpoena from the SEC and daily reporting is making December a bitterly cold winter for someone who likes to party on yachts in warm tropical areas. Imagine what it's going to be like going from that to prison and single-piece cheese sandwiches. Maybe TD can finally lose that weight and become Freshboy instead of FatFace in prison.

Erich said...

On the receivables purchase, Cellstar purchased from 3 entities:

1. Fair Finance
2. Summit
3. Fortress

The Fair Finance offering circular shows Fair Finance had transactions with both Summit and Fortress, including a sale of receivables to Summit in 2007.

The related party nature of the Cellstar purchase from Summit and Fortress was never disclosed by Cellstar, to its shareholders. The Fair Finance transaction did raise the issue, and if all 3 had been disclosed...
Hope the SEC figures it out.

Nick said...

TIMELINES:

Randall Tobias Resigns - April 28, 2007

Indy Men's Magazine final issue May 2007 published by Table Moose Media- investors Timothy S. Durham, Randall L. Tobias, Todd C. Tobias, & Paige T. Button.