Thursday, December 10, 2009

Fair Finance Had Cash Flow Problems Earlier This Year

While some would like to have you believe that Tim Durham's Fair Finance did not have cash flow problems until the Ohio Securities Division allowed the company's current securities offering to expire and failed to approve a new $250 million securities offering late last month, a story of one long-time investor's difficulties with the company suggests the company began experiencing problems at least 8 or 9 months ago. A 75-year-old Massillon, Ohio investor tells the Akron Beacon-Journal's Betty Lin-Fisher that he first noticed a problem when the company failed to mail him his interest check earlier this year:
''It worked out very well until eight or nine months ago. I didn't get a [interest] check. It was late,'' Giblin said.

Giblin called a Fair office and was told there was a mailing problem. A few days later, he called again and was told he was given the wrong information and the funding wasn't released.

''That sent up a red flag,'' he said.

Giblin eventually got his check about two weeks later, he said.

Giblin said he then inquired about cashing in his certificates of investment early and was told the rules had changed, and he'd have to wait until their maturity date in July.

While at the Canton-area office, Giblin said an employee became ''belligerent'' about giving him a check that day. Giblin said he tried to bluff the employees by saying he'd call his lawyers as he left.

''I must have made some waves,'' Giblin said, because the next day, James Cochran, co-owner of Fair Finance and chairman of the board, called Giblin at home. Giblin said he asked questions about the company, including how it could pay such high interest rates.

''He was evasive,'' Giblin said. ''I picked up a tinge of sarcasm in his voice as well. He was trying to reassure me that everything was on a level plane again. They had a cash-flow glitch and they were expanding to new offices.''

Giblin said he had decided before the conversation that he was taking $50,000 out and leaving $20,000 when his certificates came due in July. His conversation with Cochran didn't change that.

''He did see fit to call. He could not reassure me,'' said Giblin.

Cochran has not returned a call seeking comment earlier this week regarding Fair Finance.

In July, Giblin said he took $50,000 out and rolled $20,000 into another six-month certificate, ''just in case.'' It took 60 days for him to receive his check, with interest, and for the new certificate to begin.

In October, Giblin said he took his first interest check from the $20,000 investment to First National Bank of Orrville, and was told by a teller she was unable to cash checks from Fair. Giblin, who got his check cashed at the Massillon Moose lodge instead, said he was later told by Fair officials that there was a computer glitch between the two banks, and it would be fixed.

An official with First National said he could not comment about the situation.
So it started with a missed interest payment, elevated to a 60-day delay in redeeming investments and culminated in the company writing bad checks to investors in October. Clearly, this company had problems before Ohio officials allowed the company's right to sell securities in that state to terminate. I'm wondering if Ohio banks alerted federal officials back in October when the company began writing bad checks to investors. It remains inexplicable to me that acting U.S. Attorney Tim Morrison called off efforts to freeze assets in light of these problems. The only person who benefits from Morrison's actions are Tim Durham. Morrison's tact is the complete opposite of what Florida officials took in Ft. Lauderdale with Scott Rothstein. Officials there immediately began seizing his assets as soon as it became clear he was running a Ponzi scheme. As evidenced by the civil forfeiture action Morrison initially filed against Durham and his companies, the feds have already concluded he is running a Ponzi scheme. Fair Finance's offices have remained closed since Thanksgiving, and it's unclear whether the company's offices will ever reopen.


Erich said...

Fair Finance states this in the Nov 24 2009 offering circular:

"At the beginning of 2009, management of Fair Finance Company was concerned about the affect that the country's economic downturn may have upon Fair's ability to obtain sufficient capital to repay investment
certificates as they become due. Furthermore, Fair had certain consumer finance receivables that were unable to be leveraged under its wholly owned subsidiary and loan with Fortress Credit Corp. As a result of this concern, and Fair's inability to leverage the returns of these receivables, on February 13, 2009, Fair Finance Company entered into an agreement to sell $3,594,354 worth of finance receivables to CLST Asset III, LLC, a Delaware Limited Liability Company."

M Theory said...

I bet that guy who cashed $50k and rolled over $20k, wished he had cashed in the entire account instead last July.

Unknown said...

Thanks for the information, Erich.

The SEC is going to have a field day with this. Just think--if Durham had not ever had CLST buy receivables from Fair, no one would have ever known he owned Fair, the IBJ would not have dug up the dirt, and he'd be sitting fat and happy in LA instead of holed up with his attorneys, trying to figure out how he is going to dig himself out of this mess.

Erich said...

CLST made three purchases of receivables; Fortress, Summit and Fair. Fortress and Summit are also referenced in the circular with prior relationships with Fair.

The direct purchase from Fair was the last one announced, perhaps Durham tried to avoid a direct purchase as long as possible.

Fair Finance funded related parties, and CLST funded Fair, it appears.

It seems obvious Fair Finance was scrounging for cash. Also, OH Department of Securities guidelines state companies are supposed to notify the department of material changes in financial condition, will be interesting to see if there was a notification.

An article stated Greg Andrews at IBJ found out about Durham's involvement with Fair in March, and I am guessing it is related to CLST. The IBJ article about CLST's purchase from Fair came out in March.