First Day Of Trial Bad For Durham

It cannot be understated just how important a first day of a criminal trial is for the prosecution and the defense. Jurors anxious to perform their best civic duty are more attentive and perhaps more easily swayed than at any point during the trial. Lawyers for both sides try to carefully lay out a road map for the jurors to follow during the trial. The government, which has the burden of proving its case beyond a reasonable doubt, puts on its case first and will often lead with its strongest witnesses. That proven strategy appears to be exactly the approach taken by federal prosecutors in the opening day of the trial of accused Ponzi schemer Tim Durham and two of his business associates. If media reports are any indication, it's a strategy that is working well for the government.

The IBJ's Cory Schouten says federal prosecutors painted a picture of a "massive fraud scheme" to explain how Durham and his associates managed to lose more than $200 million invested by small Ohio investors. Durham's attorney, John Tompkins, responded by claiming his client was only guilty of making "bad business judgments, not fraud," which were made much worse by the 2008 financial crisis that swept the country. The compelling testimony of the government's first two witnesses, however, strongly support the government's case.

The government chose to call as its first witness 86-year old Donald Fair, whose father founded the company that bears his name and who sold it Durham and his business associate, Jim Cochran, for $20 million in 2001. Fair told jurors Durham "destroyed" his family's Fair Finance Company and "screwed the company into the ground." Fair explained the departure Durham and his business associates took to business model that had worked so successfully for his father and him for 66 years during good and bad economic times. Fair told jurors that the company began offering "higher rates of interest than I ever could imagine offering myself" to entice investors while making large investments in businesses owned and controlled by Durham that were mostly losing money.

Even more damaging to the defense was the testimony of a former chief financial officer for Durham's parent company, Obsidian Enterprises. The Akron Beacon-Journal quotes Anthony Schlichte as testifying that the affiliated companies to which Durham siphoned funds invested in Fair Finance were money-losers long before the nation's financial crisis hit and never repaid any of the loans the affiliates received from Fair Finance. "Most jurors appeared to be listening intently and taking notes as witnesses testified," the newspaper reported.

The Star adds testimony from Fair Finance's former controller, Doug DeRose, about the inability of the affiliated companies to repay the money Durham had loaned to the businesses, which made it impossible for Fair Finance to pay even interest on its investor's money, let alone repay the principal. "He said Durham then told Fair Finance employees to lie to investors about why they were no longer getting interest payments on their investments. The excuses they used, he said, were not true 'a majority of the time.'"

In the coming days, the prosecutors will put on evidence that Durham used some of the money for luxury items for himself and his friends, including expensive automobiles, homes, country club memberships and costly gambling-fueled trips to Las Vegas. I'm not sure why Durham didn't seek a deal with the government. He doesn't stand a snowball's chance in hell of being acquitted. Dealbook's Peter Henning has a column today titled, Viewing financial crimes as economic homicide," in which he discusses some stiff sentences dealt to recent convicted Ponzi schemers, including:

• Bernie Madhoff--150 years
• Edward Okun--100 years
• Thomas Petters--50 years
• Lee Farkas--30 years

Federal prosecutors are asking a federal judge in Houston to sentence Allen Stanford, who was convicted of operating a multi-billion dollar Ponzi scheme, to 230 years in prison. Durham and his partners each face up to 20 years in prison for each wire fraud count, 20 years for the securities fraud count and five years for the conspiracy charge. The men are charged with 12 felony counts each, ten of which are for wire fraud.