Media Want Durham Search Warrants Unsealed

I heard late this afternoon that the Indianapolis Star and the Akron Beacon-Journal have gone to court asking the government to unseal the search warrants issued on Tim Durham's Obsidian Enterprises and Fair Finance last month. Will update you when I learn more.

UPDATE: I've obtained a copy of the filing the Indianapolis Star and Akron Beacon-Journal filed in U.S. Magistrate Sarah Evans Barker's court in the Southern District of Indiana today. The suit highlights the fact that it's only been five months "after notorious investment scam artist Bernie Madoff was sentenced to 150 years in prison," and "hundreds of elderly investors in Akron, Ohio, are worried that they, too, might have fallen victim to a Ponzi scheme." The investigation of Tim Durham is "déjà vu all over again" to them according to the complaint. "For them, transparency in the investigation is the only salve, a transparency that has so far been elusive due to the government’s failure to file executed search warrants, failure to file affidavits in support of search warrants and failure to file other supporting documentation in connection with the search of Mr. Durham’s Indianapolis office at Chase Tower and his Akron, Ohio, offices of Fair Finance," it reads.

The newspapers' complaint accuses U.S. Attorney Tim Morrison's office of violating federal rules of criminal procedure. "Federal officials have told reporters for both Newspapers that search warrants were executed for the offices," the complaint says. "However, in violation of the Federal Rules of Crim.P. 41(i) and S.D. Ind. L.R. 5.3(c), they filed nothing," the complaint continues. "U.S. Attorney Timothy M. Morrison confirmed to Beacon Journal reporter Jim Mackinnon that Search Warrant Documents exist and are “sealed.” "He unlawfully declined to disclose the location of the court documents . . . " The complaint says that Morrison intends to keep the search warrant document sealed until charges or filed, or indefinitely if charges are never filed.

The complaint says that news stories about the Durham investigation have generated more public interest in Akron, Ohio than any story in recent memory, including at least twelve investors, and the Star has experienced considerable public interest as well. The complaint points out the intense interest in Indianapolis because of the nearly $1 million Durham and his businesses have contributed to local politicians. "His wealth, power and influence have caused Indiana citizens to question the integrity of their political leaders," the complaint reads. "Transparency in the investigation into Mr. Durham’s financial affairs can only serve to enhance the public’s faith in its government." "The sealing of such documents only serves to undermine the integrity of the judicial process and enhance the perception that Mr. Durham’s political connections will save him."

The complaint alleges that investors in Fair Finance will be potentially harmed if the search warrants are not opened to the public and only Durham benefits from keeping them sealed. "The innocent investors, some of whom may take legal action on their own to recover funds, have a right to the search warrant information that outweighs any right by Mr. Durham or others to keep his alleged misdeeds private," it says. "If the government believed that disclosure of the search warrant information would jeopardize an on-going investigation, it should have offered evidence of such disclosure publicly," the complaint states. "Given that it filed and withdrew a complaint to seize Mr. Durham’s property all within seven days, and that there is no current criminal or civil action pending, it is highly unlikely that the government would be able to meet its burden." "Indeed, absent any action by the government, Search Warrant Documents must be released to provide information to the innocent investors who now must undertake recovery on their own." "Keeping such information private only serves to protect Mr. Durham, if indeed wrongdoing occurred, and the government, if indeed it failed in its oversight duties."

The complaint notes that investors have been forced to sit by and wait since November 24 when Fair Finance's eight offices in Ohio closed, denying them access to their invested funds. "The release of any court documentation that sheds light on the whereabouts of hundreds of millions of dollars of investors’ money would be advantageous to those third parties, rather than harmful to them," the complaint reads.

The most important point made in the complaint is the government's alleged violation of the federal rules of criminal procedure. "First, all search warrant papers must be filed pursuant to Fed. Rule Criminal P. 41(i), as mentioned above. And in the highly rare, but not unprecedented, cases where the government is able to show that sealing is necessary to achieve a compelling governmental interest and that sealing is narrowly tailored to serve that interest, there must be a cover sheet publicly filed to document the sealed records, pursuant to S.D. Ind. L.R. 5.3(c)." "All court documents filed under seal must be publicly docketed, and those filed under seal must be documented so that anyone opposed to sealing may seek judicial review. ," the complaint continues. Local court rules also requires the government to include a cover sheet with a caption, the name of the document, the contact information of the person filing the document and a motion filed requesting that the document remain under seal. None of these requirements were met by U.S. Attorney Tim Morrison's Office according to the complaint.

The complaint concludes, "The overriding public interest in recovering millions of dollars in investments for thousands of investors, as well as the overriding public interest in the integrity of the political system in which one influential person may have destroyed thousands of retirement dreams, require that all documents issued in connection with Fair Finance and Timothy S. Durham be public." "No criminal or civil case is active." "The public has a right to know what the government searched for and what it found." "Withholding that information violates the Newspapers’ common law right to access judicial records, as well as their First Amendment rights." "For all these reasons, the Newspapers respectfully urge this Court to unseal any and all Search Warrant Documents issued in this case, and to order the government to file such records as required by Fed. Rule Crim. P. 41(i)."

Here's a story by Jim Mackinnon in the Akron-Beacon Journal about the lawsuit. Still nothing from the Star.

Feds File For Forfeiture Of Durham's Geist Mansion And Other Assets

ACCUSED OF RUNNING PONZI SCHEME
The federal government filed an action in the Southern District of Indiana on November 24 seeking to forfeit business tycoon Timothy Durham's Geist mansion in Hamilton County, his Hollywood residence and other assets. The federal action filed by acting U.S. Attorney Tim Morrison charges that Durham and others acquired the property in question as a result of federal wire fraud violations that reads an awful lot like a classic Ponzi scheme. The complaint reads:

Timothy S. Durham, and his companies and associates, have been involved in a scheme to defraud numerous persons of money by convincing those persons to buy "investment certificates" . . . from Fair Finance Co., an Ohio company, upon the representations that the money given to buy the investment certificates will be invested in low-risk, high yield, short term consumer debts, and the investors will receive high regular interest payments on their investments. In fact, that money was not invested in the types of investments represented to investors. Instead, the money provided by victims of the scheme was used to make interest and redemption payments to earlier victims of the scheme, thereby lulling the earlier victims into believing that their money was being responsibly (sic), and enticing new investors into the scheme in order to fund payments to the earlier investors.

The federal complaint alleges that Durham wired $84.2 million of Fair Finance's funds to a Fair Holdings account at First Indiana Bank. Durham, in turn, wired those funds to 50 individuals and businesses, including the following:

• U.S. Rubber Reclaiming (subsidiary of Obsidian)-$6.9 million
• Speedster, Inc. (Durham classic car company)-$5.3 million
• Danzer Industries (former parent company of Obsidian)-$1.8 million
• RM Auctions-$1.4 million
• Champion Trailer-$1 million
• Playa Del Racing (IndyCar racing team of Durham's)-$804,000
• Pyramid Coach (former subsidiary of Obsidian)-$730,000
• Evaco Acquisition Corp. d/b/a Superline Trailers-$690,000
• McDonald Investments-$495,000
• Car Collector Magazine-$277,000
• James Cochran-$30,000
• Tim Durham-$100,000

The federal complaint seeks the seizure and forfeiture of the following assets claimed to be the proceeds of various wire fraud offenses:

• Tim Durham's Geist mansion, 14353 East 113 Street, Fortville, Indiana
• Tim Durham's Hollywood residence, 1227 Sierra Alta Way, Los Angeles
• 301 South 1st Street, Lewisville, Indiana
• 1326 Broad Street, New Castle, Indiana
• Funds in two accounts at First Merit Bank in the name of Fair Holding
• Funds in nine accounts at J.P. Morgan Chase Bank in the name of D.C. Investments, Inc., Fair Finance, Obsidian Enterprises and Timothy Durham
• Funds in seven accounts at Key Bank in the name of Fair Finance or Fair Holdings
• One 2008 Bugatti Veyron

This latest disclosure doesn't say much for the investigative prowess of our local news media in Indianapolis. Once upon a time, reporters had sources at the federal and local courthouse who could be counted on to tip them off when a case of interest got filed in their court. An Advance Indiana reader e-mailed a link to the Pacer entry for the case in the federal district of Southern Indiana. When the FBI carried out its raid of Durham's offices in the Chase Tower five days ago, reporters were only left to speculate what was transpiring. If they had simply checked court filings at the federal court house one block away, they would have known what was taking place.
UPDATE: The paid media is playing catch up now. See stories now at the Indianapolis Star, the IBJ, Fox 59 News, WTHR and WISH-TV. Gee, I wonder who their source was.

IBJ Expose' On Fair Finance Likely Led To FBI Raid On Durham's Offices

It now seems likely that FBI agents were prompted to conduct a raid on the Indianapolis and Akron, Ohio offices of Tim Durham's Fair Finance and Obsidian Enterprises after the IBJ's Greg Andrews expose' on how Durham was essentially using the Ohio-based finance company as a personal bank account to fund his other business endeavors. Although the FBI won't publicly state the purpose of the raid, it urged people who had business dealings with the company to contact the federal law enforcement agency. The company, which had previously sold $207 million in investment certificates, filed a request to approve a new security offering of $250 million with Ohio securities regulators following Andrews' report on Fair Finance last month.

According to those latest filings, Fair Finance has made $177 million in insider loans, while the company's core profit-making business, customer-finance contracts, has declined in size to $24 million. Andrews notes the new filing shows that Fair Finance lost $1.78 million in 2008. The company's financial situation has grown worse since Ohio regulators held up approval of its new security offering since its two-year offering has matured. Andrews writes:

The figures are contained in a proposed offering circular Fair filed with Ohio’s Division of Securities Oct. 29. The company sought a new registration because an existing one from July 2007 was set to expire Nov. 24.

But instead of signing off on the new registration, Mark Heuerman, registration chief counsel, sent a letter to Fair’s attorney saying “the offering is impossible to review under our standards without further documentation.”

He asked for additional information on a range of topics, including documentation that would help him untangle the morass of insider loans.

“Please include sequential transactions on multiple levels where related parties engage in further transactions with related parties,” he said.

Ronald Kaffen, an Akron attorney representing Fair, characterized the back and forth as routine.

“That’s sort of standard procedure. You make a filing. You get comments back, and you respond to those comments,” Kaffen said.

The company submitted its responses Nov. 24, and the Division of Securities is reviewing them. In the meantime, because Fair’s prior registration has expired, it can’t sell additional investment certificates.

That could help limit losses if Fair were to fail, since new investor dollars won’t be coming in the door. But Klimek, the securities attorney, said he wonders if Fair can keep going without those infusions.

A crash crunch has led Fair Finance to take a number of steps this past year that raise further concerns. It sold millions of dollars in consumer finance loans to another Durham-controlled company, CLST Holdings, which has also been the subject of litigation. A company line of credit offered by Fortress Credit Corp. has been reduced from $50 million to $35 million. The offering also indicates the company has been selling off better performing finance contracts to raise cash. Even more concerning, Fair acknowledges that it has delayed repayment of principal on maturing certificates up to 60 days because payments due to investors has exceeded 10 percent of its cash collections.

The proposed offering listed Marion County Prosecutor Carl Brizzi as part of Fair Finance's management when it was first filed. Brizzi has subsequently resigned from the company. Here's how the discussion of management describes Brizzi, whose name appeared directly below Durham's biography in the original proposed offering:

Mr. Carl Brizzi, Director, was elected Director in 2009. Mr. Brizzi is not affiliated in any other manner with Fair Financial. Mr. Brizzi is currently the Marion County Prosecutor, State of Indiana, elected in 2002, re-elected in 2006. Mr. Brizzi brought to the Prosecutor’s office his belief in victim-centered prosecution. He has been named a “40 Under 40” by the Indianapolis Business Journal, “Outstanding
Young Alumnus” by Valparaiso School of Law, and he was included from 2004 to 2009 in the Howey Political Report’s Top 50 Most Influential People in Indiana Politics. Mr. Brizzi is the father of four children.

Now there's a first. Someone actually mentions in their biography that they were listed on Howey's "Top 50 Most Influential People in Indiana Politics." As you can see by the proposed offering linked to on the IBJ's site, there have been numerous additions and deletions since the original offering was proposed.

FBI Raids Tim Durham's Offices

Watch the local politicians start running for cover. The FBI raided the offices of one of their biggest benefactors, Indianapolis business tycoon Tim Durham, this afternoon. FBI agents began carting off files from Durham's top floor offices in the Chase Tower. A separate raid took place in Akron, Ohio where Fair Finance has an office. They're investigating Durham's Ohio-based Fair Finance Company and Obsidian Enterprises. FBI agents are remaining mum about the purpose behind the execution of search warrants on Durham's business today. This Advance Indiana entry on an IBJ expose' by Greg Andrews last month will give you a pretty good indication of what federal agents are investigating. See also the following possible related entries here and here. According to a recent filing with Ohio securities regulators, Durham's Fair Finance proposed a new securities offering that raised a lot of red flags in light of the IBJ report. Ohio security regulators have been dragging their feet on taking action to protect investors despite ample warning signs conveyed to them by interested parties; however, Ohio officials are holding up approval of this latest offering until questions are answered. That may set off a chain reaction as Durham's company may have desparately needed those new funds to pay off old debts. Durham is shown above at a lavish Halloween Party he recently hosted at his new Hollywood mansion for National Lampoon, another one of his company's that has faced securities fraud allegations. Durham is dressed up as the Mad Hatter character from "Alice In Wonderland." The IBJ has an online update on this developing story here. Political fallout analysis: No politician is closer to Tim Durham than Marion Co. Prosecutor Carl Brizzi. New disclosures of the extent of that relationship that will emerge in the coming days will probably end his political career. Durham recently hosted a fundraiser for Marion Co. GOP sheriff candidate Tim Motsinger. Aspiring Democratic mayoral hopeful, Brian Williams, is a founding member and sat on the board of Obsidian Enterprises. Reporters may soon begin asking some local politicians "what do you know and when did you know it?" Look for campaigns to begin purging themselves of Durham campaign contributions in short order. Brizzi has pocketed more than $150,000 in campaign contributions from Durham.