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Convictions a likelihood in Fair Finance case

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Defense attorneys representing indicted businessman Tim Durham and two other executives tied to bankrupt Fair Finance Co. could have a hard time convincing a jury of their innocence.

A 23-page indictment, unsealed March 16, alleges that Durham, 48, and business partner James F. Cochran, 55, worked with former Fair Chief Financial Officer Rick D. Snow, 47, to devise and execute a scheme to defraud investors in the Akron, Ohio-based company.

Authorities say Fair Finance owes 5,200 investors $230 million. Officials call it the largest corporate fraud case in Indiana’s history.

Prosecutors worked for more than a year to piece together the complex case and present it to a grand jury, said Timothy M. Morrison, first assistant U.S. attorney for the Southern District of Indiana.

“We have to get this right,” he said. “You have to prove it to 12 people without a reasonable doubt. Now we look forward to proving the allegations.”

The odds are with the government. According to the U.S. Department of Justice, 94.1 percent of federal prosecutors’ cases resolved in 2009 ended with a conviction, and 96 percent of those convicted pleaded guilty before or during their trial. Of those convicted, 81 percent were sentenced to prison.

Federal prosecutors in Indianapolis will lead the case against the three, who are set to be tried May 16.

The Southern District doesn’t track conviction rates. But prosecutors typically build a solid case before bringing charges, which improves their chances for a favorable outcome, said Indianapolis attorney Dick Kiefer, who leads Bingham McHale’s white-collar criminal practice.

Kiefer represents Durham’s Indianapolis-based Obsidian Enterprises Inc., one of the primary beneficiaries of loans Fair Finance made from investors’ money to Durham, Cochran, and other insiders, according to the indictment.

Kiefer declined to comment on the specific charges, but he provided insight into the Southern District Court’s overall approach to prosecutions.

“The U.S. Attorney’s Office here, in particular, has generally been very conservative over the years in charging cases, and I think that’s to their credit,” he said. “They tend to file cases that are much stronger, but that doesn’t mean they’re always right.”

The Southern District’s conservative nature might explain why it took 16 months after an FBI raid for investigators to announce charges against the men.

All three are facing felony charges: 10 counts of wire fraud, one count of securities fraud, and one count of conspiracy to commit wire fraud and securities fraud.

Each faces a maximum of five years in prison for the conspiracy charge, 20 years in prison for each wire fraud count, and 20 years in prison for the securities fraud. In addition, each could be fined $250,000 for each count on which they are convicted.

Misleading investors

Charges stem from a lengthy FBI investigation that made headlines in November 2009 when agents raided Obsidian’s offices in Indianapolis and Fair’s Akron headquarters.

Two weeks earlier, according to the indictment, Durham and Cochran had telephone conversations that painted a striking picture of their alleged deceit.

Cochran allegedly told Durham that they needed to retain Fair’s employees, regardless of their competence, because “these guys know a little bit too much. They can take it and bust us.”

“We can’t [let them go],” Durham agreed. “We’ve got to get through this.”

A few days later, the indictment says, they had another phone conversation, discussing an accounting strategy to make millions of dollars of “bad debt loans” they otherwise would need to disclose to Ohio regulators “literally disappear.”

And about a week before the FBI raid, they allegedly schemed to give a false and misleading explanation to an investor about why he could not redeem an investment certificate.

Later the same day, Cochran told Durham he thought he succeeded at heading off the investor, according to the indictment.

Responded Durham: “You are the best at this.”

Durham, in yet another instance involving an investor, instructed Cochran to “use the same reason you used yesterday with the other guy,” according to the indictment, but cautioned him not to use it too often “because it’s really not true.”

Five days later, on Nov. 24, 2009, FBI agents conducted their raid on the offices of Obsidian and Fair, serving search warrants.

The raid came about a month after IBJ ran an investigative story about Fair highlighting the related-party loans, which amounted to $230 million by that time.

The company, meanwhile, owed investors more than $200 million and had only $24 million in consumer receivables – its only real source of revenue – on its books, according to the indictment.

Durham and Cochran bought the then-68-year-old business for $23 million in 2002, using almost entirely borrowed money.

They immediately began doling out related-party loans, adding to the debt load, while scaling back what had been Fair’s profit-making business – buying customer-finance contracts from fitness clubs, time-share developers and other firms that offered customers extended-payment plans.

Durham and Cochran allegedly sold off additional receivables over the years to pay off investors even as they used money from Fair Finance to pay for extravagances like a $250,000 garage remodeling project, a $150,000 gambling spree and $50,000 in country club dues.

Fair Finance was forced into involuntary Chapter 7 bankruptcy in early 2010.

Last month, bankruptcy trustee Brian Bash filed a lawsuit that provided a preview of many of the government’s charges, alleging that Durham perpetrated fraud of “shocking proportions” by draining huge sums of money from the Ohio company over a period of years.

“Durham fired auditors who became too squeamish and operated [Fair] as a Ponzi scheme, enabling him to loot every last penny,” according to the sharply worded 49-page lawsuit filed in U.S. Bankruptcy Court in Akron.

The indictment alleges that Durham essentially admitted as much in an October 2008 email exchange, saying he acknowledged that Fair used proceeds from the sale of new investment certificates to pay existing investors.

Durham also dismissed two outside auditors who raised questions about the insider loans, according to the indictment, before signing the financial statements himself to certify their accuracy.

Proving intent is key

The three men all were arrested March 16 at their homes – Durham in Los Angeles and Cochran and Snow in Indianapolis, Morrison said. Durham previously lived in a 10,700-square-foot home on Geist Reservoir that fell into foreclosure.

Cochran and Snow were released on their own recognizance following a March 16 initial hearing in Indianapolis before U.S. Magistrate Judge Kennard Foster. Durham was released from a federal detention center in California on a $1 million bond and has agreed to move to Indianapolis where he will be electronically monitored. He is scheduled to appear in federal court in Indianapolis April 6.

Durham’s lawyer, famed criminal defense attorney Roy Black of Miami, did not return phone calls.

Key to securing convictions in fraud cases is proving whether the defendants knowingly intended to commit fraud, white-collar criminal defense lawyers said.

Because it’s difficult to prove what somebody actually was thinking, the government often relies on circumstantial evidence and expert testimony, said J.P. Hanlon, who leads Indianapolis-based Baker & Daniels’ white-collar practice group. He also teaches white-collar crime at the Indiana University School of Law - Indianapolis.

“Ultimately, the jury is given the very challenging job of evaluating all of the evidence and deciding whether the defendant acted with a fraudulent purpose,” he said.

Still, the trail of loans Fair Finance left in its wake could prove most beneficial for prosecutors, said Indianapolis defense lawyer Richard Kammen.

“The one thing about money is, it’s generally traceable,” he said. “They’ve spent a lot of time figuring out where it went. And that is the reason the federal government is very successful. But every case stands on its own.”•

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This story was first published in the March 21-27, 2011, issue of Indianapolis Business Journal.

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  1. I have been on this program while on parole from 2011-2013. No person should be forced mentally to share private details of their personal life with total strangers. Also giving permission for a mental therapist to report to your parole agent that your not participating in group therapy because you don't have the financial mean to be in the group therapy. I was personally singled out and sent back three times for not having money and also sent back within the six month when you aren't to be sent according to state law. I will work to het this INSOMM's removed from this state. I also had twelve or thirteen parole agents with a fifteen month period. Thanks for your time.

  2. Our nation produces very few jurists of the caliber of Justice DOUGLAS and his peers these days. Here is that great civil libertarian, who recognized government as both a blessing and, when corrupted by ideological interests, a curse: "Once the investigator has only the conscience of government as a guide, the conscience can become ‘ravenous,’ as Cromwell, bent on destroying Thomas More, said in Bolt, A Man For All Seasons (1960), p. 120. The First Amendment mirrors many episodes where men, harried and harassed by government, sought refuge in their conscience, as these lines of Thomas More show: ‘MORE: And when we stand before God, and you are sent to Paradise for doing according to your conscience, *575 and I am damned for not doing according to mine, will you come with me, for fellowship? ‘CRANMER: So those of us whose names are there are damned, Sir Thomas? ‘MORE: I don't know, Your Grace. I have no window to look into another man's conscience. I condemn no one. ‘CRANMER: Then the matter is capable of question? ‘MORE: Certainly. ‘CRANMER: But that you owe obedience to your King is not capable of question. So weigh a doubt against a certainty—and sign. ‘MORE: Some men think the Earth is round, others think it flat; it is a matter capable of question. But if it is flat, will the King's command make it round? And if it is round, will the King's command flatten it? No, I will not sign.’ Id., pp. 132—133. DOUGLAS THEN WROTE: Where government is the Big Brother,11 privacy gives way to surveillance. **909 But our commitment is otherwise. *576 By the First Amendment we have staked our security on freedom to promote a multiplicity of ideas, to associate at will with kindred spirits, and to defy governmental intrusion into these precincts" Gibson v. Florida Legislative Investigation Comm., 372 U.S. 539, 574-76, 83 S. Ct. 889, 908-09, 9 L. Ed. 2d 929 (1963) Mr. Justice DOUGLAS, concurring. I write: Happy Memorial Day to all -- God please bless our fallen who lived and died to preserve constitutional governance in our wonderful series of Republics. And God open the eyes of those government officials who denounce the constitutions of these Republics by arbitrary actions arising out capricious motives.

  3. From back in the day before secularism got a stranglehold on Hoosier jurists comes this great excerpt via Indiana federal court judge Allan Sharp, dedicated to those many Indiana government attorneys (with whom I have dealt) who count the law as a mere tool, an optional tool that is not to be used when political correctness compels a more acceptable result than merely following the path that the law directs: ALLEN SHARP, District Judge. I. In a scene following a visit by Henry VIII to the home of Sir Thomas More, playwriter Robert Bolt puts the following words into the mouths of his characters: Margaret: Father, that man's bad. MORE: There is no law against that. ROPER: There is! God's law! MORE: Then God can arrest him. ROPER: Sophistication upon sophistication! MORE: No, sheer simplicity. The law, Roper, the law. I know what's legal not what's right. And I'll stick to what's legal. ROPER: Then you set man's law above God's! MORE: No, far below; but let me draw your attention to a fact I'm not God. The currents and eddies of right and wrong, which you find such plain sailing, I can't navigate. I'm no voyager. But in the thickets of law, oh, there I'm a forester. I doubt if there's a man alive who could follow me there, thank God... ALICE: (Exasperated, pointing after Rich) While you talk, he's gone! MORE: And go he should, if he was the Devil himself, until he broke the law! ROPER: So now you'd give the Devil benefit of law! MORE: Yes. What would you do? Cut a great road through the law to get after the Devil? ROPER: I'd cut down every law in England to do that! MORE: (Roused and excited) Oh? (Advances on Roper) And when the last law was down, and the Devil turned round on you where would you hide, Roper, the laws being flat? (He leaves *1257 him) This country's planted thick with laws from coast to coast man's laws, not God's and if you cut them down and you're just the man to do it d'you really think you would stand upright in the winds that would blow then? (Quietly) Yes, I'd give the Devil benefit of law, for my own safety's sake. ROPER: I have long suspected this; this is the golden calf; the law's your god. MORE: (Wearily) Oh, Roper, you're a fool, God's my god... (Rather bitterly) But I find him rather too (Very bitterly) subtle... I don't know where he is nor what he wants. ROPER: My God wants service, to the end and unremitting; nothing else! MORE: (Dryly) Are you sure that's God! He sounds like Moloch. But indeed it may be God And whoever hunts for me, Roper, God or Devil, will find me hiding in the thickets of the law! And I'll hide my daughter with me! Not hoist her up the mainmast of your seagoing principles! They put about too nimbly! (Exit More. They all look after him). Pgs. 65-67, A MAN FOR ALL SEASONS A Play in Two Acts, Robert Bolt, Random House, New York, 1960. Linley E. Pearson, Atty. Gen. of Indiana, Indianapolis, for defendants. Childs v. Duckworth, 509 F. Supp. 1254, 1256 (N.D. Ind. 1981) aff'd, 705 F.2d 915 (7th Cir. 1983)

  4. "Meanwhile small- and mid-size firms are getting squeezed and likely will not survive unless they become a boutique firm." I've been a business attorney in small, and now mid-size firm for over 30 years, and for over 30 years legal consultants have been preaching this exact same mantra of impending doom for small and mid-sized firms -- verbatim. This claim apparently helps them gin up merger opportunities from smaller firms who become convinced that they need to become larger overnight. The claim that large corporations are interested in cost-saving and efficiency has likewise been preached for decades, and is likewise bunk. If large corporations had any real interest in saving money they wouldn't use large law firms whose rates are substantially higher than those of high-quality mid-sized firms.

  5. The family is the foundation of all human government. That is the Grand Design. Modern governments throw off this Design and make bureaucratic war against the family, as does Hollywood and cultural elitists such as third wave feminists. Since WWII we have been on a ship of fools that way, with both the elite and government and their social engineering hacks relentlessly attacking the very foundation of social order. And their success? See it in the streets of Fergusson, on the food stamp doles (mostly broken families)and in the above article. Reject the Grand Design for true social function, enter the Glorious State to manage social dysfunction. Our Brave New World will be a prison camp, and we will welcome it as the only way to manage given the anarchy without it.

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