U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 21888 / March 16, 2011
Securities and Exchange Commission v. Timothy S. Durham, et al., Civil Action No. 1:11-CV-0370-JMS-MJD (S.D. Ind.)
SEC CHARGES THREE EXECUTIVES WITH CONDUCTING $230 MILLION INVESTMENT SCHEME AT OHIO-BASED COMPANY
The Securities and Exchange Commission announced that, on March 16, 2011, it filed a civil action in the United States District Court for the Southern District of Indiana, charging three senior executives at Akron, Ohio-based Fair Finance Company ("Fair Finance") with orchestrating a $230 million fraudulent scheme involving at least 5,200 investors â" many of them elderly.
The Commission's complaint alleges that after purchasing Fair Finance Company, chief executive officer Timothy S. Durham, chairman James F. Cochran and chief financial officer Rick D. Snow, deceived investors while selling them interest-bearing certificates. Fair Finance had previously operated for decades as a privately-held consumer finance company. But under the guise of loans, Durham and Cochran schemed to divert investor proceeds to themselves and others, as well as struggling and unprofitable entities that they controlled. Durham and Cochran further misused investor funds to buy classic cars and other luxury items to enhance their own lavish lifestyles.
In a parallel criminal proceeding the U.S. Department of Justice and the U.S. Attorney's Office for the Southern District of Indiana unsealed criminal charges against Durham, Cochran and Snow for the same alleged misconduct.
As alleged in the complaint, Fair Finance historically raised funds by selling interest-bearing certificates to investors and using the proceeds to purchase and service discounted consumer finance contracts. Following the 2002 purchase, Durham and Cochran funneled millions of dollars to themselves and their related companies. By November 2009, Durham, Cochran and their related businesses owed Fair Finance more than $200 million, which accounted for approximately 90 percent of Fair Finance's total loan portfolio.
The Commission alleges that Durham and Cochran knew that neither they nor their related companies had the earnings, collateral or other resources to ensure repayment on the purported loans. As CFO, Snow knew or was reckless in not knowing that neither Durham and Cochran nor their entities could repay the funds they took from Fair Finance. Nonetheless, they continued to raise hundreds of millions of dollars from investors by using false and misleading financial statements and other information contained in the offering circulars to deceive investors about Fair Finance's true financial condition. Ultimately, Durham, Cochran and their related companies never repaid these loans, and they used new investor proceeds to repay earlier investors in the nature of a Ponzi scheme.
The Commission further alleges that Durham and Cochran also distributed large amounts of money to family members and friends, and misused investor funds to afford mortgages for multiple homes, a $3 million private jet, a $6 million yacht, and classic and exotic cars worth more than $7 million. They also diverted investor money to cover hundreds of thousands of dollars in gambling and travel expenses, credit card bills, and country club dues, and to pay for elaborate parties and other forms of entertainment.
The Commission's complaint charges Durham, Cochran and Snow with violating Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The Commission seeks permanent injunctions, disgorgement of ill-gotten gains plus prejudgment interest, penalties and officer and director bars against each of the defendants.
The Commission acknowledges and appreciates the assistance of the U.S. Attorney's Office for the Southern District of Indiana, the U.S. Department of Justice, Fraud Section, the Federal Bureau of Investigation and the Ohio Division of Securities.