Thursday, June 21, 2012
Three Former Executives Convicted for Roles in $200 Million Fraud Scheme Involving Fair Financial Company Investors
Three former executives of Fair Financial Company, an Ohio financial services business, were found guilty for their roles in a scheme to defraud approximately 5,000 investors of more than $200 million, Assistant Attorney General Lanny A. Breuer of the Justice Department’s Criminal Division; Joseph H. Hogsett, U.S. Attorney for the Southern District of Indiana; and Special Agent in Charge Robert Holley of the FBI in Indiana announced today.
Following an eight-day trial, a federal jury in the Southern District of Indiana returned its verdict late yesterday. Timothy S. Durham, 49, the former chief executive officer of Fair, was convicted of one count of conspiracy to commit wire and securities fraud, 10 counts of wire fraud and one count of securities fraud. James F. Cochran, 56, the former chairman of the board of Fair, was convicted of one count of conspiracy to commit wire and securities fraud, one count of securities fraud and six counts of wire fraud. Rick D. Snow, 48, the former chief financial officer of Fair, was convicted of one count of conspiracy to commit wire and securities fraud, one count of securities fraud and three counts of wire fraud.
“Mr. Durham and his co-conspirators used lies and deceit as their business model,” said Assistant Attorney General Breuer. “They duped investors into thinking they were running a legitimate financial services company and misled regulators and others about the health of their failing firm. But all along, they were lining their pockets with other people’s money. The jury held them accountable for their crimes, and they each now face the prospect of significant prison time.”
“No matter who you are, no matter how much money you have, no matter how powerful your friends are, no one is above the law,” U.S. Attorney Hogsett said. “The Office of the United States Attorney will not stand idly by and allow a culture of corruption to exist in this community, this state, or this country. The decision made in this courtroom sends a powerful warning that if you sacrifice the truth in the name of greed, if you steal from another’s American dream to try and make your own, you will be caught.”
“This verdict represents a victory in the pursuit of justice,” said FBI Special Agent in Charge Holley. “I would like to commend the hard work and dedication of the prosecution team and the FBI investigative team, however, we must remember that the victims of this fraud are still suffering. I would also like to thank Indiana State Police Superintendent Paul Whitesell for the contributions of his task force officer in this investigation.”
Durham and Cochran purchased Fair, whose headquarters were in Akron, Ohio, in 2002. According to the evidence presented at trial, between approximately February 2005 through the end of November 2009, Durham, Cochran and Snow executed a scheme to defraud Fair’s investors by making and causing others to make false and misleading statements about Fair’s financial condition and about the manner in which they were using Fair investor money. The evidence also established that Durham, Cochran and Snow executed the scheme to enrich themselves, to obtain millions of dollars of investors’ funds through false representations and promises, and to conceal from the investing public Fair’s true financial condition and the manner in which Fair was using investor money.
When Durham and Cochran purchased Fair in 2002, Fair reported debts to investors from the sale of investment certificates of approximately $37 million and income producing assets in the form of finance receivables of approximately $48 million. By November 2009, after Durham and Cochran had owned the company for seven years, Fair’s debts to investors from the sale of investment certificates had grown to more than $200 million, while Fair’s income producing assets consisted only of the loans to Durham and Cochran, their associates and the businesses they owned or controlled, which they claimed were worth approximately $240 million, and finance receivables of approximately $24 million.
After Durham and Cochran acquired Fair, they changed the manner in which the company operated and used its funds. Rather than using the funds Fair raised from investors primarily for the purpose of purchasing finance receivables, Durham and Cochran caused Fair to extend loans to themselves, their associates and businesses they owned or controlled, which caused a steady and substantial deterioration in Fair’s financial condition.
Durham, Cochran and Snow terminated Fair’s independent accountants who, at various points during 2005 and 2006, told the defendants that many of Fair’s loans were impaired or did not have sufficient collateral. After firing the accountants, the defendants never released audited financial statements for 2005, and never obtained or released audited financial statements for 2006 through September 2009. With independent accountants no longer auditing Fair’s financial statements, the defendants were able to conceal from investors Fair’s true financial condition.
The evidence presented at trial established that Durham, Cochran and Snow falsely represented, in registration documents and offering circulars submitted to the State of Ohio Division of Securities and in offering circulars distributed to investors, that the loans on Fair’s books were assets that could support Fair’s sale of investment certificates. The defendants knew that in reality, the loans were worthless or grossly overvalued; producing little or no cash proceeds; supported by insufficient or non-existent collateral to assure repayment; and in part advances, salaries, bonuses and lines of credit for Durham and Cochran’s personal expenses.
The defendants engaged in a variety of other fraudulent activities to conceal from the Division of Securities and from investors Fair’s true financial health and cash flow problems, including making false and misleading statements to concerned investors who either had not received principal or interest payments on their certificates from Fair or who were worried about Fair’s financial health, and directing employees of Fair not to pay investors who were owed interest or principal payments on their certificates. Even though Fair’s financial condition had deteriorated and Fair was experiencing severe cash flow problems, Durham and Cochran continued to funnel Fair investor money to themselves for their personal expenses, to their family, friends and acquaintances, and to the struggling businesses that they owned or controlled.
This case was prosecuted by Assistant U.S. Attorneys Winfield D. Ong and NicholasE. Surmacz of the Southern District of Indiana, Trial Attorney Henry P. Van Dyck and Senior Deputy Chief for Litigation Kathleen McGovern of the Fraud Section in the Justice Department’s Criminal Division. The investigation was led by the FBI in Indianapolis.
Durham, Cochran and Snow each face a maximum of five years in prison for the conspiracy count, 20 years in prison for each wire fraud count and 20 years in prison for the securities fraud count. Additionally, each defendant could be fined $250,000 for each count of conviction.
This prosecution is part of efforts underway by President Barack Obama’s Financial Fraud Enforcement Task Force. President Obama established the interagency Financial Fraud Enforcement Task Force to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. The task force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources. The task force is working to improve efforts across the federal executive branch, and with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets, and recover proceeds for victims of financial crimes.
