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Monthly Archives: November 2009

Tim Durham Update: New Twist In Fed’s Efforts To Seize Assets

The federal government withdrew its request to seize the assets of Indianapolis financier Tim Durham on Nov. 30. According to the Indianapolis Business Journal, the U.S. Attorney’s Office based its decision on assurances that Durham’s assets were not being dissipated. There’s no word on who provided those assurances.

The previous lawsuit had been filed Nov. 24, and alleged that Durham, his associates and his companies misled investors into buying investment certificates in which they believed their money would be invested in low-risk, high-yield short-term consumer debt.

“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 (invested) responsibly,” the complaint said.

On the same day the now-dismissed civil lawsuit was filed, the FBI raided two of Durham’s companies – Fair Finance Co. and Indianapolis-based Obsidian Enterprises.

The Akron Beacon Journal reported on Nov. 30 that the headquarters of Fair Finance remained closed and empty today as a steady stream of worried customers drove in to try to check on their investments.

Fannie Mae, Freddie Mac Preferred Stock Losses

Thousands of institutional and retail investors of Fannie Mae (FNM) and Freddie Mac (FRE) preferred stocks have witnessed the collapse of their investment portfolios following the government’s takeover of the two mortgage giants on Sept. 6, 2008. Many of these investors initially purchased huge concentrations of Fannie Mae and Freddie Mac preferred stock based on misleading information from their brokerages or financial advisers.

In some instances, investors were never told about the potential risks associated with investments in Fannie Mae or Freddie Mac. Instead, the stocks were described as conservative – investments designed to provide investors with consistent income via above-average dividends. After all, Fannie Mae and Freddie Mae stood as the nation’s mortgage giants. They were too big to fail. And, as so-called government-sponsored entities, investments in Fannie Mae and Freddie Mac were guaranteed or implicitly guaranteed by the federal government. At least that’s what many investors believed.

Instead, on Sept. 6, 2008, the federal government seized control of the too-big-to-fail lending companies, placing Fannie Mae and Freddie Mac into a government conservatorship under the Federal Housing Finance Agency (FHFA). In turn, the government’s bail-out wiped out Fannie Mae and Freddie Mac’s common and preferred stockholders. All dividends for the two companies were eliminated.

Several months prior to the near-collapse of Fannie Mae and Freddie Mac, on May 13, 2008, Fannie Mae announced plans to raise some $6 billion in capital by issuing an offering of 8.25% Non-Cumulative Preferred Stock, Series T. In reality, that amount could never sufficiently address the lender’s overall deteriorating financial health, which had nosedived as a result of mortgage-related losses, poor underwriting standards and risk management procedures. The full extent of Fannie Mae’s capital deficiencies was never disclosed to investors, however. Moreover, many investors were advised that the Fannie Mae Preferred Stock, Series T was a safe and stable investment suitable for conservative portfolios.

When the Treasury Department announced takeover plans for Fannie Mae in September 2008, the price of the Fannie Mae Series T Preferred Stock dropped dramatically, falling more than 88% from its initial offering price of $25 per share on May 13, 2008, to $3 per share on Sept. 8, 2008.

If you are an institutional investor or retail investor and were misled about your investments in Fannie Mae or Freddie Mac preferred stocks, we want to hear your story. You may have a viable claim for recovery of your investment losses by filing an individual securities arbitration claim with the Financial Industry Regulatory Authority (FINRA). Leave a message in the Comment Box below or via the Contact Us form.

Fannie Mae, Freddie Mac Preferred Stock Loss Recovery

Investment losses in Fannie Mae and Freddie Mac preferred stock have created devastating financial issues for investors throughout the country. Many of these individuals were sold shares of Fannie Mae and Freddie Mac through brokerages or financial institutions that, in turn, misrepresented the investments, telling clients that the stock was guaranteed or implicitly guaranteed by the federal government.

As we now know, those characterizations were false and misleading. Moreover, many clients never knew the dire financial problems facing the two mortgage giants. On Sept. 6, Fannie Mae and Freddie Mac were seized by the federal government and placed into conservatorship in a deal through which the Treasury Department bought senior preferred shares issued by the two companies. In turn, billions of dollars in equity for holders of Fannie Mae and Freddie Mac’s common and preferred stock were essentially wiped out.

Certain investors may have a viable claim to recover some of their investment losses in Fannie Mae and Freddie Mac preferred stocks. If you’ve suffered preferred stock losses in Fannie Mae or Freddie Mac, we want to hear your story. Leave a message in the Comment Box below or via the Contact Us form.

Columbia Strategic Cash Portfolio Fund Spells Money Woes For Some Institutional Investors

The fate of the Columbia Strategic Cash Portfolio Fund was sealed on Dec. 10, 2007, when losses on investments in mortgage and certain asset-backed securities combined with a $20 billion withdrawal from a single institutional investor forced Bank of America to shutter one of the largest U.S. short-term funds catering to institutional investors.

The Columbia Strategic Cash Portfolio Fund is run by Columbia Management, a unit of Bank of America. Described as an enhanced cash fund and a suitable substitute for money market accounts, the Columbia Strategic Cash Portfolio Fund went from $40 billion in assets to about $12 billion in a matter of months.

The reasons behind the forced liquidation of the Columbia Strategic Cash Portfolio can be traced to its exposure to risky asset-backed securities and structured investment vehicles (SIVs) tied to real-estate mortgages. Some of the SIVs associated with the fund were later downgraded by credit-ratings agencies, creating more losses for the fund.

Unlike traditional money-market funds, the Strategic Cash fund didn’t provide investors with a guarantee to maintain a $1-per-share net asset value.

At the time the Columbia Strategic Cash Portfolio was shuttered, only a few investors found themselves able to liquidate their positions. Other investors were given a pro rata share of the fund’s underlying securities in lieu of cash. And still other shareholders were told they could cash out at the fund’s current share price at a loss.

The liquidity problems associated with enhanced cash funds like the Columbia Strategic Cash Portfolio are reminiscent of those found in auction rate securities, investments once deemed as a safe haven for individual and institutional investors to park their cash. When the market for auction rate securities collapsed in February 2008, however, investors quickly discovered that their investments were far from cash-like.

And that’s exactly what many investors in the Columbia Strategic Cash Portfolio Fund have discovered. Case in point: Costco Wholesale Corporation. As reported May 16, 2008, by the Puget Sound Business Journal, Costco unsuccessfully tried to pull out of several enhanced cash funds in 2008, with $371 million that remained frozen in the Columbia fund and two similar funds. In turn, Costco was forced to report a $2.8 million write-down on investments in those funds because of the decline in their value, according to the company’s 2008 10-K filing with the Securities and Exchange Commission (SEC).

Other companies affected by the Columbia fund include Getty Images. As of March 31, 2008, Getty had $20.4 million invested in the Columbia Strategic Cash Portfolio Fund. According to the Puget Sound story, Getty reported a $400,000 loss because of the decline in the value of the fund.

Another company, SonoSite, Inc., had $8.2 million tied up in the Columbia fund as of March 31. Ultimately, the medical devices company reported $300,000 in losses from that investment.

Feds Seek Seizure Of Tim Durham’s Residences, Banking Accounts & Other Assets

Timothy Durham’s rich and famous lifestyle may have had less to do with investing prowess and more to do with his ability to allegedly defraud investors, according to court papers filed by the federal government on Nov. 24. The documents accuse Durham of committing wire fraud and seek forfeiture of Durham’s $30 million mansion, his residence in Los Angeles, a 2008 Bugatti Veyron and 18 different investment accounts.

The complaint alleges that Durham, his companies and various associates concocted a scheme to defraud investors, convincing them to buy investment certificates from Durham’s company – Fair Finance – and that their money would go toward low-risk, high yield, short term consumer debts. In turn, investors were to receive high regular interest payments on their investments.

Instead, court papers allege that the money essentially was used to carry out a Ponzi scheme, with funds “provided by victims of the scheme 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 [used] responsibly and enticing new investors into the scheme in order to fund payments to the earlier investors.”

The civil forfeiture action was filed on the same day that the FBI conducted simultaneous raids on Durham’s businesses in Indianapolis and Ohio – Obsidian Enterprises and Fair Financial (also known as Fair Finance).

The complaint of forfeiture further alleges that Durham wired $84.2 million of Fair Finance’s funds to a First Indiana bank account of Fair Holdings, the parent company of Fair Finance. Fair Holdings then wired money to 50 individuals and businesses over a five-year period, according to the complaint. Among the most significant transactions noted, approximately $20 million went to:

•$6.9 million to U.S. Rubber Reclaiming (a subsidiary of Obsidian Enterprises, owned by Durham;

•$5.3 million to Speedster, Inc. (a classic car company owned by Durham)

•$1.8 million to Danzer Industries (former parent company of Obsidian Enterprises)

•$1.4 million RM Auctions (a classic car auctioneer; as of June 2008, Durham owned 70 classic and exotic cars)

•$1 million to Champion Trailer (former subsidiary of Obsidian Enterprises)

•$804,000 to Playa Del Racing (IndyCar racing team controlled by Durham)

•$730,000 to Pyramid Coach (former subsidiary of Obsidian Enterprises)

•$690,000 to Evaco Acquisition Corp. d/b/a Superline Trailers

•$495,000 to McDonald Investments (a brokerage firm)

•$155,000 to United Expressline Trailers (a subsidiary of Obsidian Enterprises)

•$277,000 to Car Collector Magazine (a Durham-owned company)

•$30,000 to James Cochran (co-owner of Fair Financial)

•$100,000 to Tim Durham (co-owner of Fair Financial)

Disclosures Central To FBI Probe Of Tim Durham’s Fair Financial

The FBI isn’t talking, but local and national news outlets have plenty to say about simultaneous raids that took place Nov. 24 on two Tim Durham companies – Indianapolis-based Obsidian Enterprises and Fair Financial in Akron, Ohio. At both locations, federal agents hauled away numerous boxes containing banking-related information and other documents.  

The basis for the search warrants is still unknown, but many believe they stem to whether Fair Financial has the money to repay Ohio investors who purchased some $207 million in investment certificates – a question that initially sparked attention following an investigative story published in October by theIndianapolis Business Journal. 

A follow-up IBJ story dated Nov. 28 says the latest situation involving Durham has some investors becoming increasingly concerned: “Many have been purchasing or rolling over investment certificates for years, enticed by lofty interest rates. Fair has been paying as much as 9% on 24-month notes,” the article said. 

That amount – 9% – is three times what commercial banks pay on certificates of deposit with similar terms. CDs have a government guarantee – something Fair Financial investors most definitely do not.  

The IBJ story cites one Fair investor, Harley Himes, 82, who said that he and his wife live off the monthly interest payments they receive from their Fair certificates.  

“I was an investor back when the original owner owned it,” said Himes. “We didn’t have any problem with him. You kind of get used to a good thing. Then you find it is not such a good thing.” 

The original owner of Fair Financial that Himes refers to was car dealer Ray Fair, who founded the business to provide loans to customers during the Great Depression. The company, which also does business as Fair Finance, stopped making vehicle loans in 1959 and began providing second mortgages, small consumer loans, and financial investments. 

Durham bought the business from the Fair family in 2002.  

One of the key issues now facing Durham may be the offering circulars that were provided to prospective Fair Financial investors and, specifically, whether that information contained any material misrepresentations or omissions. 
 
The circulars themselves are more than 40 pages in length, difficult to understand and offer confusing information about insider loans and what constitutes as collateral for the loans. 
 
“Are you telling enough about the entities receiving insider loans, and what kind of shape they are in?” asked Mark Maddox in the IBJ article. Maddox serves as an Indianapolis securities attorney with the law firm of Maddox Hargett & Carusuo P.C., which is considering representing investors in civil litigation against Fair Financial and Tim Durham.
 

Read the entire IBJ Nov. 28 story about Durham here 

If you’ve had investment dealings with Tim Durham or Fair Financial, we want to hear your story. Leave a message in the Comment Box below or via the Contact Us form.

Tim Durham: Where There’s Smoke, There’s Fire?

Obsidian Enterprises and Fair Financial Services

Tim Durham is so rich he once stated during a CNBC interview that he often lost track of how many cars he actually owned. Durham runs Obsidian Enterprises and Fair Financial Services, which specialize in buying debt-ridden companies. On Nov. 24, Durham caught the attention of the FBI, which conducted dual raid on the Indianapolis and Akron, Ohio, offices of Obsidian and Fair Financial. 

The FBI did not give a reason for the raids or for questioning Durham in Los Angeles, but it’s believed the warrants have something to do with Fair Financial selling uninsured investment securities and allegedly being unable to repay investors nearly $200 million. The Indianapolis Business Journal published an investigative story on the subject last month.  

According to the IBJ article, Durham purchased Fair Financial in 2002, but has treated “it like a personal bank since.” Ohio securities filings show that Durham, partners and relative firms owe investors more than $168 million.  

On Nov. 25, Ohio Congressman John Boccieri issued a public statement calling for the federal government to seize the assets of Durham and Fair Financial as the FBI’s investigation proceeds. 

As reported Nov. 24 by Ohio.com, Akron resident Lou Laurich, 67, said he invested $8,000 with Fair Financial after reading ads that promised high interest rates on the company’s investment certificates.  

Fair Financial’s roots date back to 1934 when car dealer Ray Fair founded the business to provide loans to customers during the Great Depression. The company, which also does business as Fair Finance, stopped making vehicle loans in 1959 and evolved into providing second mortgages, small consumer loans, and financial investments.

The business was sold by the Fair family in 2002 to Durham. 

Meanwhile, legal questions continue to loom regarding another business where Durham has a vested interest: Los Angeles-based National Lampoon, Inc. The film company, which is best known for “Animal House” and the “Vacation” film series, has found itself in financial straits since last December, when the Securities and Exchange Commission (SEC) filed civil fraud charges against it and a grand jury indicted then-CEO Dan Laikin on charges of stock manipulation. 

Laikin pleaded guilty in September to conspiracy in exchange for prosecutors dropping a count of securities fraud. Durham, who was not implicated in the criminal case or named in the SEC’s civil lawsuit, currently serves as National Lampoon’s acting CEO. ? 

Former Tim Durham Business Partner Alleges ‘Mini Ponzi Scheme’

The FBI’s raid on Tim Durham’s businesses – Obsidian Enterprises and Fair Financial – occurred on the same day a 16-month-old securities registration that allowed Fair to sell investment certificates to investors expired. A recent story appearing in the Indianapolis Business Journal raised questions about whether Fair Financial, a consumer finance company, had the ability to repay about $200 million to investors.

The raids on Durham’s offices in downtown Indianapolis and in Akron, Ohio, resulted in agents carrying away boxes of financial information related to Fair and Obsidian Enterprises.

Durham, 47, is known as both a leveraged-buyout specialist and someone with a penchant for the good life. A former attorney at the Indianapolis law firm of Ice Miller, Durham married into the wealthy Indianapolis family of entrepreneur Beurt and Corey SerVass, marrying their daughter, Joan, in 1989. The two would later divorce.

Durham’s name made headlines in 2008, when he, along with Indianapolis businessman Daniel Laikin, invested in National Lampoon, a Los Angeles company that has made the films Animal House and the Chevy Chase Vacation movie series.

On Dec. 15, 2008, the Securities and Exchange Commission (SEC) charged National Lampoon CEO Daniel Laikin and others of engaging in fraudulent schemes to manipulate the market by generating purchases of company stock in exchange for pre-arranged cash kickbacks. Once the SEC announced its charges against Laikin, National Lampoon’s stock value quickly began to hemorrhage, plummeting about 80% in three days. It now trades for 25 cents a share.

Durham was not accused of any wrongdoing over National Lampoon. He later became the interim CEO of the company.

In late 2005, Durham bought and then sold stock in local cell-phone distributor, Brightpoint. At the time, Durham purchased 430,000 shares of Brightpoint at $1.50 per share. Shortly thereafter, he sold many of his shares for $27 a share, creating a tidy profit of some $40 million for himself, according to a January 2008 story in Indianapolis Monthy.  Brightpoint is run by Robert Laikin, the brother of Daniel Laikin, who was indicted by the SEC in 2008.

On Nov. 25, 2009, WTHR-TV interviewed a former business partner of Durham’s, Tim Porter. Porter, who owns the Great American Run Car Race, says he met Durham two years ago when the two men became business partners. They later parted ways. According to the WTHR story, Porter says Durham has defrauded Ohio investors in Fair Financial for more than $200 million.

“It’s a mini Bernard Madoff. A mini Ponzi scheme. And when you stand back and look at it from the outside in, you can see what they’re doing,” said Porter.

If you’ve had investment dealings with Tim Durham, Obsidian Enterprises or Fair Financial, we want to hear your story. Leave a message in the Comment Box below or via the Contact Us form. We can counsel you about your legal options.

Tim Durham: Embattled Financier Tied To More Scandals

Obsidian Enterprises and Fair Financial

Tim Durham had all the toys and mansions that money could buy. Now he’s got even more on his plate: FBI raids on his two companies, Obsidian Enterprises and Fair Financial, and allegations of ties to ghost employment involving two New Castle police officers.  

FBI agents raided Durham’s offices in downtown Indianapolis and in northeast Ohio on Nov. 24. So far, investigators are giving few details about the reasons behind their interest in the millionaire, but a story last month in the Indianapolis Business Journal raised questions over whether Durham’s finance company had the funds to repay Ohio investors who bought nearly $200 million in investment certificates. The story went on to say that Durham used the company to fund other business interests. 

On Nov. 25, WTHR contacted one of Durham’s former business partners, Tim Porter, who apparently is cooperating with the FBI in its investigation of Durham. According to the story, Porter met Durham in May 2007 and the two became partners. Porter even lived in Durham’s mansion on Geist Reservoir at one time. The two later had a falling out over a business dispute. According to the WTHR story, Porter claims Durham has defrauded Ohio investors in Fair Financial for more $200 million. 

“It’s a mini Bernard Madoff. A mini Ponzi scheme. And when you stand back and look at it from the outside in, you can see what they’re doing,” said Porter in the story. ? ?Tim Durham’s rise to riches has been meteoric. Profiled on CNBC in a story called The Rise of the Super Rich, Durham had a passion for fast and collectible cars. He owned more than 70 vehicles, including Rolls-Royces, Ferraris, and Dusenbergs. He also frequently traveled via his own private jet and owned a $6 million to $7 million yacht in Florida.  The late Anna Nicole Smith once stayed at Durham’s 30,000-square-foot mansion near Geist Reservoir during the Indianapolis 500. 

In addition to FBI investigations of his two companies, Durham’s name is being linked to another scandal involving ghost employment. Last week, Lt. James Heffernan and Patrolman Matthew Patterson, along with Henry County Community Correction Director Doug Sheets were arrested on preliminarily charges of ghost employment, corrupt business influence and official misconduct. 

As reported Nov. 25 by WRTV news, Heffernan and Patterson worked part time for Henry County Community Corrections, with Heffernan serving as the assistant director of the facility. Both were hired by Sheets, a retired state police detective. 

John Tompkins, who is representing Durham, also is representing Heffernan and Patterson in their case. Durham is connected to the New Castle scandal because the off-duty officers often worked at his home. 

According to the WRTV story, Patterson was seen in possession of a Hummer SUV registered in Durham’s name. Meanwhile, court documents in the case indicate that Patterson’s GPS system showed that when he was at Durham’s Geist Reservoir mansion, he claimed on his time sheet that he was checking on people regarding a house arrest. 

If you’ve had dealings with Tim Durham and Obsidian Enterprises or Fair Financial, we want to hear your story. Leave a message in the Comment Box below or via the Contact Us form. We want to counsel you about your legal options.

FBI Raids Offices Of Tim Durham, Obsidian Enterprises and Fair Financial

Indianapolis financier Timothy S. Durham, owner of Obsidian Enterprises in Indianapolis and Fair Financial in Akron, Ohio, is the target of investigation by the FBI. On Nov. 24, federal agents raided Durham’s offices in downtown Indianapolis and Ohio, taking records and information related to his two companies.

Search warrants for the raids are sealed.

Durham , 47, is known as a leveraged buy-out and turn-around specialist. Last month, a story appearing in the Indianapolis Business Journal raised questions as to whether Durham’s business, Fair Financial, could repay Ohio investors who bought nearly $200 million in investment certificates. According to the IBJ story, Fair Financial has continued to raise money from investors, offering interest rates on 24-month notes as high as 9% – an amount that is more than triple what commercial banks offers for certificates of deposit. Unlike CDs, however, Fair’s securities have no government guarantee.  Many of the securities were sold to Ohio residents, who had only modest incomes.

Durham’s story sounds eerily familiar to that of disgraced financier R. Allen Stanford. In February, U.S. marshals raided Stanford Financial’s Houston headquarters, following charges by the Securities and Exchange Commission (SEC) that the bulk of Stanford’s business was an $8 billion Ponzi scheme. Stanford allegedly orchestrated his scam by selling bogus certificates of deposit to investors and promises of high interest rates.

And just like Stanford, Durham had taste for the good life. He’s known as a collector of pricey cars and traveling on private jets and yachts. He also owns a 30,000-square-foot home near Fortville.

If you invested money with either of Timothy Durham’s companies, Obsidian Enterprises or Fair Financial, please contact our lawyers. We want to advise you on your legal options.


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