CLST Holdings (CLHI) revealed in a recent 8-K filing that it had received a subpoena from the Division of Enforcement of the Securities and Exchange Commission (SEC) in connection to financial dealings between it and Fair Finance, the Ohio-based consumer finance firm owned by Timothy Durham and the same company that is the subject of an ongoing federal probe.
According to the SEC’s subpoena, CLST Holdings must produce voluminous amounts of information relating to its portfolio transactions, including those with Fair Finance. The subpoena also seeks documents, emails, BlackBerry messages, personal and business contact lists and more pertaining to select individuals on CLST’s board of directors, including Durham, Robert Kaiser, and David Tornek, each of whom received subpoenas from the SEC. Durham is CLST’s chairman of the board.
The fact that the SEC has launched an investigation of CLST Holdings casts further questions over Durham and his business dealings. Last week, federal agents conducted simultaneous raids at two of Durham’s companies – Obsidian Enterprises and Fair Financial (also known as Fair Finance). On Nov. 24, the federal government filed a civil lawsuit against Durham and Fair Finance, alleging that Durham operated the business as a Ponzi scheme by using money from new investors to pay what it owed prior investors, thereby “lulling the earlier victims into believing that their money was being [handled] responsibly.”
The Ponzi scheme allegation is the same claim cited last week by Tim Porter, one of Durham’s former business partners.
“It’s a mini Bernard Madoff. A mini Ponzi scheme and when you stand back and look at it from the outside in, you see exactly what they’re doing,” said Tim Porter in an interview with WTHR News.
The government’s complaint against Durham was mysteriously withdrawn on Nov. 30, although the investigation is continuing.
As reported Dec. 1 by the Indianapolis Business Journal, Dallas-based CLST Holdings was at one time a wireless telecommunications business known as CellStar Corp. Approximately three years ago, the company sold off its business units to several buyers, including Plainfield-based Brightpoint, Inc. Shortly thereafter, Durham was elected to CLST’s board of directors, “in part by pledging to dissolve the company quickly and distribute remaining cash to shareholders,” according to the IBJ article.
Instead, CLST began buying consumer finance contracts, including about $3.6 million it acquired from Fair Finance, IBJ says.