Three Former Executives Convicted for Roles in $200 Million Fraud Scheme Involving Fair Financial Company Investors

To contact us Click HERE

WASHINGTON—Three former executives ofFair Financial Company, an Ohio financial services business, were found guiltyfor their roles in a scheme to defraud approximately 5,000 investors of morethan $200 million, Assistant Attorney General Lanny A. Breuer of the JusticeDepartment’s Criminal Division; Joseph H. Hogsett, U.S. Attorney for theSouthern District of Indiana; and Special Agent in Charge Robert Holley of theFBI in Indiana announced today.
Following an eight-day trial, a federaljury in the Southern District of Indiana returned its verdict late yesterday.Timothy S. Durham, 49, the former chief executive officer of Fair, wasconvicted of one count of conspiracy to commit wire and securities fraud, 10counts 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 ofconspiracy to commit wire and securities fraud, one count of securities fraud,and six counts of wire fraud. Rick D. Snow, 48, the former chief financialofficer of Fair, was convicted of one count of conspiracy to commit wire andsecurities fraud, one count of securities fraud, and three counts of wirefraud.
“Mr. Durham and his co-conspirators usedlies and deceit as their business model,” said Assistant Attorney GeneralBreuer. “They duped investors into thinking they were running a legitimatefinancial services company and misled regulators and others about the health oftheir failing firm. But all along, they were lining their pockets with otherpeople’s money. The jury held them accountable for their crimes, and they eachnow face the prospect of significant prison time.”
“No matter who you are, no matter howmuch money you have, no matter how powerful your friends are, no one is abovethe law,” U.S. Attorney Hogsett said. “The office of the United States Attorneywill not stand idly by to allow a culture of corruption to exist in thiscommunity, this state, or this country. The decision made in this courtroomsends a powerful warning that if you sacrifice the truth in the name of greed,if you steal from another’s American dream to try to make your own, you will becaught.”
“This verdict represents a victory inthe pursuit of justice,” said FBI Special Agent in Charge Holley. “I would liketo commend the hard work and dedication of the prosecution team and the FBIinvestigative team; however, we must remember that the victims of this fraudare still suffering. I would also like to thank Indiana State PoliceSuperintendent Paul Whitesell for the contributions of his task force officerin this investigation.”
Durham and Cochran purchased Fair, whoseheadquarters were in Akron, Ohio, in 2002. According to the evidence presentedat trial, between approximately February 2005 through the end of November 2009,Durham, Cochran, and Snow executed a scheme to defraud Fair’s investors bymaking and causing others to make false and misleading statements about Fair’sfinancial condition and about the manner in which they were using Fair investormoney. The evidence also established that Durham, Cochran, and Snow executedthe scheme to enrich themselves, to obtain millions of dollars of investors’funds through false representations and promises, and to conceal from theinvesting public Fair’s true financial condition and the manner in which Fairwas using investor money.
When Durham and Cochran purchased Fairin 2002, Fair reported debts to investors from the sale of investmentcertificates of approximately $37 million and income producing assets in theform of finance receivables of approximately $48 million. By November 2009,after Durham and Cochran had owned the company for seven years, Fair’s debts toinvestors from the sale of investment certificates had grown to more than $200million, while Fair’s income producing assets consisted only of the loans toDurham and Cochran, their associates and the businesses they owned orcontrolled, which they claimed were worth approximately $240 million, andfinance 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 thepurpose of purchasing finance receivables, Durham and Cochran caused Fair toextend loans to themselves, their associates, and businesses they owned orcontrolled, which caused a steady and substantial deterioration in Fair’sfinancial condition.
Durham, Cochran and Snow terminatedFair’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 havesufficient collateral. After firing the accountants, the defendants neverreleased audited financial statements for 2005 and never obtained or releasedaudited financial statements for 2006 through September 2009. With independentaccountants no longer auditing Fair’s financial statements, the defendants wereable to conceal from investors Fair’s true financial condition.
The evidence presented at trialestablished that Durham, Cochran, and Snow falsely represented, in registrationdocuments and offering circulars submitted to the State of Ohio Division ofSecurities and in offering circulars distributed to investors, that the loanson Fair’s books were assets that could support Fair’s sale of investmentcertificates. The defendants knew that in reality, the loans were worthless orgrossly overvalued; producing little or no cash proceeds; supported byinsufficient or non-existent collateral to assure repayment; and in partadvances, salaries, bonuses, and lines of credit for Durham and Cochran’spersonal expenses.
The defendants engaged in a variety ofother fraudulent activities to conceal from the Division of Securities and frominvestors Fair’s true financial health and cash flow problems, including makingfalse and misleading statements to concerned investors who either had notreceived principal or interest payments on their certificates from Fair or whowere worried about Fair’s financial health and directing employees of Fair notto pay investors who were owed interest or principal payments on theircertificates. Even though Fair’s financial condition had deteriorated and Fairwas experiencing severe cash flow problems, Durham and Cochran continued tofunnel Fair investor money to themselves for their personal expenses; to theirfamily, friends, and acquaintances; and to the struggling businesses that theyowned or controlled.
This case was prosecuted by AssistantU.S. Attorneys Winfield D. Ong and Nicholas E. Surmacz of the Southern Districtof Indiana, Trial Attorney Henry P. Van Dyck, and Senior Deputy Chief forLitigation Kathleen McGovern of the Fraud Section in the Justice Department’sCriminal Division. The investigation was led by the FBI in Indianapolis.
Durham, Cochran, and Snow each face amaximum of five years in prison for the conspiracy count, 20 years in prisonfor each wire fraud count, and 20 years in prison for the securities fraudcount. Additionally, each defendant could be fined $250,000 for each count ofconviction.
This prosecution is part of effortsunderway by President Barack Obama’s Financial Fraud Enforcement Task Force.President Obama established the interagency Financial Fraud Enforcement TaskForce to wage an aggressive, coordinated, and proactive effort to investigateand prosecute financial crimes. The task force includes representatives from abroad range of federal agencies, regulatory authorities, inspectors general andstate, and local law enforcement who, working together, bring to bear apowerful array of criminal and civil enforcement resources. The task force isworking to improve efforts across the federal executive branch and, with stateand 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 recoverproceeds for victims of financial crimes. For more information about the taskforce visit: www.stopfraud.gov.