Tim Durham's House Of Cards

Many Indianapolis observers have wondered just how entrepreneur Timothy Durham has been able to acquire so much wealth and lead the life of a Hollywood celebrity. People sometimes compare his business empire to the house of cards former Conseco CEO Steve Hilbert built that eventually came crashing down. The IBJ's Greg Andrews takes a probing look at Durham's business empire and, not surprisingly, it raises troubling questions for investors that suggests it's built on a house of cards.

Most people have probably never heard of Fair Finance Co. It's a Ohio consumer finance company Durham bought seven years ago that pays interest to investors of about 9%. Andrew's research has discovered that Durham has been operating the company like a personal bank, loaning himself and his business partners $168 million, or 70% of the company's assets. The interest rates offered by the company easily outpace the low rates offered by commercial banks. The securities issued by Fair, however, carry no government guarantees. The size of the company's so-called investment certificates has grown to $197 million according to Andrews, five times the amount the company had when Durham acquired the company along with Jim Cochran.

Andrews spoke to a securities expert who read the circulars that accompany the issuance of the companies' investment certificates and he couldn't believe they had not captured the attention of Ohio securities regulators. “I am incredulous that Ohio continues to register these securities,” said James Klimek, a former chief counsel to Indiana’s securities commissioner. The lack of audited financial statements, confusing financial information and troubling insider loans were red flags raised by Klimek.

Durham would not agree to an interview with Andrews, citing past negative reporting on his business activities by the IBJ. An Ohio securities official told Andrews the fact that the securities were registered in that state didn't mean the state had passed on their merits. A state law, however, allows Ohio officials to insist on repayment of insider loans within 6 months, but it hadn't enforced that requirement with Fair. The company has loaned $44 million to DC Investments, which is owned by Durham and Cochran, and it loaned another $29 million to Durham's Indianapolis-based Obsidian Enterprise, Inc. and related entities. One of the founding members of Obsidian is Brian Williams, an upstart seeking the Democratic nomination for mayor of Indianapolis in 2011.

Andrews discusses Durham's 30,000 square foot 8-bedroom home on Geist and the lavish parties he is known to throw there. Politicians of all stripes have used Durham for political fundraising. He gave about $150,000 to Marion Co. Prosecutor Carl Brizzi's last re-election campaign. Brizzi reportedly lived in Durham's home for a period recently when he was going through his divorce. "My decorator can do a lot with an unlimited budget,” Durham said during a CNBC show profiling his home and his success.

According to Andrews' story, investors have started losing faith in Durham. The stock value of Obsidian dropped from $12 to $1.85 while it was still a publicly-traded company. In litigation with some of Obsidian's investors, Durham has been accused of shift[ing] assets, acquir[ing] and dispos[ing] of assets, and hid[ing] assets." "All the shifts, acquisitions and concealing have been done to Durham’s financial benefit and the detriment of the plaintiffs,” a lawsuit reads. Durham eventually entered into a settlement agreement with the investors according to Andrews. He outlines a number of other lawsuits Durham has been entangled in.

Andrews sees a very risky and uncertain financial future for Fair, noting recent losses and the staggering amount of debt it carries. The company's net worth is only $5.5 million presently. The insider loans Durham made to himself will come due soon. Whether those loans are repaid will say a lot about the company's and Durham's futures.