Durham Watch

We're coming up on the anniversary of the date FBI agents descended on the business offices of Tim Durham's Fair Finance Company in Ohio and his Obsidian Enterprises office atop Indianapolis' Chase Tower. Law enforcement officers have remained quiet as an investor-initiated involuntary bankruptcy proceeding in Ohio has set about to account for nearly $200 million innocent small-time investors in rural Ohio invested in a company that promised interest rate returns of 9% on certificates of investment they purchased under Ohio's securities law. The U.S. Attorney's Office first initiated a civil asset forfeiture action against Durham's assets here in Indianapolis before abruptly withdrawing the case days later with little explanation. Durham's interest in his palatial Geist mansion and a collection of expensive cars and artwork have been turned over to the bankruptcy trustee; however, outstanding debts and attorneys fees will likely consume what little money is recovered.

So what's next? One source says an Ohio official close to the investigation anticipates that seven to eight individuals will be indicted before Christmas. Pardon me if I sound a little skeptical, but a similar rumor earlier this year suggested indictments would be forthcoming by the 4th of July. Suffice it to say that government investigators have offered little solace to the countless number of small fortunes of mostly middle class Amish and Mennonite families wiped out because of one man's greed and determination to prove to people he would become the richest man in the world.

During a recent interview with WTHR News' Anne Marie Tiernon, Durham professed his complete innocence. He confidently predicted he would not be charged and suggested the entire ordeal had just been a bad mistake by the FBI, which he believed was inadvertent. One of his attorneys, Gary Sallee, suggested a former business associate of Durham's, Tim Porter, a British citizen, had a hand in his client's woes. Sallee accused Porter of trying to extort money from Durham a short time before the raid occurred and when he wouldn't pay up, Porter may have gone to law enforcement with a tail of fraud and deceit. Porter denied attempting to extort money from Durham; rather, he only asked him to pay money he thought Durham owed him in a car-related venture. He admitted talking to federal investigators but he told WTHR he would have talked to them regardless of whether Durham paid the money he demanded from him. A number of observers were extremely disappointed by the absence of any tough questions by Tiernon, who seemed totally sympathetic to his financial plight. It must really be difficult having to share that palatial home in the Hollywood Hills overlooking Sunset Drive with rapper Ludacris, while the family of his porn star girlfriend occupies his other L.A. mansion.

There may be one silver lining to Tiernon's interview with Durham. Perhaps her non-threatening approach lured him to let his guard down. One observer closely watching the Durham scandal noted Durham's claim that his parents also lost money in the failure of Fair Finance. Durham's parents reside in Seymour where his father is a dentist. His father abruptly closed his dental practice recently without notifying his patients. His mother, who is estranged from his father, attributed it to just another example of his father's strange behavior. Her son, Timothy, she assured us is a perfect Christian man and blamed others' jealousy of his financial success on the negative perceptions. Of course it had nothing to do with his personal vanity. If Durham's parents lost money in Fair Finance as he suggested, that could pose a problem. Fair Finance was only authorized to issue certificates of investment to Ohio residents and in denominations not to exceed $200,000 in order to qualify for the safe harbor registration under Ohio securities laws. In a new offering for which Durham had sought approval from Ohio securities regulators on behalf of Fair Finance at the time of last year's FBI raid, the company suggested it reserved the right to issue securities in excess of the $200,000 individual limit, which prompted questions from Ohio regulators. Fair Finance withdrew that securities offering when it became apparent the company would be unable to get approval for issuing additional certificates of investment.

Durham blames the FBI raid and the inability of Fair Finance to issue additional securities on the failure of his business empire. The reality was that Durham had plundered earlier investments in the company through loans to his other business activities, virtually all of which were losing money. The likelihood of those loans being repaid was already in doubt before the FBI raided his businesses. Fair Finance lacked the capital to pay back investors as their certificates of investment expired, let alone continued interest payments on those investments. The company's only hope was to dupe more innocent investors to purchase another round of certificates of investment.

If charges are brought against Durham and other key figures, where are those charges likely to be brought? One observer notes recent filings by the bankruptcy trustee for Fair Finance have been copied to the U.S. Attorney's Office in Cleveland. It would make sense that is where the charges would be brought because of a mix of federal and Ohio laws that would be the subject of any criminal indictments.

Those of you who have read this blog know how much I distust the U.S. Attorney's Office in Indianapolis, which has historically been run by politically-connected appointees who have a tendency to protect people like Durham who have close ties to the political powerhouses in the state. Not surprisingly, I was quite disappointed when Sen. Evan Bayh recently named his close political ally, former Indiana Secretary of State Joe Hogsett, to fill the vacancy that had not been filled since Bush appointee Susan Brooks vacated the office in 2007. After reading Dick Cady's new book from his experience as a former Pulitzer-prize winning reporter for the Indianapolis Star, "Deadline: Indianapolis," my suspicions about Hogsett were only confirmed.

Cady's book recounts the stock fraud case involving Ski World in Brown County, a failed ski resort in which many innocent investors lost their money, and Hogsett's role in that investigation as Secretary of State, which administers a securities division that regulates private placement offerings not subject to federal securities regulations. Cady tells about getting a memo from one of the business reporters at the Star:

"Well, the message said, "attorney Rich Bell, who represents losing investors, told me off the record some very interesting stuff about Bayh and [Bayh's Chief of Staff] Bill Moreau. Bayh was secretary of state and head of the state securities division when the suits started six years ago, but he refused to investigate. You see, his close friends at Lewis, Bowman, St. Clair & Wagner were the attorneys who screwed up the prospectus for Ski World. Lewis, Bowman has since paid a hefty six-figure settlement. Along the way, Bell said Moreau came to him and asked him to drop the suit. Bell respectfully declined." . . . .

Bell was a Democrat who ran unsuccessfully for state auditor in 1986, when Bayh ran for secretary of state. Bell's law firm, Cohen & Malad, was only a block from the Star. On the phone, Bell talked without prompting. He just didn't want to be quoted in any story. I agreed.

The whole thing was pretty disgusting, he said. They had filed their lawsuit in 1987 and took a securities complaint to Bayh in the secretary of state's office. Bayh promised to do everything he could. Beyond some fact-checking, nothing was done. When Bayh's campaign manager, Joe Hogsett, succeeded Bayh, again no action was taken. "We're not going to do a goddamn thing," Bell recalled Hogsett telling him.

Why? Because Ed Lewis was up to his ears in the lawsuit, and Lewis was Bayh's political godfather.

"Did something happen with Bill Moreau," I asked.

"Moreau called me and asked me to dismiss the suit. 'The governor would like you to dismiss this lawsuit,' those were the words he used." I told him in no uncertain terms he was out of line."

Bell said he and his partners got nothing but heat from other Democrats. Moreau had a small amount of stock in Ski World, Bell added. He thought Bayh, at a minimum, had "shirked his duty."

As Cady began digging further into the story, he learned of the lawsuits' allegations of a "fraudulent racketeering enterprise." He learned the initial stock offering had been approved while Republican Ed Simcox had been secretary of state. Although Simcox was less than honest with Cady during his interview of him concerning the offering and his ties to Lewis, Cady eventually learned Lewis had helped raise a substantial amount of money for Simcox to launch his first run for secretary of state. Further stock sales were allowed after Bayh took over the office and named Ann Nobles as his securities commissioner. The persons behind Ski World had enlisted Lewis' legal assistance because of his pull in the secretary of state's office Cady writes. Bell also told Cady an $80,000 bribe had been paid to get a liquor license for Ski World. What's really funny is the grand opening Bell described to Cady:

During the grand opening, Bell said, Lewis' name had been carved in an ice sculpture. He said I would find that Simcox and Rex Early, now the state Republican chairman, had attended the opening festivities.

The more Cady researched the Ski World story, the more interesting the connections became. "But Lewis was a big part of [Bayh's inner circle]," Mary Beth Balika, the Star's State House reporter told Cady. "Sort of a patron. But I didn't know Lewis was a good friend of Rex (Early)," she continued. "I find that amazing. Politics here is such a small world, an endless circle of relationships that reminds me of those Russian Katinka dolls, one outside the next." He tells how Bayh's legal counsel at the time, David Hamilton, had represented Ski World while he was a partner at Barnes & Thornburg. He wondered what Hamilton knew about Lewis given his direct access to Gov. Bayh in his office on a regular basis and Lewis' role in getting persons appointed to key positions in state government. As Cady got closer to the truth, Bell suddenly stopped communicating with him and even wrote a letter denying he had ever told Cady he had been told by Moreau to drop the lawsuit. Hogsett told him there was no action his office could have taken in that matter. Yeah, right. This is precisely why I have no confidence in Hogsett aggressively pursuing any cases out of the Indianapolis office that touches anybody of importance in either the Republican or Democratic Parties.