Timothy S Durham, former chief executive of Ohio-based Fair Finance, has been sentenced to 50 years in prison for orchestrating a USD200m scheme that defrauded more than 5,000 investors over almost five years.
Judge Jane Magnus-Stinson of the US District Court for the Southern District of Indiana also sentenced James F Cochran, Fair Finance’s board chairman, to 25 years in prison, and Rick D Snow, the firm’s chief financial officer, to a 10-year prison term.
According to US Attorney Joseph Hogsett in Indianapolis, Durham’s sentence is the longest white-collar fraud sentence in Indiana history.
On 20 June, a federal jury in Indiana convicted Durham, age 50, of securities fraud, conspiracy and 10 counts of wire fraud. Cochran, age 57, and Snow, age 49, were also found guilty on conspiracy and securities fraud charges for their roles in the Fair Finance scheme.
On 16 March 2011, the Securities and Exchange Commission filed a civil action against Durham, Cochran and Snow based on the same conduct alleged in the criminal case. The Commission’s action has been stayed pending the outcome of the criminal case.
The Commission’s complaint alleged that Fair Finance had for decades legitimately raised funds by selling interest-bearing certificates to investors and using the proceeds to purchase and service discounted consumer finance contracts. However, after purchasing Fair Finance in 2002, Durham, Cochran and Snow began to deceive investors. Under the guise of loans, Durham and Cochran schemed to divert investor proceeds to themselves and others, including to entities that they controlled.
The Commission alleged that Durham and Cochran knew that neither they nor their related companies had the earnings, collateral or other resources to ensure repayment on the purported loans. As CFO, Snow knew or was reckless in not knowing that neither Durham and Cochran nor their entities could repay the funds they took from Fair Finance.
The complaint further alleged that, by November 2009, Durham, Cochran and their related businesses owed Fair Finance more than USD200m, which accounted for approximately 90 per cent of Fair Finance’s total loan portfolio. Durham and Cochran also gave large amounts of money to family members and friends, and misused investor funds to afford mortgages for multiple homes, a USD3m private jet, a USD6m yacht, and classic and exotic cars worth more than USD7m. They also diverted investor money to cover hundreds of thousands of dollars in gambling and travel expenses, credit card bills, and country club dues, and to pay for elaborate parties and other forms of entertainment.