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SEC Charges Three Executives With Conducting $230 Million Investment Scheme at Ohio-Based Company
FOR IMMEDIATE RELEASE
Washington, DC, March 16, 2011 – The Securities and Exchange Commission today charged three senior executives at Akron, Ohio-based Fair Finance Company with orchestrating a $230 million fraudulent scheme involving at least 5,200 investors – many of them elderly.
The SEC alleges that after purchasing Fair Finance Company, chief executive officer Timothy S. Durham, chairman James F. Cochran, and chief financial officer Rick D. Snow deceived investors while selling them interest-bearing certificates. Fair Finance had previously operated for decades as a privately-held consumer finance company. But under the guise of loans, Durham and Cochran schemed to divert investor proceeds to themselves and others as well as struggling and unprofitable entities that they controlled. Durham and Cochran further misused investor funds to buy classic cars and other luxury items to enhance their own lavish lifestyles.
In a parallel criminal proceeding, the U.S. Department of Justice and the U.S. Attorney’s Office for the Southern District of Indiana today unsealed criminal charges against Durham, Cochran and Snow for the same alleged misconduct.
“These executives looted Fair Finance and exploited unsuspecting investors who trusted the company to prudently invest their funds as it had done for decades,” said Robert Khuzami, Director of the SEC’s Division of Enforcement. “To add insult to injury, they squandered the stolen funds on such extravagances as multiple homes, a private jet, a yacht and more than 40 classic and exotic cars.”
According to the SEC’s complaint filed in U.S. District Court for the Southern District of Indiana, Fair Finance historically raised funds by selling interest-bearing certificates to investors and using the proceeds to purchase and service discounted consumer finance contracts. Following the 2002 purchase, Durham and Cochran funneled millions of dollars to themselves and their related companies. By November 2009, Durham, Cochran and their related businesses owed Fair Finance more than $200 million, which accounted for approximately 90 percent of Fair Finance’s total loan portfolio.
The SEC alleges 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. Nonetheless, they continued to raise hundreds of millions of dollars from investors by using false and misleading financial statements and other information contained in the offering circulars to deceive investors about Fair Finance’s true financial condition. Ultimately, Durham, Cochran and their related companies never repaid these loans, and they used new investor proceeds to repay earlier investors in the nature of a Ponzi scheme.
Durham and Cochran also distributed large amounts of money to family members and friends, and misused investor funds to afford mortgages for multiple homes, a $3 million private jet, a $6 million yacht, and classic and exotic cars worth more than $7 million. 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.
According to the SEC’s complaint, Durham has residences in Los Angeles and Fortville, IN.; Cochran resides in McCordsville, IN; and Snow lives in Fishers, IN. Durham currently is the CEO at National Lampoon, and Snow currently is the CFO.
The SEC’s complaint charges Durham, Cochran and Snow with violating Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The complaint seeks permanent injunctions, disgorgement of ill-gotten gains plus prejudgment interest, penalties and officer and director bars against each of the defendants.
The SEC’s investigation was conducted by Philadelphia Regional Office enforcement staff Kelly L. Gibson, Brendan P. McGlynn, John J. Heffernan, Daniel L. Koster and Paul Rihn. The SEC’s litigation will be led by Scott A. Thompson and G. Jeffrey Boujoukos.
The SEC acknowledges and appreciates the assistance of the U.S. Attorney’s Office for the Southern District of Indiana, the U.S. Department of Justice, Fraud Section, the Federal Bureau of Investigation and the Ohio Division of Securities.
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For more information about this enforcement action, contact:
Daniel M. Hawke, Regional Director
Elaine C. Greenberg, Associate Regional Director
Brendan P. McGlynn, Assistant Regional Director
SEC Philadelphia Regional Office