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A RAID AT FAIR FINANCE
Borrowed time finally runs out

Investors lose fortunes after new owner of Akron business bankrolls money-losing companies, enjoys lavish lifestyle. Investigators try to sort out tangled web in alleged scheme

By Jim Mackinnon and Cheryl Powell
Beacon Journal staff writers

Editor's note: This is the first installment in a three-part series.

Whenever her four children received Christmas or birthday cards with money tucked inside, Cindy Scott urged them to save for their future.

Sometimes, they'd ask to spend the cash on a hot new toy or trendy item.

''You know that this money goes for college or a downpayment on a home when you're older,'' she'd gently remind them.

''Mostly,'' she said, ''I tried to teach them that with material things, you only need so much.''

Based on word-of-mouth recommendations from volunteers at the nonprofit agency where she works, Scott invested their money by buying certificates from Fair Finance Co. The low-profile Akron consumer loan and accounts receivables company had been providing investors better-than-bank-rate returns for decades on its uninsured certificates.

But while the Cuyahoga Falls mother was teaching her children financial responsibility, the high-rolling co-owner of Fair Finance was using cash from her family and that of more than 5,300 other Ohio investors to bankroll money-losing companies and possibly a lavish lifestyle for himself and friends, public records show.

Now most, if not all, of the investors' money — more than $200 million — may be gone, swept away in a possible Ponzi scheme and the subsequent bankruptcy of Fair Finance.

Fair Finance investors were stunned on Nov. 24 a year ago when the FBI raided the company's East Market Street headquarters and its corporate parent's offices in Indianapolis. The agents hauled away computers and boxes of files and Fair Finance, in business since the days of the Great Depression, never reopened.

For many, this was their introduction to Timothy S. Durham, a prominent Indianapolis buyout specialist who, along with business partner James F. Cochran, had purchased Fair Finance in 2002 from the Fair family.

Durham was well-known in Indiana as a successful, if highly leveraged, businessman and millionaire playboy. And he had a growing profile in Hollywood as the new chief executive of struggling entertainment company National Lampoon Inc., whose previous top executive — Dan Laikin, a friend and business partner — is now in federal prison after being convicted of manipulating the company's stock price.

Profiles of Durham in Indianapolis newspapers, magazines and public documents show he has been an aggressive businessman all his adult life.

The son of an dentist in Seymour, Ind., he managed several newspaper routes, worked at a grocery store, and helped his high school choir turn a profit on its annual musical, which usually was a money loser, according to news articles.

Durham received a bachelor's degree in math in 1984 and a law degree in 1987, both from Indiana University, then went to work at an Indianapolis law firm.

While practicing law, he was asked to review papers for Beurt SerVaas, an entrepreneur who made his money buying and selling businesses, most in the manufacturing industry, including rubber. Among his successful acquisitions were U.S. Rubber Reclaiming in Mississippi and an Indianapolis tire innertube plant once owned by Uniroyal.

SerVaas hired Durham in 1990 to run the Carpenter school bus company.

Durham married SerVaas' daughter, Joan, who was eight years older and had three children. Joan SerVaas Durham, a lawyer and businesswoman, runs Curtis Publishing, which owns the copyright to many Norman Rockwell paintings. News articles say Durham raised Joan's three children as his own; the couple also had a son together.

Over the next several years, Durham played a role in some of SerVaas' purchases and sales.

But in 1998, Durham parted ways with SerVaas and his daughter, and launched his own venture capital company with several friends.

Fair Finance co-owner James Cochran, who worked with Durham in the school bus business, joined the venture. About eight years older than Durham, Cochran received his bachelor's degree in business administration from Southwest University and had a career in sales, credit analysis and leasing.

By setting up Obsidian Enterprises and raising $10 million, they purchased U.S. Rubber Reclaiming from SerVaas, then the small, publicly traded Danzer Co., a Maryland truck-body manufacturer.

Danzer's name was changed to Obsidian in 2001. Obsidian, revamped as a holding company for several of Durham's businesses, was now a publicly traded company that had to report earnings, or, in this case, mounting losses.

Meanwhile, Durham and Cochran were taking an interest in another friend, Dan Laikin, who had set off to take control of the company that owned the rights to National Lampoon, a struggling Los Angeles entertainment company.

They saw National Lampoon as undervalued, but their timing was not good. The prosperous decade that began in the early 1990s was about to end.

Bubble bursts

Those investments brought them to mid-2001, following the bursting of the tech stock bubble and the national economy heading into recession. Obsidian businesses were performing poorly.

Durham and Cochran needed cash, and found it at a respected, family-owned company with what was arguably a license to print money: Fair Finance.

A business broker in Cleveland brought them all together, according to Don Fair, son of the Fair Finance founder and the owner at the time.

Don Fair needed to sell the business, he told the Beacon Journal earlier this year. He was in his 70s with no family member interested in succeeding him. Talks with Durham and Cochran started in 2000, Fair recalled, with an agreement reached in late 2001 and the deal closing in January 2002.

Fair Finance, which did business as Fair Financial, had a solid business model, Fair said. The company managed accounts receivable for other businesses and provided consumer loans. To provide the necessary capital, the company sold high-interest investment certificates to Ohio residents.

After the sale, Fair said he largely stayed away from the business, although he held a note for almost $4 million that would be paid about five years later.

At first, Fair said, it looked like Fair Finance was operating as it always had. But as the years passed and he looked again at the investment certificate circulars, he grew concerned.

The documents included disclosures about Fair Finance's loans, and suggested the company had changed from a consumer lender to a commercial lender. And where he had limited families to buying no more than $50,000 in certificates, the maximum had grown to $200,000.

Corporate acquisition

This tale in many ways starts just 24 hours after Durham and Cochran finished their purchase of Fair Finance on Jan. 7, 2002. That's the date when their newly formed Ohio corporation, Fair Holdings, officially acquired Fair Finance.

Fair Holdings, in turn, was owned by Indiana-based DC Investments, another Durham and Cochran business.

The pending sale had been noted in Fair Finance's investment circular filed with the state in October 2001. A Dec. 21, 2001, circular noted the ownership changes, with Don Fair listed as ''chairman emeritus,'' Cochran as chairman and Durham as chief executive.

The circular also said ''new management contemplates there will be no significant change to the company's business plan or business procedures, however, there can be no guarantee that prior business procedures will continue to be followed by new management.''

People such as Sarah Lockhart and Dan Sciury continued to buy investment certificates from Fair Finance, which could sell only to Ohio residents. Most of the thousands of buyers live in Northeast Ohio, within a short drive of one of Fair's offices.

Lockhart, 64, of Green, had known about Fair for years.

When her brother came back from the service in 1964 and needed a loan to buy his first car, no one would lend him money — except Fair Finance, which got its start in 1934 making car and truck loans.

In the 1980s, the outgoing grandmother of five, who works part-time in retail, had a few thousand dollars available to invest. Based on Fair's good name, she invested there.

Over the years, Lockhart added to her Fair Finance holdings.

''It was just extra money I had I wanted to invest, but I didn't want to give it to the stock market,'' she said.

Like Lockhart, Sciury was drawn to Fair Finance by its good reputation, along with its generous interest payments.

The first-generation Italian-American learned the importance of frugality and saving at an early age. The son of a steelworker and one of five children began working as a shoe-shine boy in downtown Canton at age 9 to help his parents buy clothes.

As an adult, he devoted most of his career to helping others as the community liaison between the United Way of Stark County and the AFL-CIO Hall of Fame Central Labor Council in Canton.

When he picked up an Akron Beacon Journal in 1998, he noticed an ad that showed Fair Finance's interest rates beat other investment options.

Sciury called a friend in Akron and asked, ''What do you know about Fair Finance?''

After hearing all good things, he decided to invest $50,000.

Over the years, he invested whenever possible, sometimes taking out the interest and, other times, letting the money build up.

He also purchased investment certificates for two of his children.

''I was quite comfortable with it,'' he said.

A 'cash cow'

Fair Finance trustee Brian Bash has said Durham, Cochran and perhaps others used Fair Finance as a ''cash cow.''

Fair Finance right from the start appeared to be the lender of last resort to many of Durham's businesses, based on a review of public records.

On Jan. 8, 2002, just one day after Durham and Cochran bought Fair Finance, that the Akron company made its first loan to Durham's businesses — many of which were losing money at the time, those records show.

That day, Durham signed off on a promissory note between Fair Holdings, where he was chief executive, and another of his businesses, Indiana-based holding company Obsidian Enterprises. The note said Obsidian borrowed $570,000 from Fair Holdings, to be repaid by Feb. 1, 2007.

Coincidentally, an Obsidian subsidiary, Champion Trailer Inc., was in violation of a bank loan with Bank One and needed cash. A subsequent SEC filing shows that Champion ''has paid down the Bank One debt by $570,000. . . . . The company made a capital contribution of $570,000 from loan proceeds from DC Investments LLC, controlled by Tim Durham.''

And two days after buying Fair, another Obsidian filing with the Securities and Exchange Commission showed Fair Holdings agreed to provide it with a $3 million line of credit.

On Jan. 17, a document showed a subsidiary of Obsidian called DW Leasing agreed to borrow as much as $500,000 from Fair Holdings.

As the money from Fair Finance flowed out to its new corporate parent, sister company Obsidian issued its annual profit-and-loss statement: It lost nearly $4.4 million for the fiscal year that ended Oct. 31, 2001.

Obsidian's auditors on Feb. 13 expressed concerns. ''The company [Obsidian] has suffered losses from operations in 2001, its current liabilities exceed its current assets, and it is in violation of certain of its loan covenants. This raises substantial doubt about the company's ability to continue as a going concern,'' the auditors wrote. ''The company also must comply with the terms of its debt financing agreements and continue to receive capital contributions from its owners.''

At the time that Fair Finance fell under Durham's corporate umbrella, the Indianapolis businessman was also interested in J2 Communications, the owner of the trademark to National Lampoon, known for movies such as Animal House and the Vacation series starring Chevy Chase. Durham's friend, Laikin, who was a director on Durham's Obsidian Enterprises' board, bought stock in J2 years earlier with the intent to take control of the company.

In late January 2002, Laikin, Durham, Durham businesses Diamond Investments, DW Leasing and a business the two men formed called National Lampoon Acquisition Group, signed a letter of intent to buy out J2 Communications. Durham became an incoming director of the company, too, SEC filings show.

The group finished buying J2 Communications on May 17, 2002. A month later, an SEC filing reported that Laikin used personal funds while Durham used funds loaned to him by Fair parent company DC Investments.

Doling it out

Many of the businesses in which Durham held an interest, including J2 Communications/National Lampoon, needed cash to keep running.

And records show that Fair's Indiana corporate parent, DC Investments, was doling it out.

Within weeks of the takeover of Fair Finance, state regulators had granted permission to sell up to $60 million in investment certificates to Ohio residents.

But by July 29 — not quite eight months later — Fair was headed back to Columbus with a request for authorizaPlease see Luxuries,A11

tion to sell up to $180 million more.

Laikin on Aug. 2 signed a promissory note to repay $2 million to DC Investments by September 2003, securing the note with 210,000 shares in a company called Brightpoint and nearly 13,000 shares in J2.

In the Akron area, the outflow from Fair went unnoticed.

After continuing to get good returns on his own investments, Dan Sciury suggested to the board of the AFL-CIO's central labor council in Canton that it buy investment certificates, too. On Sept. 19, 2002, the union used $100,000 to purchase a 36-month investment certificate paying 6.25 percent interest.

It had no reason to suspect any connection between their money and J2 Communications, which eight days later would be renamed National Lampoon Inc., and in October would report a loss of $1.6 million for its fiscal year ending July 31 — on top of a $3.1 million loss a year earlier.

When December rolled around, National Lampoon's quarterly statement said it did not have enough receivables to keep up with monthly expenses of $480,000 and that it needed to rely on cash infusions from its owners.

Meanwhile, people such as Beverly Barabas were turning to Fair Finance to boost their financial security.

After Akos, her husband of 46 years, died in March 2003, Barabas took $10,000 from the death insurance payment in June and purchased her first Fair Finance investment certificate.

''This would help me,'' she thought.

Barabas was proud of herself for finding an investment that paid interest rates ranging from 7.75 to 9 percent. She and her husband, a longtime foreman at an Akron tool and die shop, had never made similar investments before his death.

''I had done something with money we had never done,'' she said.

The same month Akos Barabas died, money-losing National Lampoon received more than $2.1 million in loans from Durham and more than $2.5 million in loans from Laikin, according to a subsequent filing from the company.

And as Beverly Barabas' husband died, an earnings statement from National Lampoon showed that the company had hemorrhaged another $2.9 million for the six-month period ending Jan. 31.

Documents indicate that by November, Durham, Laikin and others intended to invest $8 million in the struggling company, including more than $2.5 million in loans already made by the two partners.

Meanwhile, Laikin increased his borrowing from Fair Finance's parent company, DC Investments, from $2 million to $4 million, to be repaid within a couple of years.

Obsidian Enterprises was doing no better. The company's line of credit with Fair Holdings was increased from $5 million to $8 million.

All told, Obsidian would end up losing nearly $3.9 million on revenue of $59.3 million for the fiscal year that ended Oct. 31, 2003. Its debt to Fair Holdings also mounted, reaching $14.2 million.

Spending continues

The money losses at the businesses didn't appear to dampen Durham's personal spending.

He bought a Miami Beach condo for $1.8 million in January 2003, and then sold his interest the next year for $2.5 million.

In August 2003, Durham led a group that tried to buy Championship Auto Racing Teams of Indianapolis. His partners included Laikin, Henri Najem, Michael Miles and Neil Lucas.

A month later, in September, Durham and Najem opened the upscale Vizion Restaurant and Vapour Lounge in Indianapolis. Indianapolis Monthly magazine described the place as ''where sci-fi fantasy meets Architectural Digest'' with its copper ceiling, pendant lights, black granite floors and a curving wall of windows and acrylic barstools.

Obsidian played another role in Durham's private life — it became the name of a 98-foot yacht Durham purchased in 2004 for $7 million from Italian shipbuilder Azimut. He docked it in Florida, boasting in an interview with CNBC that the mooring cost him $5,000 a month.

Durham also kept up with his other hobby, car collecting. He paid $500,000 in January 2004 for a rare 1948 Tucker automobile — a record for that make of car.

In April 2004, Obsidian Enterprises spent $2.25 million plus stock to buy Classic Manufacturing, a Michigan company that makes trailers.

The next year, Durham announced that he had become an investor in Car Collector Magazine and intended to start an expanded publications group.

It also was in 2004 that Durham moved into his expansive mansion on five acres at the exclusive Geist Lake community in Indiana. The house included a 30-car, two-level garage, numerous bars and a theater. Public records show that while the house was appraised at $2.7 million, he had about $5 million in loans attached to the property.

By this time, Durham was making a name for himself in the social scene. Indianapolis media reported that at the end of May 2004, Playboy 1993 Playmate of the Year Anna Nicole Smith, who would die of a drug overdose in 2007, visited his Vapour Lounge and spent a week at Durham's home while nursing broken ribs.

Some business executives, however, apparently were getting leery of Durham's finances.

When Obsidian Enterprises tried to buy Net Perceptions Inc., a small publicly traded company that was seeking to dissolve itself, the deal fell through.

Obsidian initially offered 20 cents per share plus fractional shares of Obsidian in the fall of 2003, and then upped its offer to 40 cents a share. Obsidian also filed documents showing an amended $15 million line of credit with Fair Holdings, saying that it could use $5.7 million of that line to buy out Net Perceptions.

Durham issued a news release indicating that Obsidian had revised the proposal to address concern by Net Perception's advisers about Obsidian's ''certainty of financing'' and ''certainty of closing.''

Obsidian, meanwhile, ran up millions of dollars in losses and continued to borrow from Fair Finance.

SEC filings indicated the company was working to improve its finances while continuing to get $16.8 million in support from Fair Holdings and DC Investments, including a $15 million line of credit from Fair Holdings.

Laikin, too, was busy with personal real-estate deals in California during this period. A note to DC Investments from Laikin securing eight pieces of property made DC Investments the beneficiary under a $7 million promissory note.

Propping up

Public records showed that Ohio residents were propping up these ventures with their growing investments in Fair Finance.

In August 2004, a new Fair Finance offering circular showed that Fair Finance had loaned $60 million to its parent company, Fair Holdings. In turn, ''Fair Holdings uses the money to finance purchases of artwork, real estate and equipment under capital leases.'' The circular said Fair Holdings makes loans to its corporate parent, DC Investments, and to other businesses owned by DC Investments. And it said that up to $11 million in loans to DC Investments in turn can be made to Timothy Durham and James Cochran ''to provide funds to certain related businesses.''

The loans, according to the circular, were backed by public and private securities, property and equipment.

By that time, documents show, Obsidian owed more than $18 million to Fair Holdings.

The company reported that its losses ''historically have been funded by related party loans from Fair Holdings Inc., an entity controlled by our chairman.'' Auditors again expressed doubt about Obsidian's ability to continue as a going concern.

By Oct. 30, 2004, Obsidian reported it owed nearly $20.3 million to DC Investments and Fair Holdings. Fair Holdings also was listed as owning 7.8 percent of Obsidian's stock.

And finances continued to deteriorate for National Lampoon and Laikin.

At the end of the year, Laikin and Durham signed an agreement that gave Laikin three more years, to August 2008, to repay millions he owed to DC Investments.

Then, on Dec. 21, National Lampoon revealed in SEC documents that it continued to lose millions, and auditors expressed ''substantial doubts'' about the ability of the company to continue as a going concern. The company said it was surviving by relying on funds from a group headed by Laikin, Durham and one other.

On Jan. 31, 2005, Laikin, who had been National Lampoon's chief operating officer since leading the buyout in 2002, was named its chief executive.

The records continued to show money flowing out of Fair Holdings to Durham's businesses. As of the end of January 2005, Obsidian owed Fair Holdings and DC Investments $23.6 million, the company reported.

On July 1, 2005, Durham signed off on a promissory note that allowed Laikin to increase the amount he borrowed from DC Investments from $7 million to $8 million.

Meanwhile, the public filings allowed the Indianapolis business community and regulatory agencies to scrutinize Obsidian. They could see that Obsidian's debt to Fair Holdings and DC Investments was growing at nearly $1 million a month.

Six days after expanding Laikin's debt — July 7, 2005 — Obsidian Enterprises filed paperwork saying it intended to go from a publicly traded company to a private corporation as a means to save money.

No longer would Obsidian's finances be an open book.

Obsidian executives, including Durham, owned 70 percent of the company stock. They said they wanted to take the company private at a cost of $1.85 a share. The cost, a bit over $1.3 million, was to be paid by funds ''provided by a loan made by Diamond Investments LLC, an entity controlled by Timothy S. Durham,'' according records.

As work went on to take Obsidian private, Durham paid $3.85 million for property in Los Angeles and took out a $2.47 million mortgage.

Before 2005 came to a close, Durham and partner Cochran turned to Akron-area investors two more times for cash, and each time, there were warnings.

On Sept. 30, Fair Finance filed a new offering circular. The documents said Fair Finance had loaned more than $99 million to its parent, Fair Holdings, and to Fair Holdings' parent, DC Investments. And that DC Investments, in turn, could lend up to $17 million to Durham and Cochran for loans to other businesses.

On Oct. 29, Obsidian filed paperwork with the SEC in which an auditor criticized the business for ''the Company's lack of financial infrastructure to account for complex transactions and related party activities on a consolidated basis, which resulted in a greater than normal risk that material errors may occur in the financial statements and not be detected timely.''

As Obsidian wrapped up its fiscal year Oct. 31, the company showed a loss of nearly $10.5 million, on top of $6.7 million in 2004 and $4.3 million in 2003.

And from January to Oct. 31, Obsidian's debt to DC Investments and Fair Holdings had grown by nearly a third to $31.2 million.

Obsidian needed cash.

A day after the company closed its fiscal year — Nov. 1, 2005 — Fair Finance filed paperwork with Ohio, seeking to sell up to another $250 million in investment certificates.

Again, Akron-area investors would pick up the tab.


Cheryl Powell can be reached at 330-996-3902 or chpowell@thebeaconjournal.com.
Jim Mackinnon can be reached at 330-996-3544 or jmackinnon@thebeaconjournal.com.

 

Cindy Scott, reflected on their TV screen, holds the Fair Finance investment certificates she purchased for her four children to help give them a better start with their financial future as she talks about what she lost and what their lives have been like after losing those investments after the company went bankrupt. (Ed Suba Jr./Akron Beacon Journal)
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Editor's note: This is the first installment in a three-part series.

Whenever her four children received Christmas or birthday cards with money tucked inside, Cindy Scott urged them to save for their future.

Sometimes, they'd ask to spend the cash on a hot new toy or trendy item.

''You know that this money goes for college or a downpayment on a home when you're older,'' she'd gently remind them.

''Mostly,'' she said, ''I tried to teach them that with material things, you only need so much.''

Based on word-of-mouth recommendations from volunteers at the nonprofit agency where she works, Scott invested their money by buying certificates from Fair Finance Co. The low-profile Akron consumer loan and accounts receivables company had been providing investors better-than-bank-rate returns for decades on its uninsured certificates.

But while the Cuyahoga Falls mother was teaching her children financial responsibility, the high-rolling co-owner of Fair Finance was using cash from her family and that of more than 5,300 other Ohio investors to bankroll money-losing companies and possibly a lavish lifestyle for himself and friends, public records show.

Now most, if not all, of the investors' money — more than $200 million — may be gone, swept away in a possible Ponzi scheme and the subsequent bankruptcy of Fair Finance.

Fair Finance investors were stunned on Nov. 24 a year ago when the FBI raided the company's East Market Street headquarters and its corporate parent's offices in Indianapolis. The agents hauled away computers and boxes of files and Fair Finance, in business since the days of the Great Depression, never reopened.

For many, this was their introduction to Timothy S. Durham, a prominent Indianapolis buyout specialist who, along with business partner James F. Cochran, had purchased Fair Finance in 2002 from the Fair family.

Durham was well-known in Indiana as a successful, if highly leveraged, businessman and millionaire playboy. And he had a growing profile in Hollywood as the new chief executive of struggling entertainment company National Lampoon Inc., whose previous top executive — Dan Laikin, a friend and business partner — is now in federal prison after being convicted of manipulating the company's stock price.

Profiles of Durham in Indianapolis newspapers, magazines and public documents show he has been an aggressive businessman all his adult life.

The son of an dentist in Seymour, Ind., he managed several newspaper routes, worked at a grocery store, and helped his high school choir turn a profit on its annual musical, which usually was a money loser, according to news articles.

Durham received a bachelor's degree in math in 1984 and a law degree in 1987, both from Indiana University, then went to work at an Indianapolis law firm.

While practicing law, he was asked to review papers for Beurt SerVaas, an entrepreneur who made his money buying and selling businesses, most in the manufacturing industry, including rubber. Among his successful acquisitions were U.S. Rubber Reclaiming in Mississippi and an Indianapolis tire innertube plant once owned by Uniroyal.

SerVaas hired Durham in 1990 to run the Carpenter school bus company.

Durham married SerVaas' daughter, Joan, who was eight years older and had three children. Joan SerVaas Durham, a lawyer and businesswoman, runs Curtis Publishing, which owns the copyright to many Norman Rockwell paintings. News articles say Durham raised Joan's three children as his own; the couple also had a son together.

Over the next several years, Durham played a role in some of SerVaas' purchases and sales.

But in 1998, Durham parted ways with SerVaas and his daughter, and launched his own venture capital company with several friends.

Fair Finance co-owner James Cochran, who worked with Durham in the school bus business, joined the venture. About eight years older than Durham, Cochran received his bachelor's degree in business administration from Southwest University and had a career in sales, credit analysis and leasing.

By setting up Obsidian Enterprises and raising $10 million, they purchased U.S. Rubber Reclaiming from SerVaas, then the small, publicly traded Danzer Co., a Maryland truck-body manufacturer.

Danzer's name was changed to Obsidian in 2001. Obsidian, revamped as a holding company for several of Durham's businesses, was now a publicly traded company that had to report earnings, or, in this case, mounting losses.

Meanwhile, Durham and Cochran were taking an interest in another friend, Dan Laikin, who had set off to take control of the company that owned the rights to National Lampoon, a struggling Los Angeles entertainment company.

They saw National Lampoon as undervalued, but their timing was not good. The prosperous decade that began in the early 1990s was about to end.

Bubble bursts

Those investments brought them to mid-2001, following the bursting of the tech stock bubble and the national economy heading into recession. Obsidian businesses were performing poorly.

Durham and Cochran needed cash, and found it at a respected, family-owned company with what was arguably a license to print money: Fair Finance.

A business broker in Cleveland brought them all together, according to Don Fair, son of the Fair Finance founder and the owner at the time.

Don Fair needed to sell the business, he told the Beacon Journal earlier this year. He was in his 70s with no family member interested in succeeding him. Talks with Durham and Cochran started in 2000, Fair recalled, with an agreement reached in late 2001 and the deal closing in January 2002.

Fair Finance, which did business as Fair Financial, had a solid business model, Fair said. The company managed accounts receivable for other businesses and provided consumer loans. To provide the necessary capital, the company sold high-interest investment certificates to Ohio residents.

After the sale, Fair said he largely stayed away from the business, although he held a note for almost $4 million that would be paid about five years later.

At first, Fair said, it looked like Fair Finance was operating as it always had. But as the years passed and he looked again at the investment certificate circulars, he grew concerned.

The documents included disclosures about Fair Finance's loans, and suggested the company had changed from a consumer lender to a commercial lender. And where he had limited families to buying no more than $50,000 in certificates, the maximum had grown to $200,000.

Corporate acquisition

This tale in many ways starts just 24 hours after Durham and Cochran finished their purchase of Fair Finance on Jan. 7, 2002. That's the date when their newly formed Ohio corporation, Fair Holdings, officially acquired Fair Finance.

Fair Holdings, in turn, was owned by Indiana-based DC Investments, another Durham and Cochran business.

The pending sale had been noted in Fair Finance's investment circular filed with the state in October 2001. A Dec. 21, 2001, circular noted the ownership changes, with Don Fair listed as ''chairman emeritus,'' Cochran as chairman and Durham as chief executive.

The circular also said ''new management contemplates there will be no significant change to the company's business plan or business procedures, however, there can be no guarantee that prior business procedures will continue to be followed by new management.''

People such as Sarah Lockhart and Dan Sciury continued to buy investment certificates from Fair Finance, which could sell only to Ohio residents. Most of the thousands of buyers live in Northeast Ohio, within a short drive of one of Fair's offices.

Lockhart, 64, of Green, had known about Fair for years.

When her brother came back from the service in 1964 and needed a loan to buy his first car, no one would lend him money — except Fair Finance, which got its start in 1934 making car and truck loans.

In the 1980s, the outgoing grandmother of five, who works part-time in retail, had a few thousand dollars available to invest. Based on Fair's good name, she invested there.

Over the years, Lockhart added to her Fair Finance holdings.

''It was just extra money I had I wanted to invest, but I didn't want to give it to the stock market,'' she said.

Like Lockhart, Sciury was drawn to Fair Finance by its good reputation, along with its generous interest payments.

The first-generation Italian-American learned the importance of frugality and saving at an early age. The son of a steelworker and one of five children began working as a shoe-shine boy in downtown Canton at age 9 to help his parents buy clothes.

As an adult, he devoted most of his career to helping others as the community liaison between the United Way of Stark County and the AFL-CIO Hall of Fame Central Labor Council in Canton.

When he picked up an Akron Beacon Journal in 1998, he noticed an ad that showed Fair Finance's interest rates beat other investment options.

Sciury called a friend in Akron and asked, ''What do you know about Fair Finance?''

After hearing all good things, he decided to invest $50,000.

Over the years, he invested whenever possible, sometimes taking out the interest and, other times, letting the money build up.

He also purchased investment certificates for two of his children.

''I was quite comfortable with it,'' he said.

A 'cash cow'

Fair Finance trustee Brian Bash has said Durham, Cochran and perhaps others used Fair Finance as a ''cash cow.''

Fair Finance right from the start appeared to be the lender of last resort to many of Durham's businesses, based on a review of public records.

On Jan. 8, 2002, just one day after Durham and Cochran bought Fair Finance, that the Akron company made its first loan to Durham's businesses — many of which were losing money at the time, those records show.

That day, Durham signed off on a promissory note between Fair Holdings, where he was chief executive, and another of his businesses, Indiana-based holding company Obsidian Enterprises. The note said Obsidian borrowed $570,000 from Fair Holdings, to be repaid by Feb. 1, 2007.

Coincidentally, an Obsidian subsidiary, Champion Trailer Inc., was in violation of a bank loan with Bank One and needed cash. A subsequent SEC filing shows that Champion ''has paid down the Bank One debt by $570,000. . . . . The company made a capital contribution of $570,000 from loan proceeds from DC Investments LLC, controlled by Tim Durham.''

And two days after buying Fair, another Obsidian filing with the Securities and Exchange Commission showed Fair Holdings agreed to provide it with a $3 million line of credit.

On Jan. 17, a document showed a subsidiary of Obsidian called DW Leasing agreed to borrow as much as $500,000 from Fair Holdings.

As the money from Fair Finance flowed out to its new corporate parent, sister company Obsidian issued its annual profit-and-loss statement: It lost nearly $4.4 million for the fiscal year that ended Oct. 31, 2001.

Obsidian's auditors on Feb. 13 expressed concerns. ''The company [Obsidian] has suffered losses from operations in 2001, its current liabilities exceed its current assets, and it is in violation of certain of its loan covenants. This raises substantial doubt about the company's ability to continue as a going concern,'' the auditors wrote. ''The company also must comply with the terms of its debt financing agreements and continue to receive capital contributions from its owners.''

At the time that Fair Finance fell under Durham's corporate umbrella, the Indianapolis businessman was also interested in J2 Communications, the owner of the trademark to National Lampoon, known for movies such as Animal House and the Vacation series starring Chevy Chase. Durham's friend, Laikin, who was a director on Durham's Obsidian Enterprises' board, bought stock in J2 years earlier with the intent to take control of the company.

In late January 2002, Laikin, Durham, Durham businesses Diamond Investments, DW Leasing and a business the two men formed called National Lampoon Acquisition Group, signed a letter of intent to buy out J2 Communications. Durham became an incoming director of the company, too, SEC filings show.

The group finished buying J2 Communications on May 17, 2002. A month later, an SEC filing reported that Laikin used personal funds while Durham used funds loaned to him by Fair parent company DC Investments.

Doling it out

Many of the businesses in which Durham held an interest, including J2 Communications/National Lampoon, needed cash to keep running.

And records show that Fair's Indiana corporate parent, DC Investments, was doling it out.

Within weeks of the takeover of Fair Finance, state regulators had granted permission to sell up to $60 million in investment certificates to Ohio residents.

But by July 29 — not quite eight months later — Fair was headed back to Columbus with a request for authorizaPlease see Luxuries,A11

tion to sell up to $180 million more.

Laikin on Aug. 2 signed a promissory note to repay $2 million to DC Investments by September 2003, securing the note with 210,000 shares in a company called Brightpoint and nearly 13,000 shares in J2.

In the Akron area, the outflow from Fair went unnoticed.

After continuing to get good returns on his own investments, Dan Sciury suggested to the board of the AFL-CIO's central labor council in Canton that it buy investment certificates, too. On Sept. 19, 2002, the union used $100,000 to purchase a 36-month investment certificate paying 6.25 percent interest.

It had no reason to suspect any connection between their money and J2 Communications, which eight days later would be renamed National Lampoon Inc., and in October would report a loss of $1.6 million for its fiscal year ending July 31 — on top of a $3.1 million loss a year earlier.

When December rolled around, National Lampoon's quarterly statement said it did not have enough receivables to keep up with monthly expenses of $480,000 and that it needed to rely on cash infusions from its owners.

Meanwhile, people such as Beverly Barabas were turning to Fair Finance to boost their financial security.

After Akos, her husband of 46 years, died in March 2003, Barabas took $10,000 from the death insurance payment in June and purchased her first Fair Finance investment certificate.

''This would help me,'' she thought.

Barabas was proud of herself for finding an investment that paid interest rates ranging from 7.75 to 9 percent. She and her husband, a longtime foreman at an Akron tool and die shop, had never made similar investments before his death.

''I had done something with money we had never done,'' she said.

The same month Akos Barabas died, money-losing National Lampoon received more than $2.1 million in loans from Durham and more than $2.5 million in loans from Laikin, according to a subsequent filing from the company.

And as Beverly Barabas' husband died, an earnings statement from National Lampoon showed that the company had hemorrhaged another $2.9 million for the six-month period ending Jan. 31.

Documents indicate that by November, Durham, Laikin and others intended to invest $8 million in the struggling company, including more than $2.5 million in loans already made by the two partners.

Meanwhile, Laikin increased his borrowing from Fair Finance's parent company, DC Investments, from $2 million to $4 million, to be repaid within a couple of years.

Obsidian Enterprises was doing no better. The company's line of credit with Fair Holdings was increased from $5 million to $8 million.

All told, Obsidian would end up losing nearly $3.9 million on revenue of $59.3 million for the fiscal year that ended Oct. 31, 2003. Its debt to Fair Holdings also mounted, reaching $14.2 million.

Spending continues

The money losses at the businesses didn't appear to dampen Durham's personal spending.

He bought a Miami Beach condo for $1.8 million in January 2003, and then sold his interest the next year for $2.5 million.

In August 2003, Durham led a group that tried to buy Championship Auto Racing Teams of Indianapolis. His partners included Laikin, Henri Najem, Michael Miles and Neil Lucas.

A month later, in September, Durham and Najem opened the upscale Vizion Restaurant and Vapour Lounge in Indianapolis. Indianapolis Monthly magazine described the place as ''where sci-fi fantasy meets Architectural Digest'' with its copper ceiling, pendant lights, black granite floors and a curving wall of windows and acrylic barstools.

Obsidian played another role in Durham's private life — it became the name of a 98-foot yacht Durham purchased in 2004 for $7 million from Italian shipbuilder Azimut. He docked it in Florida, boasting in an interview with CNBC that the mooring cost him $5,000 a month.

Durham also kept up with his other hobby, car collecting. He paid $500,000 in January 2004 for a rare 1948 Tucker automobile — a record for that make of car.

In April 2004, Obsidian Enterprises spent $2.25 million plus stock to buy Classic Manufacturing, a Michigan company that makes trailers.

The next year, Durham announced that he had become an investor in Car Collector Magazine and intended to start an expanded publications group.

It also was in 2004 that Durham moved into his expansive mansion on five acres at the exclusive Geist Lake community in Indiana. The house included a 30-car, two-level garage, numerous bars and a theater. Public records show that while the house was appraised at $2.7 million, he had about $5 million in loans attached to the property.

By this time, Durham was making a name for himself in the social scene. Indianapolis media reported that at the end of May 2004, Playboy 1993 Playmate of the Year Anna Nicole Smith, who would die of a drug overdose in 2007, visited his Vapour Lounge and spent a week at Durham's home while nursing broken ribs.

Some business executives, however, apparently were getting leery of Durham's finances.

When Obsidian Enterprises tried to buy Net Perceptions Inc., a small publicly traded company that was seeking to dissolve itself, the deal fell through.

Obsidian initially offered 20 cents per share plus fractional shares of Obsidian in the fall of 2003, and then upped its offer to 40 cents a share. Obsidian also filed documents showing an amended $15 million line of credit with Fair Holdings, saying that it could use $5.7 million of that line to buy out Net Perceptions.

Durham issued a news release indicating that Obsidian had revised the proposal to address concern by Net Perception's advisers about Obsidian's ''certainty of financing'' and ''certainty of closing.''

Obsidian, meanwhile, ran up millions of dollars in losses and continued to borrow from Fair Finance.

SEC filings indicated the company was working to improve its finances while continuing to get $16.8 million in support from Fair Holdings and DC Investments, including a $15 million line of credit from Fair Holdings.

Laikin, too, was busy with personal real-estate deals in California during this period. A note to DC Investments from Laikin securing eight pieces of property made DC Investments the beneficiary under a $7 million promissory note.

Propping up

Public records showed that Ohio residents were propping up these ventures with their growing investments in Fair Finance.

In August 2004, a new Fair Finance offering circular showed that Fair Finance had loaned $60 million to its parent company, Fair Holdings. In turn, ''Fair Holdings uses the money to finance purchases of artwork, real estate and equipment under capital leases.'' The circular said Fair Holdings makes loans to its corporate parent, DC Investments, and to other businesses owned by DC Investments. And it said that up to $11 million in loans to DC Investments in turn can be made to Timothy Durham and James Cochran ''to provide funds to certain related businesses.''

The loans, according to the circular, were backed by public and private securities, property and equipment.

By that time, documents show, Obsidian owed more than $18 million to Fair Holdings.

The company reported that its losses ''historically have been funded by related party loans from Fair Holdings Inc., an entity controlled by our chairman.'' Auditors again expressed doubt about Obsidian's ability to continue as a going concern.

By Oct. 30, 2004, Obsidian reported it owed nearly $20.3 million to DC Investments and Fair Holdings. Fair Holdings also was listed as owning 7.8 percent of Obsidian's stock.

And finances continued to deteriorate for National Lampoon and Laikin.

At the end of the year, Laikin and Durham signed an agreement that gave Laikin three more years, to August 2008, to repay millions he owed to DC Investments.

Then, on Dec. 21, National Lampoon revealed in SEC documents that it continued to lose millions, and auditors expressed ''substantial doubts'' about the ability of the company to continue as a going concern. The company said it was surviving by relying on funds from a group headed by Laikin, Durham and one other.

On Jan. 31, 2005, Laikin, who had been National Lampoon's chief operating officer since leading the buyout in 2002, was named its chief executive.

The records continued to show money flowing out of Fair Holdings to Durham's businesses. As of the end of January 2005, Obsidian owed Fair Holdings and DC Investments $23.6 million, the company reported.

On July 1, 2005, Durham signed off on a promissory note that allowed Laikin to increase the amount he borrowed from DC Investments from $7 million to $8 million.

Meanwhile, the public filings allowed the Indianapolis business community and regulatory agencies to scrutinize Obsidian. They could see that Obsidian's debt to Fair Holdings and DC Investments was growing at nearly $1 million a month.

Six days after expanding Laikin's debt — July 7, 2005 — Obsidian Enterprises filed paperwork saying it intended to go from a publicly traded company to a private corporation as a means to save money.

No longer would Obsidian's finances be an open book.

Obsidian executives, including Durham, owned 70 percent of the company stock. They said they wanted to take the company private at a cost of $1.85 a share. The cost, a bit over $1.3 million, was to be paid by funds ''provided by a loan made by Diamond Investments LLC, an entity controlled by Timothy S. Durham,'' according records.

As work went on to take Obsidian private, Durham paid $3.85 million for property in Los Angeles and took out a $2.47 million mortgage.

Before 2005 came to a close, Durham and partner Cochran turned to Akron-area investors two more times for cash, and each time, there were warnings.

On Sept. 30, Fair Finance filed a new offering circular. The documents said Fair Finance had loaned more than $99 million to its parent, Fair Holdings, and to Fair Holdings' parent, DC Investments. And that DC Investments, in turn, could lend up to $17 million to Durham and Cochran for loans to other businesses.

On Oct. 29, Obsidian filed paperwork with the SEC in which an auditor criticized the business for ''the Company's lack of financial infrastructure to account for complex transactions and related party activities on a consolidated basis, which resulted in a greater than normal risk that material errors may occur in the financial statements and not be detected timely.''

As Obsidian wrapped up its fiscal year Oct. 31, the company showed a loss of nearly $10.5 million, on top of $6.7 million in 2004 and $4.3 million in 2003.

And from January to Oct. 31, Obsidian's debt to DC Investments and Fair Holdings had grown by nearly a third to $31.2 million.

Obsidian needed cash.

A day after the company closed its fiscal year — Nov. 1, 2005 — Fair Finance filed paperwork with Ohio, seeking to sell up to another $250 million in investment certificates.

Again, Akron-area investors would pick up the tab.


Cheryl Powell can be reached at 330-996-3902 or chpowell@thebeaconjournal.com.
Jim Mackinnon can be reached at 330-996-3544 or jmackinnon@thebeaconjournal.com.

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