A newly filed class action lawsuit against Fair Finance accuses the Akron, Ohio, company of misrepresenting investments sold to thousands of Ohio investors. According to the complaint, Fair Finance co-owners Timothy Durham and James Cochran purchased Fair Finance in 2002 and proceeded to convince investors to invest tens of millions of dollars by misrepresenting critical facts about certain securities it sold. Investors are now owed more than $200 million - money that Fair Finance allegedly may not be able to repay.
Many investors who put their faith and money into Fair Finance (also known as Fair Financial Services) are retirees and fear their life savings have now vanished.
Fair Finance marketed and sold "investment certificates" and promised investors rates of return as high as 9%. That amount is nearly three times higher than what is offered by commercial banks for similar products. At the same time, the lawsuit alleges that Fair Finance used "a tangled web of financial transactions to conceal the withdrawal of investors' funds for their own enrichment."
[Related -Integrated Device Technology Inc. (IDTI) Q1 Earnings Preview: Another Beat and Pop?]
"Nobody knew the company was basically being used as a personal ATM for the owners and their affiliated companies," said David Meyers, co-counsel for the plaintiffs, on Dec. 4 in the Cleveland Ohio Business News. "Had they known, no one would have invested in this."
Maddox Hargett & Caruso P.C. and David P. Meyer & Associates filed the class action lawsuit on Dec. 4 in Summit County, Ohio.
[Related -Herbalife Ltd. (NYSE:HLF) Q2 Earnings Preview: The Potential To Shock?]
The FBI is conducting a separate criminal investigation into Fair Finance, as well as Obsidian Enterprises - another company co-owned by Durham and Cochran. On Nov. 24, federal investigators held simultaneous raids at Fair Finance and Obsidian, hauling away boxes of banking-related documents. Since the raid, eight Fair Financial offices in Ohio have remained closed.
Meanwhile, the state of Ohio is taking steps to keep Durham and his companies from selling more investment certificates to Ohio investors. As reported Dec. 4 by the Akron Beacon Journal, a seven-page letter dated Dec. 3 from the Ohio Division of Securities is demanding additional information and clarification from Fair Finance regarding its request to sell new investments. That request was submitted by Fair Finance on Nov. 24, just hours before FBI agents raided Fair Finance's offices in Akron, Ohio, and another Durham-owned business, Obsidian Enterprises, in Indianapolis.
According to the letter written by Mark Heuerman, registration chief counsel for the Ohio Securities Division, to Fair Finance's attorney, "The issuer (Fair Finance) has failed to provide investors with material information regarding the risk of the underlying portfolio and lending practices."
Among other risks cited in the letter:
· "In many instances, the issuer amended loans to increase the amount available despite a deteriorating financial condition and without performing any additional due diligence."
· "The Chief Executive Officer, Tim Durham, appears to have unfettered discretion to amend a loan for Fair and related parties without involvement or approval by other parties, officers, directors or employees of the affected entities party to the loan."
· "The issuer may engage in high risk loans where substantial uncertainty exists as to the ability of the borrower to repay principal."