The SEC charged 3 senior executives at Akron, OH-based Fair Finance Company with orchestrating a $230 million fraudulent scheme involving at least 5,200 investors - many of them elderly.  It's alleged that after purchasing Fair Finance Company, CEO Timothy Durham, Chairman James Cochran, and CFO Rick Snow deceived investors while selling them interest-bearing certificates.  The Justice Department is pursuing a parallel criminal proceeding. 

Fair Finance had previously operated for decades as a privately-held consumer finance company.  But under the guise of loans, Durham and Cochran allegedly 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.

    SEC Allegations.   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 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% of Fair Finance’s total loan portfolio.

It's 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. Nonetheless, they continued to raise hundreds of millions 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.

According to the SEC’s complaint, Durham has residences in Los Angeles and Fortville, Ind.; Cochran resides in McCordsville, Ind.; and Snow lives in Fishers, Ind. Durham currently is the CEO at National Lampoon, and Snow currently is the CFO.

The SEC complaint seeks permanent injunctions, disgorgement of ill-gotten gains plus prejudgment interest, penalties and officer and director bars against each of the defendants.

SEC Staff Credits.   Investigation by Philadelphia Regional Office's Kelly Gibson, Brendan McGlynn, John Heffernan, Daniel Koster, Paul Rihn. Litigation will be led by Scott Thompson, Jeffrey Boujoukos.   [SEC Release 11-67, 3/16]