Ex-National Lampoon Chief Lied to Hide Fraud, U.S. Says

Timothy S. Durham, a former political fundraiser and chief executive officer of National Lampoon Inc. (NLMP), told “lie after lie” to conceal a conspiracy to defraud investors, a prosecutor said at the start of a trial.

Durham and two other men were indicted last year for allegedly cheating 5,000 investors in a $200 million scheme involving interest-bearing notes issued by Akron, Ohio-based Fair Finance Co., which they controlled. A jury of seven women and nine men, including alternates, heard opening statements today in U.S. District Court in Indianapolis.

Durham and co-defendant James F. Cochran, aided by co- defendant Rick Snow, made false and misleading statements about Fair Finance’s financial condition, the prosecutor said.

“They hid what they had done,” Henry Van Dyck, a Justice Department lawyer, told the jury. “They did it by telling lie after lie after lie.”

The three men are charged with 10 counts of wire fraud and one of securities fraud, all punishable by as long as 20 years in prison, and one count of conspiring to commit those crimes.

Durham is CEO of the Indianapolis-based leveraged buyout firm Obsidian Enterprises Inc. He resigned his National Lampoon post in January. That company isn’t mentioned in the indictment.

Durham, a Republican Party fundraiser, has contributed hundreds of thousands of dollars in political campaign funds, most of that to Indiana Republicans including Governor Mitch Daniels, according to state campaign finance records.

Chairman, CFO

Cochran was Fair Finance’s chairman, and Snow served as chief financial officer. The three pleaded not guilty.

“Rather than using the funds that Fair raised from investors, primarily for the purpose of financing receivables,” Durham and Cochran “caused Fair to extend loans to themselves, to their associates and to businesses they owned,” according to a revised indictment issued in February.

Durham’s attorney, John L. Tompkins, said that what the government called a conspiracy was actually a series of mistakes made as a result of the financial crisis.

“Bad business judgments are not crimes,” Tompkins told the jury, describing an atmosphere of “panic and fear and desperation” at the company.

Snow’s lawyer, Jeffrey A. Baldwin, said his client was simply doing his job in covering the company’s debts.

“He had no ownership, no partnership in anything,” Baldwin said. Cochran’s attorney didn’t make an opening statement, reserving the chance to do that later.

Fair Finance’s Business

Durham and Cochran acquired Fair Finance through a holding company in 2002. Operating in Ohio since 1934, Fair Finance provided liquidity to businesses by purchasing their accounts receivable at a discount, according to the indictment.

Fair Finance raised money by selling interest-bearing certificates to investors.

By February 2005, as Fair Finance continued selling the certificates, it had shifted from providing commercial financing to making loans to its principals, their associates, Obsidian and other entities they controlled, according to the indictment.

Fair Finance closed after a November 2009 raid by the Federal Bureau of Investigation. In February 2010, its creditors forced it into involuntary bankruptcy in Akron.

Donald Fair, the son of the company’s founder who sold the business to Cochran and Durham in 2002, was the prosecution’s first witness.

Fair told the jury that his company’s objective was to offer investors a rate of return that “wouldn’t be so high that people would wonder what we were up to.”

Redemption Rates

Redemption rates during his family’s ownership remained from 5 to 15 percent, he testified, and many investors who had redeemed their notes returned and invested again.

Fair said he continued to receive company balance sheets after the sale and observed investor interest rates rising while his former business was making loans to companies he hadn’t heard of.

Asked by Cochran’s lawyer William H. Dazey if he ever suspected fraud, Fair said he had not.

The case is U.S. v. Durham, 11-cr-00042, U.S. District Court, Southern District of Indiana (Indianapolis).

To contact the reporters on this story: Andrew Harris in Chicago at aharris16@bloomberg.net; Howard Smulevitz at Indianapolis federal court at shsmulevitz@sbcglobal.net.

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net

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