Timothy S. Durham, once the chief executive officer of National Lampoon (NLMP) Inc., and two other men may spend the rest of their lives in prison for their roles in a fraud scheme that prosecutors say “squandered” $208 million in investor money.
The office of Indianapolis U.S. Attorney Joseph Hogsett asked U.S. District Judge Jane Magnus-Stinson to sentence Durham, to a 225-year term in a brief filed this week. James Cochran, former chairman of Fair Finance Co., should get 145 years and Rick Snow, Fair Finance’s ex-chief financial officer, 85 years under advisory sentencing guidelines, prosecutors said. Sentencing is set for today.
“Durham, Cochran and Snow are responsible for one of the largest and most brazen frauds in Midwest history, and due to its terrible impact on the victims, also one of the most egregious frauds in history,” the prosecutors said.
Lawyers for all three men asked for shorter sentences in court filings. Bernard L. Madoff in 2009 received a 150-year sentence from a judge in New York for a Ponzi scheme estimated to be worth about $17 billion. R. Allen Stanford, found guilty in March by a Houston federal court jury of running a $7 billion scam, received a term of 110 years.
Durham, 50, CEO of Indianapolis-based buyout firm Obsidian Enterprises Inc. and a Republican Party fundraiser, was convicted with Snow and Cochran in June for defrauding investors in Akron, Ohio-based Fair Finance.
Founded in 1934, Fair Finance provided retailer liquidity by buying receivables at a discount, using money raised through sales of interest-bearing certificates.
Durham and Cochran acquired Fair Finance through a holding company in 2002. By February 2005, Fair Finance had shifted from providing commercial financing to making loans to its principals, their associates, and Obsidian and other entities they controlled, according to the indictment.
“Durham, Cochran and Snow then deceived investors by making and causing others to make false and misleading statements about Fair’s financial condition and about the manner in which they were using Fair investor money,” according to the charging document.
Durham allegedly spent $250,000 of Fair Finance’s capital on remodeling his garage and $150,000 more at a casino, according to the indictment. Cochran was accused of spending $50,000 on country club fees.
Fair Finance closed after a November 2009 raid by U.S. Federal Bureau of Investigation agents. In February 2010, creditors forced the firm into involuntary bankruptcy in Akron.
At least $208 million raised from more than 5,000 victims, was lost, according to Hogsett’s sentencing memo. Only $6 million has been recovered.
A jury on June 20 found Durham guilty of all 10 counts of wire fraud and one count of securities fraud, each punishable by as long as 20 years in prison, and one count of conspiring to commit those crimes, after less than a day of deliberations. Opening statements in the trial were delivered 10 days earlier.
Durham maintained he was innocent. Defense lawyer John Tompkins argued that Durham tried to prop up a faltering business by putting $28 million of his own money into it.
Durham should receive a term of three years’ imprisonment followed by two years of home confinement, Tompkins said in a Nov. 26 court filing in which he disputed prosecutors’ financial loss calculation. He called the proposed 225-year term “absurd.”
“The actual losses incurred by the investors were caused by events other than the offenses of conviction,” Tompkins said. Durham and Cochran didn’t anticipate the U.S. recession in 2008 and 2009, nor did they expect “being mistakenly labeled a Ponzi scheme by the government and the press,” which reduced demand for Fair Finance’s investment certificates and created “a substantial liquidity crisis” at both that firm and Obsidian, Tompkins said.
Jurors found Cochran guilty of eight counts and convicted Snow on five. All three men were found guilty of wire fraud as well as the lone securities fraud count and the charge of conspiring to commit each of those crimes.
Citing Cochran’s age of 57, his attorneys said in a Nov. 26 court filing that the former Fair executive had a life expectancy of about 23 more years. A shorter sentence than that would still meet federal objectives of punishment and deterrence, they said.
“Mr. Cochran’s relatively limited role, notwithstanding an impressive title, in the events that lead to the collapse of Fair Finance merit consideration,” Joseph Cleary and William Dazey, assistant federal defenders, said in their filing.
Snow’s lawyer, Jeffrey Baldwin, told Magnus-Stinson his client is “quite remorseful for his involvement in the loss suffered by the innocent investors in Fair Finance.” Snow, 49, also should receive a lesser punishment, his lawyer said.
“Mr. Snow did not live a lavish lifestyle, or take loans from Fair Finance,” Baldwin wrote. “His crime is in his reliance on Durham and Cochran. He simply believed he was doing his job.”
Durham resigned from National Lampoon in January. The Los Angeles-based media company wasn’t named in the government’s charging documents.
The case is U.S. v. Durham , 11-cr-00042, U.S. District Court, Southern District of Indiana (Indianapolis).
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