An Indiana businessman convicted of orchestrating a $200 million Ponzi scheme has objected to a pre-sentencing report that recommends he spend the next 225 years in federal prison, as well as pay over $200 million in restitution to his victims. Tim Durham, 50, was found guilty in June of twelve counts of securities fraud, conspiracy, and wire fraud after his choice to stand trial backfired when a federal jury convicted him of all counts. As is customary before sentencing, the probation office has prepared a pre-sentencing report that essentially serves as a report-and-recommendation to the sentencing judge and is meant to provide the court with a factual record that may be helpful in determining an appropriate sentence. While the report is usually sealed and revealed only to the sentencing judge and counsel, Durham's attorney filed a 38-page objection that decried the recommended sentence as "absurd."
Durham served as chief executive officer of Fair Finance Company ("Fair Finance") from 2005 through November 2009, a company that he and James F. Cochran purchased in 2002. Prior to its change in ownership, Fair Finance had been a successful business that engaged in the purchase of financial contracts between businesses and their customers that carried high annual interest rates, usually between 18% and 24%. The company profited by pocketing the difference between the contract's purchase price and the total money collected over the life of the contract.
After purchasing Fair Finance, Durham purported to continue the profitable business, and succeeded in raising approximately $230 million from over 5000 investors who were enticed by the prospect of the steady and above-market returns. However, as the money poured in, Durham began to misappropriate an increasing amount of investor funds for unauthorized purposes, including financing various businesses owned by Durham and Cochran. While investors continued to receive annual checks purporting to be profit from Fair Finance's operations, these profits were, in reality, simply the re-distribution of investor funds in typical Ponzi scheme fashion. Durham and Cochran also used investor funds to sustain their lavish lifestyles, which at one point included more than 40 classic and exotic cars worth over $7 million, a $3 million private jet, and a $6 million yacht in Miami.
By 2009, the misappropriation of investor funds had resulted in more than $200 million in loans to Durham and Cochran's various unprofitable businesses - more than 90% of the supposed investments that were being made with investor funds. Investor redemptions soon dried up, and the company was eventually forced to declare bankruptcy and was raised by the Federal Bureau of Investigation. Indictments soon followed.
Durham's trial was somewhat unique in that prosecutors unveiled wiretaps of Durham and others allegedly confirming their knowledge that they were engaging in criminal activities. The use of wiretap evidence is unique in that it is typically seen in instances of organized crime and violent offenses. Several of the wiretaps are available here.
In the pre-sentencing report, losses from the scheme were pegged at $200 million - a number that Durham's attorney vehemently disputes. According to Durham's attorney, probation officials failed to explain their reasoning for the $209 million investor loss - a figure he termed "incorrect." Additionally, the objection levels some of the blame for the hefty investor losses on federal authorities - a claim commonly seen based on the theory that the accused could have somehow 'righted the ship' had authorities not stepped in.
Along with Durham, Cochran and another co-conspirator, Rick D. Snow, were also convicted at their June trial. Sentencing is currently scheduled for November 30, 2012.