7th Circuit Upholds Ponzi Convictions

CHICAGO (CN) - The 7th Circuit affirmed the convictions of three men who turned a respected financial firm into a Ponzi scheme, using $200 million of investors' money to finance their lavish lifestyle.

Fair Finance once was a respectable company that had provided financial services since the Great Depression.

By the 2000s, it was primarily in the business of purchasing consumer receivable contracts from businesses, profiting on the difference between the purchase price and the amount ultimately collected. It financed the purchase of these receivables by selling investment certificates, on which it paid regular interest.

But when Timothy Durham, James Cochran, and Rick Snow took over the company in 2001, they turned Fair Holdings into their own piggy bank, and paid the company's interest payments with money from new investors, according to the 31-page ruling

The company increased its sale of certificates, offering them for longer terms, higher amounts, and at higher interest rates, doubling Fair Finance's liabilities within 18 months.

The money was not used to purchase more receivables, but to finance loans for Durham and Cochran, their relatives, and related companies.

For example, Cochran used $780,000 to fund a personal real-estate purchase, and Durham loaned more than $9 million to the company that held his personal car collection.

The scheme fell apart when the 2008 financial crisis hit, and Fair Finance could not meet its interest payments.

The company declared bankruptcy after an FBI raid on its offices. More than 5,000 investors reported losses of $215 million, but the trustee recovered only $5.6 million in assets.

The 7th Circuit on Sept. 4 affirmed the three men's fraud convictions, except for two counts of wire fraud against Durham, which a mistake invalidated.

"The government failed to enter into the trial record key documentary evidence supporting two counts of wire fraud against Durham. It was clearly an oversight, but the mistake leaves a crucial gap in the evidence on those counts. Accordingly, we reverse Durham's convictions on Counts 2 and 5 of the indictment and remand for resentencing," Judge Diane Sykes wrote for the three-judge panel.

However, she upheld the FBI's wiretap application, finding that it showed the necessity of tapping Durham's phone.

"Far from asking for a wiretap after little conventional investigation, the government first used a variety of other techniques to gather information. And the wiretap application provided a reasonable explanation as to why other standard investigative techniques would not be appropriate," Sykes wrote.

The court dismissed defendants' claims of prosecutorial misconduct for expressing a personal opinion about defendants' guilt during closing arguments.

"The government's evidence was very strong. It's highly implausible that this single, passing remark during the prosecutor's rebuttal affected the jury's verdict. Finding prejudice on plain-error review requires that the outcome of the trial probably would have been different without the prosecutor's remark. That standard is not remotely satisfied here," the judge concluded.

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