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7th Circuit Upholds Ponzi Scheme Convictions

The United States Court of Appeals for the Seventh Circuit last week upheld the convictions of the three owners of Fair Finance-Timothy Durham, James Cochran, and Rick Snow-who turned the financial firm into a Ponzi scheme, taking $200 million of investors' money to fund their own extravagant lifestyles. According to the court, Fair Finance was once a legitimate company that had provided financial services since the Great Depression.

While upholding ten convictions, the court did, however, overturn two wire fraud counts, stating that the government did not enter critical documentary evidence into the record. The Court of Appeals stated the government's failure to enter the documentary evidence "was clearly an oversight, but the mistake leaves a crucial gap in the evidence in those counts." It said the government used single-page printouts to establish the wire transfers were made to further the fraudulent scheme. This evidence showed that the wires were made but did not establish that they were made in furtherance of the Ponzi scheme.

According to the court's ruling, the three defendants took control of Fair Finance in 2001 and essentially turned the company into "their personal piggy bank," using "money invested in Fair to support their lavish lifestyles and to fund loans to related parties that would never be repaid. When the company's auditors raised red flags about its financial status, the auditors were fired."

The scheme crumbled when the 2008 financial crisis struck, and Fair Finance could not meet its interest payments. The company declared bankruptcy after an FBI raid on its offices. The company had more than 5,200 investors who were owed almost $209 million when federal authorities closed it in November 2009. Almost all of the investors were from Northeast Ohio.