The US Federal Bureau of Investigation last week searched the offices of Obsidian Enterprises, a middle-market private equity firm in Indiana, following a civil complaint the firm’s owner was allegedly involved in a Ponzi scheme.
Fair Financial Services, an Ohio firm that provides financing and specialised services for small businesses, was also searched by the FBI. Both companies are owned by businessman Timothy Durham.
Earlier, federal prosecutors had filed a 10-page civil complaint against Durham and his associates, seeking the forfeiture of Durham's assets. The complaint alleged that Durham was improperly moving money between Fair Financial and Obsidian portfolio companies to fund a Ponzi scheme.
According to the complaint, which was filed on 24 November – the same day as the raid, Fair Finance sold certificates which were supposed to be invested in low-risk, high yield, short-term consumer debts. The complaint alleges the money was used to make payments to earlier investors.
“In fact, that money was not invested in the types of investments represented to the investors,” the complaint said. “Instead, the money provided by victims of the scheme was used to make interest and redemption payments to earlier victims of the scheme, thereby lulling the earlier victims into believing that their money was being (invested) responsibly, and enticing new investors into the scheme in order to fund payments to the earlier investors.”
Federal Reserve Bank Records show Fair Financial Services transferred $84.2 million to its parent company, Fair Holdings, between May 2004 and May 2009. Of that, $6.9 million was wired to US Rubber Reclaiming, a subsidiary of Obsidian Enterprises; $5.3 million to Speedster, which is owned by Durham; $1.8 million to Danzer Industries, the former parent company of Obsidian Enterprises; $1 million to Champion Trailer, a former subsidiary of Obsidian Enterprises; $804,000 to Playa Del Racing, an IndyCar racing team controlled by Durham; $730,000 to Pyramid Coach, a former subsidiary of Obsidian Enterprises; $155,000 to United Express Trailers, another subsidiary of Obsidian Enterprises; and $277,000 to Car Collector Magazine, a Durham-owned company.
Durham has not been charged with any criminal wrongdoing. The FBI would not comment on the purpose or findings of the raid.
“The affidavits supporting these warrants are sealed and we are not able to answer questions or provide specifics,” FBI special agent in charge Michael Welch said in a statement. However, he asked that those “who have dealings with Fair Financial Services, or who may have information or concerns” to contact the bureau.
According to its website, Obsidian invests in small and mid-cap companies in manufacturing and transportation. The firm conducts business through three subsidiaries: Classic Manufacturing, United Trailer, and US Rubber Reclaiming. Durham is Obsidian’s CEO.
The US Securities and Exchange Commission filed a civil suit against one of Obsidian’s portfolio companies, comedy film company National Lampoon, in December 2008. The company’s CEO, Dan Laikin, was indicted on stock manipulation charges.
Calls to Obsidian were not returned by press time. Phone numbers listed for Fair Financial Services were not in service.