Poor National Lampoon Inc. Its former chief executive was arrested one year ago, pleaded guilty to charges of stock manipulation and is now awaiting sentencing. Now, Tim Durham, who was brought in to turn around the West Hollywood entertainment company, faces allegations that he misappropriated investor funds and ran a multimillion-dollar Ponzi scheme in Ohio.
FBI agents recently raided his offices in Indianapolis and Akron, Ohio, carting off computer hard drives and boxes stuffed with documents.
Durham has not been charged with a crime.
The multimillionaire financier denied wrongdoing in an interview with the Business Journal. He said he was in his shorts and T-shirt on Nov. 24, putting up Christmas decorations at his mansion near Beverly Hills, when two FBI agents showed up to ask him questions. The raids in Ohio and Indianapolis took place shortly after the agents left.
He said he and his partners in the Midwest were completely surprised by the raids.
“We had no idea anything was being investigated,” Durham said. “And we have continued to maintain that we don’t know of anything we’ve done wrong.”
Any implications for National Lampoon are unclear. The events could throw a wrench into negotiations it has started with potential partners in film production. The charges also could distract Durham at a time when he is trying to revive the moribund comedy franchise, perhaps best known for its now-defunct humor magazine and films such as “Animal House.”
Durham also has personally loaned National Lampoon more than $700,000. His ability to loan any more, if the company needed it, could be curtailed.
Durham acknowledged the investigation has taken away from the time he can dedicate to National Lampoon.
“Yes, it’s a distraction, but one I’m trying to balance,” Durham said. “I have talked to a few different people about coming in to help assist me with the duties at Lampoon.”
He added he may consider hiring someone to take over as chief executive of the company. But he also said his turnaround plan has been progressing since he took over in December 2008.
National Lampoon is wrapping up production of a comedy film, “The Legend of Awesomest Maximus,” and Durham said he’s in talks to produce large-budget theatrical releases that would restore some luster to a brand that, of late, has been associated more with direct-to-video fare.
Consumer lending
At the center of the allegations against Durham is Akron-based Fair Finance Co., a business and consumer loan company that Durham and a fellow Indianapolis businessman, James Cochran, bought in 2002.
In a document filed by the U.S. Attorney’s Office in the Southern District of Indiana on Nov. 24, the government alleges that Fair Finance sold investment certificates to Ohio residents with the false assurance that their money would be invested in low-risk, high-yield, short-term consumer debt. However, it alleges that Durham and Cochran wrongly funneled the money to companies they owned or that were managed by Obsidian Enterprises, Durham’s Indianapolis-based holding company.
The document, called a complaint of forfeiture, was filed to seize some of Durham’s assets, including his L.A. mansion and his Bugatti Veyron, a $1.5 million supercar. It also sought to seize some of Fair Finance’s assets.
However, the U.S. Attorney’s Office has since withdrawn the request to seize the assets. Timothy Morrison, the U.S. attorney in Indiana handling the case, could not be reached for comment.
Mark Beck, an attorney not associated with the case but who reviewed it at the Business Journal’s request, said the decision to withdraw the request for forfeiture wasn’t a sign that the case was going to go away soon. Ponzi cases can drag on for years and the complexity of any given case can affect whether prosecutors decide to proceed.
“There are just too many Ponzi cases for them to thoroughly investigate every one,” said Beck, a partner at Orrick Herrington & Sutcliffe LLP in downtown Los Angeles.
National Lampoon was not among the companies named in the complaint, and Durham said National Lampoon has not received a direct loan from Fair Finance.
The complaint states that Fair Finance made 6,400 wire transactions between May 2004 and May 2009 sending $192 million to 21 companies controlled by Durham and Cochran. Durham also gave himself a personal loan of $100,000 and Cochran a $30,000 loan, according to documents.
Fair Finance allegedly paid dividends to early investors with money taken from new investors, the complaint states, which would essentially make the business a Ponzi scheme.
Loans disclosed
Durham acknowledges that Fair Finance loaned money to companies he and Cochran controlled, but denied any wrongdoing. He said Fair Finance disclosed to its investors that it loaned money to subsidiaries of Obsidian. He also said that Ohio regulators had approved each of the company’s investment offerings.
He denied Fair Finance operated as a Ponzi scheme.
“Our offering circular goes into fairly great detail that we were making and have been making loans to related companies and parties,” Durham said. “We’ve never denied that, and we don’t see anything wrong with what we’ve done.”
But at least two Fair Finance investors disagree. They’ve filed a class-action lawsuit against Fair Finance, Obsidian and Durham seeking to recoup their money.
“Fair Finance really became a personal bank account for Durham and his company,” said David P. Meyer, the plaintiffs’ attorney. “It’s a totally different business than what investors thought they were buying.”
Durham didn’t accept Meyer’s characterization of his actions.
“I don’t know what that means, to say it’s a personal bank account,” he said. “I know what we were doing, and I know what we disclosed, and our disclosures we felt were more than adequate, and so did the state of Ohio.”
After the FBI raids, Ohio regulators sent the company a seven-page letter expressing concern about its loans and requesting additional information.
Durham is a former lawyer who made millions flipping struggling companies. He is well known for his opulent lifestyle and was once featured on a CNBC show about it. He’s hosted lavish celebrity-studded parties at his Indiana mansion, sails a yacht, collects classic cars and displays Picasso paintings in Obsidian’s plush boardroom.
He was brought in as chief executive of National Lampoon after the former CEO, Daniel Laikin, who is an old friend of Durham, was arrested Dec. 15, 2008, and charged in connection with a scheme to artificially inflate the company’s stock. (The Securities and Exchange Commission has since de-listed National Lampoon.)
Earlier this year, Laikin pleaded guilty to one count of conspiracy in connection with the plot. He is scheduled to be sentenced Jan. 13 and faces up to five years in prison.
