Updated at 6:43 p.m. PST
Timothy S. Durham, a former CEO of the National Lampoon and leveraged buyout firm executive, conspired with his business partners to defraud investors in a $200 million scheme, a federal court jury in Indianapolis ruled Thursday.
Durham, 49, was convicted on 10 counts of wire fraud, one count of securities fraud and one count of conspiracy after he and his co-defendants James F. Cochran and Rick Snow embezzled money from nearly 5,000 investors in the Ohio-based Fair Finance Company, according to court documents obtained by TheWrap.
"Mr. Durham and his co-conspirators used lies and deceit as their business model," Assistant Attorney General Lanny A. Breuer said in a statement. "They duped investors into thinking they were running a legitimate financial services company and misled regulators and others about the health of their failing firm. But all along, they were lining their pockets with other people's money."
Cochran, 56, was found guilty of six counts of wire fraud, one of securities fraud and one of conspiracy. Snow, 48, the former chief financial officer of Fair, was convicted of three counts of wire fraud, one of securities and one of conspiracy, too.
They now each face a maximum of five years in prison for the conspiracy count, 20 years for each wire fraud count and 20 years for the securities fraud count. Each defendant could also be fined $250,000 for each conviction.
John L. Tompkins, Durham's defense attorney, told TheWrap that his client plans to appeal and maintains his innocence. He said that he believed the Indiana jury was offended by the lifestyle Durham had while living in Los Angeles.
"We fought very hard to keep the trial focused on issues related to fraud and prevent the government from turning it into a trial of lifestyle," Tompkins told TheWrap. "He was flamboyant, at least for Indiana. [The prosecutors] spent a lot of time talking about a fundraiser he did at the Playboy Mansion."
In April, Durham's attempt to have the case dismissed, claiming some of the federal government's evidence in the case was obtained through illegal wiretaps, was rejected by a federal judge.
Three years after purchasing Fair, Durham, Cochran and Snow began making false and misleading statements about the firm's financial condition and about the way they were investing clients' money.
When they bought the firm in 2002, Fair reported $37 million of debt to investors from the sale of investment certificates and income-producing finance receivables of about $48 million. By November 2009, seven years after Durham and Cochran bought Fair, the firm owed investors $200 million.
Meanwhile, its only income-producing assets consisted of loans to Durham and Cochran, their associates and the businesses they owned or controlled -- which they claimed were worth $240 million -- along with $24 million in finance receivables.
The money used for personal loans -- meant to be used primarily for purchasing finance receivables -- virtually decimated the financial health of the firm.
By then Durham, whom prosecutors fingered as the ringleader, fired Fair's accountants and stopped obtaining and releasing independent financial audits.
Though the loans were booked as lucrative assets, they were worthless or grossly overvalued, producing little or no cash and supported by insufficient or non-existent collateral to assure repayment.
Meanwhile, Durham and Cochran granted themselves bonuses and extended lines of credit.
The men then lied to concerned investors asking for payments and directed employees not to pay investors who were owed money.
Durham resigned from his post at the National Lampoon in January, but continued as CEO of the Indianapolis-based leveraged buyout firm Obsidian Enterprises.
He is the second former Lampoon CEO to be convicted of conspiracy in the past two years. In 2010, CEO Daniel Laikin was convicted and sentenced to four years in prison for artificially inflating the company's stock price by paying people to buy shares.
Pamela Chelin contributed to this article.