Oops: Appeals Court Cites Forgotten Evidence in Ruling

A federal appeals court recently overturned two of multiple fraud counts against the former chief executive of a bankrupt Indiana investment firm after prosecutors didn’t back up the charges with evidence.

Timothy Durham, the former chief executive of Indiana’s Fair Finance Co., in 2012 was convicted and sentenced to 50 years in prison for his role in a fraud that cheated some 5,000 investors out of more than $200 million.

The U.S. Court of Appeals for the Seventh Circuit on Thursday ruled that federal prosecutors’ failure to provide key evidence to back up two counts of wire fraud against Mr. Durham, while “clearly an oversight,” nevertheless warranted dropping the charges (h/t Indianapolis Star).

Specifically, Mr. Durham’s attorneys had argued that prosecutors didn’t provide evidence that a transfer of $250,000 and another of $50,000 constituted wire fraud. The appeals court agreed, citing the single-page printouts that showed that the transfers were made, but didn’t show how they were allegedly used to further the fraud.

“The government apparently intended to introduce additional evidence regarding the circumstances of these transfers but neglected to do so,” the court found. “Without the additional documentary evidence, the jury had no evidence about how the money was used.”

Court papers show the printouts were meant to introduce larger exhibits that would show that the funds were paid to a country club as dues and to a luxury garage.

The appeals court did let the rest of Mr. Durham’s conviction—eight additional counts of wire fraud, one count of conspiracy to commit wire fraud and securities fraud and one count of securities fraud—stand.

The court sent the case back to a U.S. district court for resentencing. Each count of wire fraud carries a maximum 20-year prison sentence and $250,000 fine, according to the Department of Justice.

The appeals court also upheld the convictions of co-conspirators James Cochran and Rick Snow, who respectively received sentences of 25 years and 10 years.

Fair Finance, which creditors successfully pushed into bankruptcy liquidation in February 2010, sold interest-bearing certificates to investors and used the funds raised through those sales to buy consume- finance contracts at a discount. By late 2009, securities regulators said Mr. Durham, Mr. Cochran and their other businesses owed Fair Finance more than $200 million—about 90% of the company’s total loan portfolio. Regulators said they used the funds to help boost other companies under their control or fund lavish lifestyles that included multiple homes, a private jet and dozens of cars.

Write to Jacqueline Palank at [email protected]. Follow her on Twitter at @PalankJ.