Original subtitles

In this episode of American Greed, Indianapolis businessman Tim Durham

like a Hollywood playboy.

Tim liked flash.

He liked car companies and cigar bars and ultra lounges and yachts. He dates

models, drives super exotic cars.

I had a nail in the tire, cost $22 ,000.

And owns a $6 million yacht.

I mean, I like material things, absolutely.

I think that's what drives the American economy.

I think everybody's materialistic.

Durham's ambition?

To be the world's richest man.

At the end of the day, when I breathe my last breath, I'd like to be there to

work more than anyone else in the world.

But this master of the universe perverts Midwestern values by stealing $200

million from blue -collar workers, farmers, firemen, school

bus drivers.

And I just would like to ask him, was it worth it where you are now? Would you

do it again?

I first shot with Playboy in 2006.

And 2007.

And then I was on Beauty and the Geek Season 3.

Megan Hauserman is a reality TV star known for her work on dating shows.

I was on VH1's Rock a Love, Charm School, and Rock a Love 2.

VH1's I Love Money.

And then I had my own show, Megan Wants a Millionaire.

In the summer of 2007, Megan gets a call from her modeling agency.

But it's not her typical gig.

The client isn't a fashion photographer or film director.

He's an Indiana businessman named Tim Durham.

And Tim contacted the agency saying that he was having a big 44th birthday party

in which he wanted to do as a Playboy -style mansion theme.

And he wanted to hire about 25 girls from a modeling agency in L .A. and fly

them out for his party.

The 25 models are flown to Indianapolis, first class.

At the airport, they're picked up in Rolls Royces.

And then they're off to a mysterious destination.

Well, we were driving through basically the woods in the middle of nowhere. You

know, there was small, moderate family homes. And then all of a sudden there's

like a castle. It looks like a hotel or resort or something.

And it was his house.

Hi, I'm Tim Durham.

Durham's party, the likes of which Indianapolis has never seen, is coming

later.

His story begins in Seymour, Indiana.

Seymour inspired the song Small Town by John Mellencamp, who has deep family

roots here and grew up in Seymour about the same time Tim Durham did.

But farms, tractors, and little pink houses don't impress Durham much.

as he explained in this 2007 interview with CNBC.

I didn't come from, you know, a wealthy background.

You know, my dad is a dentist. He, you know, I think he drove a Honda for, I

don't know, 15 years, you know, and he said, this is good enough. I can get my

golf clubs in the bag and that's really all you need in life.

And that was his philosophy.

He never had any aspirations for money, to make money. So I'm not sure actually

where I got that desire from because my mother really didn't either.

But I always did have an aspiration to do that.

By his first year of law school, Durham has already topped his old man.

According to former classmates, he arrives at Indiana University in a BMW.

After graduating near the top of his class, he joins one of the most

law firms in town,

Ice Miller.

I know some people who worked with him at Ice Miller, and he was certainly well

regarded.

viewed as ambitious, very smart.

Reporter Greg Andrews has written dozens of articles about Tim Durham's business

ventures. So there were no signs of sort of an underside of Tim Durham at that

point. He seemed to be on a very traditional, successful path. He married

Servas, who was the daughter of a longtime city councilman.

Very powerful guy here, Bert Servas. He was not someone who was in the paper all

the time, but he certainly was in a position to make things happen and did

things happen.

In addition to running city council, Bert Servas is a master of the leveraged

buyout, using debt to buy companies and then working to fix them and flip them

for a profit.

And Bert took his new son -in -law under his wing and taught him the game of

leveraged buyout.

And he basically sat me down one day and said, you know, if you really want to

do well in life and make money, you need to get into equity.

You need to get into owning and managing companies and that kind of thing.

Working for people, doing the deals, and do the deals yourself.

By the late 1990s, Durham's marriage has ended.

But business is just starting to take off.

He goes out on his own and buys his first company, Lake City Forge in

When I started, I bought a forging operation, put a machine shop with it,

real well. You know, I virtually had no money, so I borrowed everything.

And, you know, I think I netted somewhere around $14 million, $15

that first deal. So it helps if your first deal works.

And so that propelled me into a lot of other ventures.

In 2001, Durham founds Obsidian Enterprises.

Obsidian's purpose is to buy out small manufacturing companies that are leaders

in their industries.

At the time, Jeff Osler is Tim Durham's brother -in -law and the vice president

at Obsidian.

Osler says that while winning is important to Durham, the most important

is the appearance of success.

It was about perception.

It was about what other people perceived Obsidian was.

Durham hires a tailor to make custom -made suits for everyone in Obsidian's

office. At Christmas, everyone gets a Rolex.

If the point is to create a halo effect around Durham and Obsidian, it works.

I just thought it might be a machine we'd want to finance.

The doctors using it are making a ton on it.

Soon, money starts to flow into his sister company, Obsidian Capital

which allows wealthy individuals to invest their own money in Tim Durham's

Based on his record with those earlier leveraged buyouts, a who's who of

Indianapolis, investors all flocked to be part of this.

In 2002, Durham makes a trade that really puts him on the map.

He acquires stock in Brightpoint, an Indianapolis -based distributor of cell

phones. I think its market cap got at one point as high as $2 billion, and

it fell all the way down to $6 to $8 million.

It was just unreal.

Looked at that and said, you know, this is worth a bet, and started acquiring

stock, and I put about a million dollars in it.

It rebounded. The company did well. Came back, you know, four or five years

later, and I made somewhere between $30 and $40 million on that deal. For a

million -dollar investment, it was a good deal.

Tim Durham is on a roll, and it looks like nothing can stop him.

Next on American Greed, a $6 million yacht, a $1 .8 million sports car,

a mansion with every possible amenity.

We wallpapered the ceiling, which is another unusual treatment, but a

can do a lot with an unlimited budget.

And later, party planning Durham style.

Then we went to the mall and he just pulled out a credit card and said

we needed we could get.

And he wanted us to be really happy for the party.

In Indianapolis, businessman Tim Durham says he has made tens of millions of

dollars in the leveraged buyout business.

But he longs to replace the M in millionaire with a B.

At the end of the day, when I breathe my last breath, I'd like to be worth more

than anyone else in the world.

Statements like this rub many people the wrong way, says reporter Daniel

Comiskey.

You know, in the Midwest, we tend to be...

Humble. When we have money, we don't want people to know it.

He was none of those things.

Durham offers no apologies for his bold ambition.

People ask me, why do you say that? I don't think Michael Jordan ever went out

on the basketball court and said, man, I just hope I'm mediocre today.

I don't think Tiger Woods tried to play in a golf tournament where he said, I

hope I come in in the middle of the pack.

The self -styled Michael Jordan of leveraged buyouts goes on a spending

the early 2000s.

He buys up nitty -gritty companies, including a rubber recycler in

a trailer manufacturer in Indiana, and a company that makes tour buses.

But a big opportunity comes in 2002 when Durham's brother -in -law and business

scout, Jeff Osler, tells him about a company that's for sale in Akron, Ohio.

Its name is Fair Finance.

I read through the memorandum.

Look like a very solid company, very strong earnings, very consistent

Here's how Fair Finance makes money.

Suppose a health club has $100 ,000 in accounts receivable it expects to

from members over the next year.

Fair Finance might offer the club $90 ,000 to buy the debt outright.

The club gets cash immediately and doesn't have to worry about collections.

Fair Finance, which has a team of collectors, might be able to get most of

$100 ,000 owed.

Every dollar over its investment of $90 ,000 is profit. The more it collects,

the more profit it makes.

So it's not a flashy, super exciting business, but it could be a very

one, and Fair had done it for many, many decades.

To buy consumer debt on a large scale, Fair Finance needs lots of cash.

It gets it from individual investors who buy Fair Finance investment

certificates.

The certificates are a popular savings vehicle for middle -class Ohioans like

Harold Crawford, who retired from the Akron Fire Department after 33 years of

service. I advise it for any young fellow who wants to be a fireman because

have a lot of fun.

We're a big family.

Though Crawford loves the life of a fireman, it comes at a painful cost.

When he dies, his wife doesn't get his pension.

And I got thinking about this. I said, I got to make some money to put in the

bank and don't use.

His father has invested in Fair Finance since 1936 and has seen steady returns.

He highly recommends this locally owned and family -run company to his son.

And I started putting money in there and built a pretty good account.

And all the time, Fair Finance was great.

Oh, I like this picture. This is my favorite family picture. It's Dad and

60th wedding anniversary.

That's how I remember Dad smiling.

Jane Kalina and Donna Immel's father, Herman Nussbaum, started investing in

Finance in 1965.

Dad was a very frugal man.

He worked very hard all his life.

He was a farmer and a part -time mason, so whenever he had extra money, he would

invest it into a certificate.

When the Fair family had it, it was a very, very good investment, so that's

where he put his money.

Barb Lukasik is a former nun who now babysits children.

When she leaves the sisterhood to care for her sick father, she is far behind

planning for retirement.

Lou Kasich puts every extra penny into Fair Finance and eventually accrues $125

,000.

And the reason I went with Fair Finance, my Uncle Joe knew Mr. Ray Fair, and

everyone,

including my uncle, loved him. They said he was a wonderful man, very honest,

and he said, Barb, I think you should do this.

So in 2002, when Tim Durham buys Fair Finance from Donald Fair, the son of the

company's founder, He's buying a company with a track record of success and a

history of honesty.

Durham buys it not through Obsidian, but through a new entity, Durham Cochran

Investments, which he's founded with a friend, James Cochran.

The investors who speak with American Greed say they are unaware of the change

in ownership.

I had no clue that in 2002 that Fair Finance was sold to Mr. Durham.

Don't remember seeing any of the circulars. I didn't know about it.

knows. And I once, years went by, I guess two or three years went by before

actually anybody learned that it was sold.

By the time they find out, it will be too late.

There's a new captain at the helm of Fair Finance, and investors will be

to see where their money is going.

Usually pay $200 ,000 to $300 ,000 over.

Oh my God.

About $1 .8 million.

$1 .8 million?

I had a nail in the tire.

And they run flat, so it never went flat. Then I had to change the tire. It

$22 ,000.

$22 ,000 for a tire.

That was my money.

Up next, the Hugh Hefner of the Heartland.

Well, he wanted to kind of style it like a Playboy Mansion party. So, you know,

he wanted all the girls to wear lingerie and Playboy outfits.

I'm Tim Durham.

He's never been shy about trumpeting his success.

Come on in and see where I hang out.

And in 2007, Tim Durham opened up his life to the local and national media.

Tim courted attention at that time.

Daniel Comiskey is deputy editor of Indianapolis Monthly.

In my business, I have to call rich guys a lot, and the answer almost always is

forget about it.

Tim not only was willing to speak to me, he wanted to have me out. He wanted to

be in the magazine. He wanted to give me all the access I needed.

Durham invites Comiskey and also a CNBC documentary crew down to Miami to see

his yacht.

Yeah, I mean, it's a 100 -foot boat. It's an asthma. I think they run between

million, $7 million.

I had a smaller boat, and as I said, you kind of graduate up from small boats,

bigger boat to bigger boat to bigger boat, and you finally go, okay, this is

enough. The Obsidian costs $5 ,000 a month just to dock, and it burns

250 gallons of gasoline per hour.

Well, I just reflect on how much money I spend, and that's really how lucky I

am. I believe that yacht had seven bedrooms, and every bedroom had its own

bathroom with beautiful tile work and, you know, glass stairs lit from below up

to the upper deck.

I mean, I like material things, absolutely.

I think that's what drives the American economy.

I think everybody's materialistic.

On deck is Tim's girlfriend, Jamie Farrell, who was Playboy magazine's Miss

January in 1997.

This is my brief moment of photojournalism here, shooting Jamie

Playboy like this.

Best shot I've ever taken.

Life is good, and Durham makes a show of spreading his good fortune.

He would tip everyone a $100 bill, every last person, the guy who tied up the

boat, the girl who served him a drink on the boat. When we went out to

restaurants, every busboy who came by got a $100 tip.

He wanted people to know how rich he was.

Durham takes CNBC on a tour of his home.

a 12 ,000 -square -foot mansion on the shores of Indianapolis' Geist Reservoir.

Realtor Greg Cooper knows the territory.

It's a very affluent area. The water property is limited, so it's highly

after, and the properties along the front of the water proper are very, very

expensive.

Well, this is my house.

Chateau Durham has wallpaper on the ceilings and fine art on the walls.

This series is one that Peter sent me for my birthday.

Durham counts as a friend pop artist Peter Max, who creates this Warhol

portrait. You did one for Schwarzenegger, you did one for Clinton.

you keep them together, and they've got to stay in this position.

Well, I think the message is pretty hard to miss. It's a huge wall of Tim

Durham's face, right? It's a monument to his ego.

There's no hiding behind that, nor would he have wanted to.

These two chairs are for people to sit here and just admire me for hours.

But cars are his biggest obsession.

He builds a two -story, 20 -car garage.

But that holds just a fraction of his collection of 70 automobiles, from

classics like Duesenberg... It really is like having a lot of little kids.

...to this $1 .8 million Bugatti.

If I lose the key, it's $5 ,000 to replace the key. So I watch the key very

closely. Yeah, everything about that car is expensive.

But he also has some everyday cars.

A friend of mine, I was telling you about Ludacris, called me one day. He

asks me every day, what car are you in? What car are you in? I said, well, it's

rainy today, so I'm in a Bentley. He goes, that's your rainy day car?

For office space, Durham rents the top floor of the Chase Tower, the highest

point in Indiana.

Well, you took the elevator to the top floor of the Chase Tower, and as soon as

you got off the elevator, there was a large wall of glass with glass doors.

walked through it.

And Tim's office itself was huge.

I mean, it was the size of a house, and it was very high -priced real estate.

There were only a handful of people who worked there in this enormous office.

So it was not about doing business. It was about image.

While Durham works hard to craft public perception, some insiders at Obsidian

are growing concerned about his spending.

Jeff Osler, once Durham's brother -in -law and senior vice president at

Obsidian, says Durham can blow $100 ,000 a day in Las Vegas.

My concern was, as quick as it's getting spent, how do we continue to make it?

We can't make it quick enough.

before it's gone.

If the personal spending wasn't concerning enough, there's the apparent

in business strategy.

No longer content buying Rust Belt factories, Durham pumps money into

projects, restaurants, nightclubs, magazines.

He's even gone Hollywood, buying National Lampoon, the once great comedy

that has since fallen on hard times.

But maybe National Lampoon is a perfect fit because Tim Durham's life is a rich

man's animal house.

I had some ideas on it was going to be pretty crazy and pretty big, but I had

idea it was going to be what it was.

In the summer of 2007, Durham throws himself a 45th birthday party.

Calling it a pajama party, he says for one weekend, his house will be like the

Playboy Mansion.

They had a...

body paint artists there.

So a lot of the models were basically, their pajamas were painted on.

He had girls from Playboy there, a lot of naked women, B -list movie stars.

This is a picture of Kato Kaelin mingling with his guests at his birthday

Megan Hauserman, a model and reality TV star, is one of about 25 women flown in

from L .A. to make the party more festive.

There was just, all the girls were just there to have a good time. We were just

drinking, you know, obviously there was several open bars.

And we were kind of just looked at by the local Indiana residents.

Like, where did these girls come from?

Amid the ice sculptures shaped as dollar signs, Tim Durham holds court.

He had a huge stack of $100 bills in his pocket. He was walking around in silk

pajamas thinking he was Hugh Hefner with like a girl on each of his arms.

And the birthday cake itself?

On display in Tim's car museum in front of his $2 million Bugatti, he had a

gigantic cake with his face printed on it.

And it was like a million dollar bill.

And then once the party got started, he was just throwing money everywhere,

throwing hundred dollar bills off his balcony over like the dance floor.

And he was pretty crazy. It just seemed like it wasn't, you know, people that

throw around that much money doesn't seem like they work very hard for it.

Like something didn't seem right.

Up next on American Greed.

An old friend dropped a dime on Durham, and the FBI gets a warrant for his

phone. I mean, it's just basically we make $25, $28 million of loans and ban

Hello.

By 2008, Tim Durham has moved to Los Angeles.

He owns this $3 million house in the Hollywood Hills and also rents this 16

-square -foot mansion for $25 ,000 a month.

But he still keeps this 12 ,000 -square -foot mansion in Indiana.

There was very little about Indianapolis that he loved.

Tim was from this place, but not really of it. You know, he liked the fast life

in Los Angeles.

In L .A., Durham hangs with stars, like the rapper Ludacris, and dates a new

girlfriend, a model actress and former penthouse pet of the year, Erica Taylor.

Durham says he needs to be closer to one of the jewels in his crowd, L .A.-based

National Lampoon.

Little does he know, trouble at Lampoon will be the beginning of the end.

On December 17, 2008...

Durham's friend and business partner in Lampoon, Dan Lakin, steps down as the

company's CEO after he's indicted for allegedly manipulating its stock price.

Facing jail time, Dan Lakin says he has a story to tell about his old friend.

Special Agent Dennis Hallidon oversees the investigation for the FBI.

He said that Tim Durham's lifestyle was essentially financed by a company out of

Ohio called Fair Finance.

He described the company as almost like a bank and that Tim had taken loans and

about $100 million out of the company over a period of years and that it was

source of all his wealth.

Fair Finance is the consumer financial company in Ohio that Durham bought in

2002.

About 5 ,000 investors, primarily middle -class retirees, get steady returns

from Fair Finance.

Many families...

like the family of investor Barb Lukasik, have been with FAIR for

and know the founder, Ray FAIR.

From what I've gathered over the years, he was a wonderful man, and it was a

wonderful company. Everybody had great respect for him and for the company.

Many investors don't know the company has been sold to Tim Durham.

Herman Nussbaum, a retired farmer, has $170 ,000, his entire nest egg, invested

in FAIR.

He always plows the returns back into the company.

And I just said, well, Dad, I said, maybe it'd be a good idea to diversify a

little bit. He said, no.

He said, Fair Finance has treated me well, and I don't have any problems with

it. And he went and reinvested it.

Around the same time that Dan Lakin talks to the FBI, Greg Andrews, editor

the Indianapolis Business Journal, gets a call from an anonymous source.

This deep throat tells much the same story as Dan Lakin, that Tim Durham is

plundering fair finance.

He ended up using fair like it was his own personal bank.

He needed money, he would just draw it out of fair.

Andrews discovers that Durham withdraws millions from fair finance in the form

of loans to himself and the businesses in his leveraged buyout empire.

But these aren't loans like the average home mortgage or car loan.

I think these were loans in quotation marks.

Maybe they were originally intended to be loans, but they weren't repaid. A lot

of times there was very little documentation.

Andrew's investigation reveals these loans bankrolled Durham's lavish

and allow him to perpetuate the illusion that he's a successful businessman.

These loans that he made to himself and to his friends and to his other failing

businesses got bigger and bigger and bigger.

There was a point that he must have thought to himself, there's no way I'll

pay this money back.

Across town and FBI headquarters, Special Agent Dennis Halligan subpoenas

records for Fair Finance to see if these allegations might be true.

Ultimately, the records kind of bore out.

what Dan Lakin was saying. And over a period of years, the record showed that

about $90 million had been sent from Ohio to accounts here in Indianapolis

were under the control of Mr. Durham. Though he needs more evidence to prove

Agent Halligan suspects Durham is perpetrating a massive financial crime.

In the fall of 2009, he gets a warrant to tap Durham's phone and sets up a wire

room to run round the clock.

Up next, Durham and his gang live like ballers, but they're desperate for

dollars.

I bought another $383 ,000 from my mother -in -law.

How about I explain this?

Hear more wiretaps at cnbcprime .com slash American Greed.

Want inside information from the show?

Join the Greed social network.

Like us on American Greed's Facebook page.

We'll be right back.

In November 2009, FBI agents listen as Tim Durham huddles up with his inner

circle. Jim Cochran, who is now Fair Finance's chairman, and Rick Snow, the

company's chief financial officer.

They have a lot to talk about.

In the wake of reporter Greg Andrews' expose of Fair Finance, investors are

worried that Tim Durham is using their money to fund his extravagant lifestyle.

The wiretap, that's all they talked about, was how they were basically going

keep investors from figuring out the true condition of the company, and this

all done on the phone.

Yeah, most of the big -time investors that had 200 -plus thousand, we had lots

of conversations with.

Jim Cochran is Durham's point man in Ohio.

These days, he's answering anxious questions from investors.

Most have asked directly, you know, have you taken money and used it to your own

benefit, our money, invested money?

Of course I said no.

And, you know, you're not buying houses and cars with this money.

And I said no.

Okay, well, then we're okay.

Saying they're okay could not be further from the truth, according to the FBI.

Very quickly we realized that... Tim Durham was broke and so was Fair

that they were struggling to make redemptions to investors.

They were delaying interest payments to investors.

Do those two really have to go out today?

In one case, Durham delays paying the grieving heirs of an investor who has

died.

And let me tell you what, death is easy to push out. You can just tell the

executive of the state, you know.

Sorry, you've got to wait a couple more weeks. I just don't see that as a big

issue.

No, I don't either. They're not going to redeposit with us anyway, so who gives

a... I agree.

At this time, in November 2009, the stakes could not be higher.

Durham is trying to raise more money from investors than he ever has before.

$250 million.

But to issue the debt, Durham needs the formal approval of Ohio regulators.

Like students cramming for a final, they're gathering hundreds of pages of

documents to make their case.

But Durham remains confident.

At one point, they kind of chuckled with themselves that they really don't

expect a lot of trouble with the securities regulators because the guy at

state securities office didn't seem that sharp.

My feeling is give them a shitload more information.

So that there's just so much it overwhelms a guy. My guess is the guy at

state of Ohio is a financial genius.

Yeah, I think you're right.

Their contempt is also apparent when it comes to investors.

Durham and Cochran discuss a TV commercial they've produced that they

smooth over everything.

I'll tell you what, I watched that dance. It's pretty damn good.

An Ohio company celebrating 75 years of service. We have weathered the storm.

Together, we are Fair Finance.

Well, if you're an investor, you're at peace.

You're at total peace with that.

Under Durham's watch, Fair Finance has changed its business model.

Instead of buying accounts receivable, it is now primarily lending money to Tim

Durham and his company.

But as Agent Halligan explains, most of these loans aren't being paid back and

most likely never will be.

Champion Trailer had a loan with Fair Finance of $8 .8 million.

It was out of business, but yet it still owed money.

Pyramid Coach, another business that was out of business at the end, owes $6

million. He's representing that these are all collectible loans, that these

loans that we'll pay at some point.

Bankrupt companies rarely repay their debts.

But in this recording, Jim Cochran brags about how he has fooled an investor,

telling him these worthless loans are valuable assets.

You are good, Mr. Cochran.

Well, you are the best at this.

The conversation showed that they had the intent to deceive investors about

true condition, that they needed new money. They needed to entice investors

bring in money to invest in the company, to buy certificates, to keep everything

going. If the money stopped,

everything, the music stopped.

Next on American Greed.

Special Agent Harrington believes he needs to move now before more investors

burned. We had to step in and shut it down.

In Akron, Ohio, fair finance investor Barb Lukasik makes most of her money

running a home -based daycare.

She doesn't take in much, barely enough to pay her bills.

But as a former nun, she's accustomed to living simply, and she says she does it

because she loves children.

I've been doing it probably now over 25 years because some of my oldest ones are

finished with college.

to jobs, you know, and it's been a real blessing for me and for them.

Lukasik has managed to save $125 ,000, her life savings, which she has invested

with Fair Finance.

In November 2009, as the FBI listens in to Tim Durham's phone calls, Lukasik

contacts Fair Finance to request a withdrawal of $10 ,000 of her money.

I had wanted to take some money out.

to redo the kitchen, because it really needed it. And lots of things in the

house. And the lady said, oh, it'll take a few weeks. I said, that's fine. Well,

it never happened.

On November 24, 2009, more than 20 FBI agents arrive at Monument Circle in

downtown Indianapolis to execute a search warrant at the headquarters of

Durham's Obsidian Enterprises.

All the TV stations...

Broadcasting live from the circle, it couldn't have been a bigger statement by

the FBI.

As fair finance investors are shut out, confusion quickly gives way to despair.

And this lady over on the curb was crying.

And I walked over to her and I said, what's the matter?

I said, you're cold, it was snowing.

I said, you want to get warm in my car? She said, no, no. She said, I'm all

right, I have my car. She said, but I don't have no money no more.

On March 16, 2011, Tim Durham, Fair Finances Chairman Jim Cochran,

and CFO Rick Snow are indicted on multiple counts, including conspiracy to

commit fraud, wire fraud, and securities fraud.

All three go to trial, which begins at the Federal Building in downtown

Indianapolis in June 2012.

I'm anxious to get on with it.

In his defense, Durham says the phone taps captured him at the worst period of

his life, trying to keep his companies afloat in the middle of a historic

financial crisis.

Special Agent Hallidon says that's no excuse.

Fair Finance was broke.

He was running a Ponzi scheme in the traditional sense.

If he didn't have new investors coming in the door with cash in hand, it would

not be possible for him to pay his bills.

That's the traditional Ponzi.

The heart of the case is the $144 million in loans Fair Finance made to

Durham, his friends, family, and related entities.

Though these loans had never been repaid, Durham told investors they were

of Fair Finance.

I wasn't sure about all of this until I heard those phone calls, and that's when

I thought not only was this a Ponzi scheme, but he knew it.

I'm sure if this didn't go through, we're going to be sued like hell. Is

way we can go to jail here?

No.

I mean, would somebody ever try?

Real estate loans?

Huh? No.

No. Okay.

You can't go to jail for taking real estate loans.

Durham's lavish spending also proves to be damning evidence at trial.

In the fall of 2009, as Durham withholds payments to investors like Bob Lukasik,

He gets an e -mail from his jeweler.

He has bought his girlfriend, Erica Taylor, a diamond bracelet.

The e -mail reads, Thank you very much for your purchase of the Beaudry City

Lights bracelet.

I think it looks gorgeous on Erica's wrist.

The retail was $30 ,635, and your special price is $22

,950.

I feel sad that his greed was so much more important than anybody else's

On June 20, 2012, Durham, Cochran, and Snow are found guilty on multiple

counts, including wire fraud and securities fraud.

At the sentencing hearing, victims explain how the loss has affected their

lives. Some elderly retirees say they can no longer afford eyeglasses or

medicine.

Barb Lukasik eventually gets a modest kitchen upgrade thanks to donations from

friends, family, and even a few strangers.

But her future will never be secure.

I will have to watch children until God calls me home because I only get $102

Social Security.

And so I have to be able, that wouldn't pay one of my utility bills.

Jane Kalina and Donna Emmel speak for their father, Herman Nussbaum.

who lost $170 ,000 and has since passed away.

Jane wrote this letter and said to Mr. Durham, you might think that you're the

richest man on earth or whatever, but you're not. My dad is one of the richest

men on earth.

He has his integrity.

He has his family.

He has his values, his morals. He has, he has, he's just a man of integrity.

Judge Jane Magnus Stinson sentences Rick Snow to 10 years in prison, James

Cochran to 25 years, and she sentences Tim Durham to 50 years in prison.

As she watches him walk out of the courtroom, Jane Kalina wishes she could

one more thing.

He was shuffling his feet in his prison garb, being shackled, and I just would

like to ask him, was it worth it?

Where you are now, would you do it again?

By 2014, the mansion that was once the scene of decadent parties is in

disrepair. When realtor Greg Cooper showed the property to a client,

were living inside.

I suppose the classic irony of a place like this is that for the parties that

were held here and all of the off -the -Richter scale level of debauchery that

went on, it's kind of a humble contrast now to see the house in the condition

that it's in. The house finally sold for just over $2 million, pennies on the

dollars that Durham spent here.

And the girlfriend was gone, and his house was gone. His 40 cars were

repossessed.

So it was all gone.

And apparently it had a very flimsy foundation the entire time he owned this

stuff. A bankruptcy trustee in Cleveland is retained to sell off assets and try

to reimburse investors.

But they don't find much real value.

His mansion has more debt than it is worth.

But what about the car collection that was Durham's pride and joy?

Cars, though, are making me money.

So I have a justification for keeping the cars.

If only that were true.

The fact is, the Bugatti is leased, and few of the cars are owned outright.

They all had various debt on them, so it sort of furthered his aura of being the

really wealthy guy, when in reality, when those were claimed and sold by the

bankruptcy trustee, they got almost nothing because they had to pay off all

loans.

the man who specialized in leveraged buyouts, leveraged everything, and

his way from a quintessential small town to the Hollywood Hills to prison.

It's so odd to think of someone who has lived this kind of lifestyle, who is now

in a cell in a federal prison, probably for the rest of his life. I mean, it's

from the highest high to the lowest low in just a period of a couple of years.

It's a classic American story in some ways.

Glad that you guys could come by and take a look around.

So thanks again, and we'll see you later.

Next, the perfect setting, the perfect motive, a less than perfect crime.

He shot the lawyer and murdered his wife. This was a murder for money.

American Greed, scams, scoundrels, and suckers, next on CNBC.

Restaurant Startup, all new Tuesdays at 10, CNBC.