Judge halts dissolution of struggling Durham firm

A judge has stepped in and blocked embattled Indianapolis businessman Tim Durham and other directors of Dallas-based CLST
Holdings Inc. from dissolving the struggling company at the close of business on Friday.

New York-based Red Oak Partners, CLST’s largest shareholder, won the temporary restraining order from a Dallas County
District Court judge on Wednesday. It had argued CLST hurriedly announced the liquidation plan on Feb. 9 in order to avoid
having to hold an annual meeting next month.

The judge earlier this month ordered CLST to hold the meeting March 23, which would be its first since 2007. Two candidates
backed by Red Oak are scheduled to run as dissidents for board seats at that meeting.

“Our view is they are desperate not to have us get inside and look at all the books and records,” said David
Sandberg, a Red Oak portfolio manager who is one of the candidates.

In the proxy statement filed in preparation for the meeting, Red Oak wrote in bold letters, “We do not trust the current
board.”

Durham serves as chairman of the company, which was known as CellStar and distributed cell phones before selling off those
operations three years ago.

Durham won election soon after the asset sales, in part by pledging to dissolve the company quickly and give shareholders
remaining cash. But about a year ago, CLST reversed course and began buying consumer finance contracts, including millions
of dollars from Fair Finance Co., an Akron, Ohio, firm that Durham leads and co-owns.

The related-party purchases set off a storm of controversy and spurred CLST board member Manoj Rajegowda to resign in protest.
A letter that Rajegowda's attorney sent the company said he "was not informed of this transaction and most strenuously
objects to it."

CLST characterized the deals as good investment opportunities. But in a filing with Ohio securities regulators, Fair acknowledged
it was financially strained and “felt it necessary to liquidate a large portion of its finance receivable portfolio.”
At least some of the receivables CLST purchased soured, causing losses.

In December, CLST acknowledged in a regulatory filing that the U.S. Securities and Exchange Commission had launched an investigation
of the financial dealings between it and Fair and had subpoenaed a mountain of information.

Durham, Fair’s CEO, also is ensnarled in a criminal probe of that company led by the U.S. Attorney’s Office in
Indianapolis. In court papers filed in November, the office alleged Durham operated Fair as a Ponzi scheme, using money raised
by selling investment certificates to Ohio residents to pay off earlier purchasers.

IBJ reported in October that Durham and other insiders have taken more than $168 million out of Fair in the form
of insider loans. The story said the heavy borrowing raised questions about whether the company has the wherewithal to repay
the Ohio investors, who are owed more than $200 million.

Red Oak officials say they support liquidating CLST, with whatever assets remain after expenses going to shareholders. But
because the officials distrust CLST’s board, they want their nominees serving as board members first.

The temporary restraining order blocking dissolution will remain in place until March 10. On March 9, the Dallas judge will
hold a hearing on whether to make the temporary injunction permanent.

CLST shares trade thinly on the "pink sheets" for about 9 cents each.

The stock has attracted several other Indianapolis investors in recent years, including Jim Cochran, co-owner of Fair Finance,
and Carl Brizzi, Marion County’s prosecutor.