Silver State and the legal process

[fry]

There is a pissing contest going on in the bankruptcy court over the $1,077,515 that was wired from Citibank (Student Loan Corp, SLC) to SSH shortly before the bankruptcy filing. On the one side is SLC and on the other is the bankruptcy trustee and Orix, the lender. SLC claims that the funds were held in trust and that they should not be part of the general creditor claims. The trustee and Orix argue that the funds were “co-mingled” and are therefore “untraceable” and should be treated the same as all the previous students funds that were advanced to SSH…i.e., as part of the assets subject to unsecured creditors’ claims. Here are some of the facts from the court filings:

 

1. On Friday, February 1, 2008, SLC initiated a wire transfer in the amount of $1,077,515 to SSH’s bank account at Nevada State Bank.

 

2. On February 4, 2008 the amount was credited to the SSH’s general operating account at Nevada State Bank.

 

3. Subsequent to the crediting of the amount on February 4, 2008 several wire transfers were made from the SSH’s account totaling $1.6 million. About $1.3 million was transferred to the ADP payroll account.

 

4. On February 4, 2008 at 6:12 pm SSH filed it voluntary Chapter 7 bankruptcy petition.

 

To a lay person it would seem obvious that those funds at least should be refunded to Citibank…and then to the students…because SSH clearly never intended to provide the training that those funds were earmarked for. And SLC says as much in their response to the trustee and Orix:

 

[T]he existence of a constructive trust is essential to the effectuation of justice because it would prevent the Debtor’s estate from benefiting from its inequitable act – the wrongful diversion of SLC’s funds. Here, the Debtor took over a $1 million wired by SLC and applied it to its own use, even though it knew full well that those funds were intended to be applied to the tuition for students so that they could be trained as pilots and even though the Debtor also knew it was going to liquidate, never providing that education, by filing a chapter 7 petition later that same day.

 

And the Trustee’s response:

 

Based on these gossamer threads of conjecture, SLC demands that the Trustee bear the time and expense of filing an adversary action and interpleading the Funds.

 

"Gossamer threads of conjecture"? Helloooo...the same day the funds hit the bank SSH transferred the funds and filed bankruptcy?? I believe the way it works is that if SSH had not paid payroll with those funds the employees would have a preferred position in the claim on SSH's assets...i.e., in front of Orix. By paying the payroll, it would seem that, in effect, Orix gets those students' million dollars.

 

Justice, fairness? Nah, this is the legal industry and there is nobody looking out for the students in the process. Orix's lawyers say it has a secured claim on the assets that the students’ loan funds paid for and the Trustee…well...it is just too much trouble for him. Hopefully the court will inject some common sense.

[Guest pokey]

reminds me of that case i heard about long ago ( dunno if in fact its true-but? i like to believe it is) :

 

Seems this guys wife run off w/ a lawyer, who later represented said wife in the divorce case. Well, in court the guy was totally rail-roaded & the judge awarded her a ridiculous amount of alimony !

 

What did said husband do? he pulled out his handgun, shot the wife, her lawyer AND the judge

 

now i ask you, was justice served?

 

dont even think of getting me started on the lawyer jokes !

[fry]

In case there are any students out there still harboring the hope that when the SSH assets are all sold there might be something left over, the attorneys working for the bankruptcy trustee filed their request for compensation last week. Their fees and expenses through June 30 were $403,652. With staff attorneys at $175/hr and partners at $375/hr those telephone conversations add up. And that doesn't include the examination of the records of SSH's four banks that began last week in an attempt to trace the $1 million in advanced loan funds transferred to SSH on the day it was preparing for its bankruptcy filing.

[fry]

Posted at the JH board:

 

http://originalforum.justhelicopters.com/D...4609&page=1

 

In the bankruptcy filing SSH listed the Utah property as having a value of $4 million. The BK Trustee got two appraisals that showed the value at $2.4 and $2.7 million. The property now has a buyer offering $1.7 million.

 

Nevada State Bank had a mortgage lien on the property for about $1.5 million at the time of the BK filing. At that time the bank offset that lien against Airola's personal account (he had that much in a bank account...what a financial wizard) because he had "personally guaranteed" that loan.

 

So now Airola is in the place of the bank as a secured creditor of Silver State...in front of the students. He will probably get that $1.5 million as a matter of law.

 

"That's not right"..."He can't do that"..."There's got to be a law against that". "We need more regulation"...yeah right, your legal system at work.

 

And where is the attorney for the students who collected more than a million bucks in advance and who keeps threatening to file a lawsuit? He's in Utah, running a marathon.

[fry]

Airola's attorneys' response to Orix's motion that the court, rather than pay over to Airola the $1.5 million in proceeds from the sale of the Utah property, put that money into escrow until possible potential claims against Airola are determined.

 

...Orix states no authority in its "limited objection"...[f]urther, Orix apparently does not dispute the Secured Creditor's [Airola] security interest in the subject property, and does not have nor does it present any evidence of any "potential" claims against Secured Creditor, or that Secured Creditor is not entitled to the undisputed proceeds of the disputed sale. Instead Orix simply muses that a claim against Secured Creditor could hypothetically exist without offering even the slightest hint as to the basis of such claims let alone the potential for success of such unnamed hypothetical claims or the amount of such claims.

 

I would guess that Orix will not aggressively pursue this issue. Why would they, it will not result in any more or less money to them. Maybe the bankruptcy trustee will continue to pursue this. So it is possible that Airola will get the cash. Before any of the students or other unsecured creditors see a dime...if they ever do, which is unlikely. You'd think they would at least escrow the cash until the issue of the student loan cash transferred from Citibank to SSH on the day of the bankruptcy filing is resolved. But they are two separate issues involving different entities so that probably won't happen.

 

So where are the attorneys who took all those upfront payments from the students? What happened to all those lawsuits they were going to file? All that righteous indignation they were expressing back when they were trolling for clients? How about the AGs that are supposedly banding together or the politicians calling on FTC and FBI investigations? None of them have piped up so far and suggested "potential" claims that might keep Airola from collecting yet one more big payday.

 

Sheeet, what a system.

[c17worker]

None of this in my opinion is any surprise...you are dealing with compnay leaders and their attorneys whose moral benchmarks allowed them to make the dollar king instead of the students/service in the first place. Its just a shame...I mean, a good, solid school could have been.

They used to have an office over where I am by Long Beach airport...its already re-leased. I also remember a buddy of mine I used to work with who actually applied with them and subsequently turned me on to them. Fortunately, he was turned down for his training loan and just moved on. I myself remember getting one of their CD's in the mail about two weeks before they went under. Sheeesh, they were recruiting robots right to the end...

[fry]

The latest on Airola's claim in the bankruptcy court that he is entitled to the $1.5 million in proceeds from the sale of the Utah real property is:

 

It is hereby ordered that any party in interest shall have until November 4, 2008 to file an objection to the Jerry Airola Proof of Claim with the United States Bankruptcy Court, District of Nevada, Foley Federal Building 300 Las Vegas Blvd. South, Las Vegas, Nevada 89101.

 

It is further ordered that on November 5, 2008 at 2:30 pm, the parties shall appear for a status check, at which time they will apprise the court of what their discovery efforts have revealed and, if necessary, establish a scheduling order to resolve the allowance and possible payment of Mr. Airola's alleged security interest and claim.

 

Anyone who felt strongly enough about SSH's demise to show up in Vegas for the creditor's meeting might want to consider repeating that appearance on Nov. 5th. It looks like Airola is going to get one last payday courtesy of the SSH students. The attorneys don't seem to be doing much.

[fry]

Is there no objection in the bankruptcy code or precedents that can be raised based on Airola's not having put any money into the company? Can't the trustee and the various opposing attorneys determine through discovery the source of the capital that funded SSH? It is likely that all of the cash to run the company came from the students' advanced loan proceeds and that Airola and the various executives never put anything into the company. Eos supposedly put in $13 million late last year but SSH was already insolvent by then and that cash was probably just used to pay the past due bills of the company. And finally, why wasn't the transfer of the Las Vegas HQ property to Airola and Pickett in August found to be a preferential transaction and clawed back into the estate by the trustee?

 

Airola already received a multi-million payday from the LV HQ property and aircraft he took out of the company and now he's going to get another $1.5 million. And the students and unsecured creditors will likely not see a dime from the assets they paid for.

[fry]

A flurry of activity since the court set the November 4 deadline for objections to Airola's secured claim. Student Loan Corp (SLC)...i.e., Citibank...has entered the fray. SLC hs served Airola with interrogatories about transfers of cash and assets between SSH and his numerous other entities. SLC has also gotten the court to order officers of EOS Partners to answer questions about what they knew and when they knew it (hopefully explaining their investment just six months before the company went belly up will, at the least, be embarrassing). Lots of legal stonewalling by not just Airola and company but by the bankruptcy trustee as well...apparently it is too much work for the trustee's attorneys to sort through boxes of SSH records.

 

An interesting excerpt from SLC's request for documents:

 

Specifically, the requested documents are likely to show that Airola was an insider who

received preferential distributions directly or indirectly from Debtor [silver State Helicopters] in the two (2) years prior to the February 4, 2008 petition date. Additionally, the documents are likely to show that funds from the Debtors were transferred to Airola’s election campaign, directly or indirectly, in violation of the Debtors’ operating agreement or without receiving fair consideration in exchange. The transfers may also constitute fraudulent transfers under the Uniform Fraudulent Transfers Act and under 11 U.S.C. §548.

 

Because it would be improper to allow Airola to receive a $1.4 million distribution before

any reasonable investigation or discovery has been conducted by the Trustee or any other party in interest, SLC is seeking to conduct such an investigation and discovery in good faith. By no means is SLC seeking to harass the Trustee or impose a burden on him not already required under Section 704 of the Bankruptcy Code. At a minimum, the Trustee should be required to provide the above referenced documents to SLC. Indeed, the Trustee ostensibly needs the same documents in order to raise an objection to Airola’s proof of claim.

 

Finally, SLC’s subpoena, and the instant motion, should not be viewed in a vacuum. SLC

has sought documents from the Trustee all along. SLC has been transparent in its desire to seek evidence supporting its potential claims against third parties in this bankruptcy matter. SLC has attempted on numerous occasions to work amicably with the Trustee’s counsel, all to no avail. As it stands, with the November 4, 2008 objection deadline looming, SLC has undertaken great efforts to conduct reasonable discovery under the circumstances. That the Trustee may not have yet fulfilled its duties under Section 704 of the Bankruptcy Code should not be an excuse to prejudice SLC in its substantial need to acquire documents in the Trustee’s possession before the November 4 deadline

for objecting to Airola’s $1.4 million proof of claim expires.

 

About damn time somebody actually said it on the record...Airola used SSH as his personal checkbook. It shouldn't be too difficult to follow the money once they get access to the records.

[jehh]

Two points...

 

First, Airola can use SSH's money as his own, so long as it is properly reported to the IRS as an owner distribution and taxes paid on it. For that matter, he can pay himself as much as he wants, one of the joys of being the owner.

 

Second, EOS and Airola may well just plead the 5th, since they gain nothing out of testifying under oath. The news hype is gone and no one cares about this anymore other than those affected. Notice that no one is posting about it here anymore other than you? We're all sick of hearing about it and have moved on. Sucks for the former students, but that is about as far as it goes.

[Darren Hughes]

Just cause you're not interested, doesn't mean others aren't. There are lessons here that this industry should never forget. Keep posting Fry, we're watching!

[67november]

Just cause you're not interested, doesn't mean others aren't. There are lessons here that this industry should never forget. Keep posting Fry, we're watching!

 

DITTO THAT

 

this lesson needs to stay on the fore front for all those wannabees trying to decide on what/where they want to go with their choices

 

keep posting Fry!!

[500E]

Sounds like you have no interest but yourself and dam everyone else.

I presume you are a FI waiting to get to 1000 hours, hope you think about the students a bit more thoughtfully

[fry]

Two points...

 

First, Airola can use SSH's money as his own, so long as it is properly reported to the IRS as an owner distribution and taxes paid on it. For that matter, he can pay himself as much as he wants, one of the joys of being the owner.

 

Second, EOS and Airola may well just plead the 5th, since they gain nothing out of testifying under oath. The news hype is gone and no one cares about this anymore other than those affected. Notice that no one is posting about it here anymore other than you? We're all sick of hearing about it and have moved on. Sucks for the former students, but that is about as far as it goes.

 

And you are the owner of a small business that sells flight training so I can see why you would 1) like to see the biggest scandal in the flight training industry just go away; and, 2) defend the ability of a business owner to do anything he might like with the money provided to his business. But, there are upwards of two thousand former students out there and some might like to know what is going on in the SSH affair; and, potential students might just learn something from these posts. I am not really sorry if that makes you uncomfortable.

[jehh]

and, 2) defend the ability of a business owner to do anything he might like with the money provided to his business.

 

Not defending it, just stating the law. Don't like it, change the law. Bitching about it here won't do anything.

 

(quick accounting lesson: A business owner is allowed to withdraw funds from a company so long as there is still equity on the books. Once that reaches zero, he/she is supposed to book it as an expense and take out self-employment taxes for it, assuming a single member LLC or single shareholder subchapter S corp.)

 

SSH booked that student money as income, since it was non-refundable, so it shows up as owner equity on the balance sheet. The owner can withdraw that equity if he/she wants to.

 

What should have happened was this: If future services must be provided, then the money should be booked as a liability, not income, since there is a future obligation for the company.

 

That is where the real crime was, but it appears they will get away with it this time.

 

But, there are upwards of two thousand former students out there and some might like to know what is going on in the SSH affair; and, potential students might just learn something from these posts. I am not really sorry if that makes you uncomfortable

 

It doesn't make me uncomfortable, I was just pointing out that the conversation about it seems to have moved on. You harped on SSH for a long time before they went under. While you were proved correct, I don't think anyone was really surprised (or they shouldn't have been).

 

Another good example of this was ATA in Flordia a few years ago. A fixed wing school that was doing something similar to SSH. They took money from students the very last day before they closed their doors.

 

ATA went out of business in 2003, they owed students over $17M:

 

http://forums.jetcareers.com/get-your-mone...e-bankrupt.html

 

Here's a breakdown of the payouts effective October 31, 2006:

Total to be disbursed of $366,194.79.

 

Chapter 7 administrative fees (attorneys, etc.): $188,667.00 (paid 100%).

Balance of $177,517.79.

 

Priority Wage Claims (employees and taxes): $30.059.19 (paid 100%).

Balance of $147,458.60.

 

Priority Benefit Plan Claims (COBRA, Insurance): $26,149.16 (paid 100%).

Balance of $121,309.44.

 

Priority Consumer Deposits Claims: $800.00 (paid 100%).

Balance of $120.509.44.

 

Priority Tax Claims (State of Florida Dept of Revenue): $326,003.88 (paid 36.9%).

Balance of $0.

 

General Unsecured Creditor (students and others) Claims: $17,659,985.20 (paid 0%).

[jehh]

Just cause you're not interested, doesn't mean others aren't. There are lessons here that this industry should never forget. Keep posting Fry, we're watching!

 

Except that it doesn't learn them... The perfect example is ATA, and there have been plenty of others.

 

Fry reminds me of the person who lives across the street from the airport and complains about the noise all the time. Instead of doing something about it (like moving), he just keeps complaining.

 

Instead of complaining about SSH, why doesn't he work towards getting the laws changed, or run for office, or start a media campaign about this. Why not? Because making anonymous posts on Vertical Reference is easier and doesn't require that he actually do anything.

[500E]

"It doesn't make me uncomfortable, I was just pointing out that the conversation about it seems to have moved on. You harped on SSH for a long time before they went under. While you were proved correct, I don't think anyone was really surprised (or they shouldn't have been)."

 

I think it should make every flight school uncomfortable, the impression the CUSTOMER is getting from you is that was OK & that's what all would do if problems arose.

I can go a way towards your feelings that Fry is into the SSH thing, but it is not bad to remind people about pitfalls, you say they don't remember\learn from other problems.

Having been successfully in business for 40 + years, the tone of your posts would certainly suggest that you were not a person who would fit into my organisation I would suggest you read some of the posts in job RLC job offer rescinded thread

[jehh]

I think it should make every flight school uncomfortable, the impression the CUSTOMER is getting from you is that was OK & that's what all would do if problems arose.

 

I'm not sure I understand your point. If you think I'm giving the impression that it is ok, then you are misunderstanding me.

 

All I'm saying is that you shouldn't throw the entire training business under the bus because someone in the world is a crook.

 

I tell customers all the time that we are a pay-as-you-go school, that you can pay for each lesson as you go if this is a concern. Most of our students have only a few thousand on account at a time, we require only $2K for the block rate discount.

 

I can go a way towards your feelings that Fry is into the SSH thing, but it is not bad to remind people about pitfalls, you say they don't remember\learn from other problems.

 

You are correct that reminding people is not bad, but in my opinion, Fry has run it into the ground. There is making your point, then there is beating a dead horse.

 

If the posts were going to change something, I'd understand. But there is nothing new here, the events of the court are a legal process that has more to do with lawyers and their procedures than it does anything out here in reality.

 

Having been successfully in business for 40 + years, the tone of your posts

 

Keep in mind that you can only infer so much from an Internet posting. You are reading a tone where there may be none.

 

I would suggest you read some of the posts in job RLC job offer rescinded thread

 

I've read that topic, what specifically are you referring to?

 

Fly Safe! (and have fun while you're doing it!)

[500E]

I am glad that you have cleared up my take on the post, but if I was just browsing & left site with my original feeling you would have been rejected out of hand.

Try and think what others may read into a perfectly straightforward post, I have read some of my own after posting and thought Pi**==k & then deleted or changed it

[fry]

An objection to Airola’s secured creditor claim was filed by the bankruptcy Trustee’s attorney. It read in part:

 

Prior to the petition date several suspicious transactions occurred wherein substantial funds were transferred out of the [sSH] bank accounts and are presently being investigated by the Trustee. These transactions include the following:

 

10-12-06 – wire transfer to Jerry M. Airola – campaign $ 800,000

01-08-07 - withdrawal for Jerry M. Airola – campaign $ 37,000

01-26-07 - wire transfer to WF Investments $ 1,000,000

04-05-07 – check issued to Caddo Investments Inc $ 500,000

 

On or about December 23, 2003, [sSH] purchased commercial property [the SSH company headquarters on Cheyenne in LV] for $2,200,000. On or about August 15, 2007 [at the time of the deal with Orix and Eos] Jerry Airola, acting on behalf of [sSH] executed a quitclaim deed [for the property] to First American Equity, LLC. First American Equity, LLC is a domestic limited-liability company in which Jerry Airola and Steve Pickett (the former CFO of SSH) are managers.

 

On or about June 3, 2008 Jerry Airola, acting as a manager of First American Equity, LLC, transferred the property to Stars and Stripes Heliplex, LLC in exchange for $988,000 in cash and a note for $2,964,000. Stars and Stripes Heliplex, LLC is partially owned by a company owned by Steve and Cathy Pickett and Shining Star Equities, LLC, a company that leased helicopters to SSH and which is owned by Picket and Danilo G. Uaje, the former Controller for SSH.

 

The payments to WF Investments and Caddo Investments and the transfer of the real property are probably of interest to the Trustee because they are within the 12 month limit on preferential transfers. The transfers to Airola’s campaign are probably of interest to the IRS as well as to the Trustee.

 

Hopefully this will give the court enough ammunition to suspend Airola's secured creditor claim pending further investigations into where the cash paid to SSH by the students disappeared to. Follow the money guys…it’s not that difficult.

[betr_thn_Icarus]

JEHH:

I suggest you just simply don't click any SSH related forum then you won't have to read the details. Other than that there are enough of us interested to keep the topics near the top so that should be enough. I'm not a big fan of a biker bar in my town but I read the sign as I drive by and never enter therefore never seeing the contents.

 

there isn't a need to reply to me because I most likely won't keep up with it

[fry]

So, Airola’s attorneys have responded to the request by SLC and the Trustee that the court suspend Airola’s secured claim for the proceeds of the Utah property sale while they investigate suspicious payments made during the twelve months prior to the bankruptcy filing.. Basically, the response says that the claims made by SLC and the Trustee that payments and transfers to Airola and Airola affiliates were ordinary business expenses and that claims of preferential or fraudulent transfers do not meet the statutory definition of those terms.

 

Airola’s response lists various payments to Airola and family members that were detailed in the original bankruptcy petition and describes them as payments in the ordinary course of business.

 

There were various payments to Airola and his father for “payroll and expense reimbursements”. But wasn’t payroll processed through the payroll service…for withholding and payroll tax purposes…and didn’t all the executives have company credit cards?

 

Three $5,000 payments were made to his daughter for “advertising” because she “represent[ed] the company during the Miss California Rodeo Pageant”. Yeah, well okay, but $15k? Did other similar marketing expenses to such a narrow audience…if there were any…cost that much?

 

A $25,000 payment to his sister for “…the purchase of tee shirts, hats and shirts embossed with the Silver State Helicopters logo”. Doesn’t his sister run a holistic something-or-other business? What’s that got to do with tee shirts?

 

But more interesting, the transfer of the North Las Vegas HQ real estate, the payments for Airola’s campaign and the payments made to investment companies described by the Trustee and SLC were not addressed at all in the response.

 

Airola’s attorneys also argue in the response that the claims of possible preferential or fraudulent transfers do not meet the definitions of those terms as provided for in the Bankruptcy Code or Nevada statutes. But under both statutes the definition of preferential or fraudulent transfers includes the requirement that the debtor is insolvent at the time or shortly after the transfer. “Insolvent” is defined as “liabilities exceed assets”.

 

Ah, hello. Of course SSH was “insolvent” at the time of the transfers. SSH had probably been insolvent for quite a long time before the bankruptcy filing because SSH’s liabilities, including the liability owed to the students for future training…which was probably not recorded on the books but existed none the less…exceeded it’s assets. Regardless of the bullshit way SSH defined its revenue…i.e., as 10% of the contract amount per month…it still had a liability to pay for 200 hours of flight training per student. It shouldn’t take any great forensic accountant to arrive at a value for that liability.

[500E]

I expect he is spending it all as we speak the legal beagles make you tear your hair,

[fry]

On November 5, 2008, Citibank began offering 100% loan forgiveness of Citibank SSH student loans in exchange for an assignment of the student's claims against SSH and against Citibank.

 

http://bankruptcypower.blogspot.com/2008/1...surrenders.html

 

The Student Loan Corporation (Citibank) has been the aggressively seeking access to SSH's records including student records. The bankruptcytrustee is pushing back claiming that to produce the records would be too great a burden because the records are spread over five locations and he would have to engage a forensic computer expert to access the hard drives.

 

The trustee probably has a valid concern. I've got to believe, knowing what we now know about Airola and his crew, that maintaining accurate financial records was not a priority with them. Seeing some of the compensation requests that have come to the court from the various attorneys involved, pouring through boxes of records would be hugely expensive.

 

The student records would probably not provide anything new. A student's file likely just contains their loan application and most of the students provided that information to the bankruptcy court in their creditor claims. (Which by the way are public informantion if anyone is concerned about privacy issues).

 

The Beverly Hills attorney...representing 1,376 former SSH students...has been heard from in the bankruptcy court. He filed a statement in support of SLCs request for SSH's documents. Two pages...big whoop!

 

I believe there is scheduled a hearing by the court on the issue of the documents on December 17th.

[ChprPlt]

I'm a former CFI at SSH. One of my old students called me today to tell me his loan with Citi was going to be forgiven. I'm really happy to hear this and hope other lenders will do the same.