Attorney Dan Reed Accuses Silver State Helicopters of Fraud
18-Feb-2008
By Karen Di Piazza
Daniel R. Reed, attorney at Utah-based law firm Harward & Associates, said the firm plans to file a class-action lawsuit against Silver State Helicopters and Eos Partners on charges of fraud. Before closing operations on Feb. 3 and filing for bankruptcy under Chapter 7 on Feb. 4, North Las Vegas, Nev.-based Silver State was the largest civilian helicopter school in the U.S. New York-based Eos, a private equity company, had a 60 percent ownership in Silver State after its investment of $30 million in August.
"Prior to Eos' investment, the company was operated under Silver State Helicopters LLC, with its founder Jerry Airola as the primary member," Reed said. "When Silver State Helicopters and Eos joined forces, a new company, Silver State Services Corp. was formed. We're going after Silver State Helicopters, Airola, Silver State Services and Eos Partners."
Reed, who began practicing law in the fall of 2007, is the primary point of contact between former students of Silver State and Harward & Associates, led by senior partner James. E. Harward and partner R. Spencer Robinson, both former Utah administrative law judges. On behalf of the firm's case, Reed posted a Silver State bankruptcy website for former students of the flight school. Reed said both Harward and Robinson would directly manage and litigate the case against named defendants. Currently, the firm represents students from California, Texas, Florida, Utah, Arizona, Washington, New York and other locations where Silver State operated.
Building A Case Of Fraud
"As of Feb. 17, I've talked to more than 1,000 students or student instructors," Reed said. "On Feb. 1, only two days before closing its facilities at 5 p.m., Silver State withdrew $23,300 from 90 student's tuition accounts. That's nearly $2.1 million. We'd like to know what those funds were used for. Keep in mind, that's only 90 students' tuition funds withdrawn on that one day; the overall damage is far greater.
"Do you think on Friday, Feb. 1, the company didn't have Chapter 7 papers ready to go? We intend to file a class-action lawsuit against Silver State and Eos for fraud, breech of contract and other causes of actions. By mid-March, we'll move to get Silver State out of Chapter 7. If that's granted, we'll file suit immediately."
Silver State operated flight academies at more than 30 locations in 15 states. Although media reports say 750 people were employed at Silver State and it had 2,500 students, Reed said many of the students were also employed as student instructors. He also said some of the student instructors haven't been paid.
"By the company filing Chapter 7, it put somewhat of a shield up against lawsuits," Reed explained. "One of the ways of getting Silver State out of Chapter 7 is to demonstrate fraud. I'm confident we can do that."
On the day Silver State filed bankruptcy, according to a new student, Shane Hale, the flight school accepted a wire transfer of half of his tuition of $46,000. Hale, like so many other students, is saddled with debt paying off tuition fees with high interest rates. "I called Citibank to stop the transfer," said Hale, who like other students in his situation never had the chance to attend, complete training or graduate. He said Citibank responded saying it couldn't refund his money.
"The law needs to be rewritten to protect students," Reed said. "All of these students are on the hook for their tuition loans. The week prior to its bankruptcy filing, Silver State held recruitment seminars trying to get more students to sign up and apply for loans for its 18-month helicopter academy program."
Reed said students and student instructors claim to have knowledge that Airola and the company used students' tuition money inappropriately.
"We'll ask for subpoenas of financial documents to substantiate claims," he said. "Some of the allegations include company funds being used to pay for Airola's failed Clark County campaign to become sheriff, women's breast augmentations, and purchasing a fleet of Hummers and motorcycles. The list goes on, but this is part of the due diligence that's required."
Reed said if Harward & Associates, representing the vast majority of students against Sliver State and Eos, can bring a class-action suit to life, it would help students in many ways. "This is the only way in which students would be able to recover damages, have some emotional closure and to move on with their lives," he said. "Meanwhile, each state attorney general has the legal right to investigate and file criminals charges."
Silver State /Eos
In its bankruptcy filing, Silver State claimed after any exempt property was excluded and after paying administrative expenses, there wouldn't be any money left to pay unsecured creditors. Unsecured creditors include former students.
According to the filing, Sliver State claimed assets of $0 to $50,000, liabilities between $10 million and $50 million and 5,001 to 10,000 creditors. The filing states there's a pending bankruptcy case, also filed on Feb. 4, by Silver State Services Corp. Silver State's bankruptcy petition bears the signature of Stenning K. Schueppert, secretary of Silver State Services, who is also listed as a principal at Eos.
Three of Eos' members sat on the board of directors of Silver State; Airola retained one seat on the board, Eos spokesperson Michael Freitag confirmed. Contrary to media reports that Airola had been stripped of his power to control Silver State's funds and to manage the day-to-day operations, Freitag, said, "Airola was CEO of Silver State up to the day of the company's bankruptcy filing, but I don't know who acted as president. Eos expects that its $30 million investment in Silver State has been lost."
When asked for the names of Eos' three members who sat on Silver State's board or to speak with one of the members, the request was denied. Freitag declined to answer if Eos performed due diligence on Silver State prior to or after its investment into the company, as prior lawsuits had been brought against Airola/ Silver State. Although Freitag confirmed that Eos owned a majority percentage in Silver State, he declined to comment on whether Eos' members who sat on Silver State's board took an active role in the company's day-to-day operations or its financial activities.
Even though Eos's investment into Silver State has gone down the drain, Freitag said he wasn't aware of any plans on Eos' part to file a lawsuit against Silver State.
"Eos suing Silver State would be tantamount to Eos suing itself," Reed said. "Eos was responsible from the day it invested $30 million up to today. If three of Eos' members had three of the four seats on Silver State's board, clearly, Eos had control of the company's funding and oversight of its management. You'd think a company like Eos would've performed due diligence. I noticed Eos has removed Silver State's name from its website. Every day that goes by, I feel confident we'll be able to demonstrate a clear case of fraud against both Silver State and Eos."
Jeanette E. McPherson, attorney of Las Vegas-based law firm Schwartzer & McPherson, representing Silver State, declined to answer any questions. After three days of phone calls made to Sliver State's spokesperson Maile Takashima, she refused to answer questions about the affairs of Silver State and allegations of fraud.
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