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Former Worcester Airline Direct Air Executives File Bankruptcy and Charged with Fraud

Direct Air was a private charter airline that flew out of numerous small airports including Worcester Regional Airport through 2012.  Formally known as Southern Air & Tours, doing business as Myrtle Beach Direct Air & Tours, and headquartered in South Carolina, Direct Air was a large business from 2007 until it closed in 2012.  The company filed for reorganization in Chapter 11 bankruptcy in March of that year, listing federal rules violations amounting to almost $10m as part of their debts.

Essentially Direct Air executives were found to have undertaken numerous fraudulent schemes in operating their airline.  First, they over-reported passenger revenues, listing nonexistent, or “ghost” passengers to inflate revenues, and withdrawing escrow monies from the bank that they were not entitled to.  Second, they sold “vouchers” with membership fees attached and failed to deposit the membership fees in escrow along with the vouchers, and then withdrew the deposit plus the voucher, or “double dipping.”  Third, in a scheme that seems like the bank was involved, the executives withdrew money allegedly deposited as cash, but never deposited.

The Direct Air bankruptcy trustee filed numerous lawsuits on behalf of creditors.  The trustee initially demanded $10,000 from the former CEO Judy Tull in exchange for dropping charges against her.  The trustee also sued the Direct Air founders for $2.6 million in payments from other carriers prior to abruptly ceasing business.  Ms. Tull and another executive Kay Ellison paid ultimately paid $102,000 to the bankruptcy trustee.  Mr. Keilman, the Chief Financial Officer, paid $250,000 to resolve his claims

The Criminal Cases Which Lead to Personal Bankruptcy Filings

When Direct Air went out of business in 2012, the aforementioned dollars placed in escrow for future flights which should have been returned to the customers, were not there.  An investigation ensued and it was determined that there was about $30 million missing.

CFO Robert Keilman pleaded guilty to federal criminal charges last year and is scheduled to be sentenced to potential jail time in July 2016.  The plea agreement he signed indicated that he was involved in an illegal scheme to defraud customers, inflating passenger figures to get money illegally from the escrow account at a New Jersey bank.  Known as “double dipping,” Mr. Keilman could get up to 5 years in federal prison.

Judy Tull of Texas handled Direct Air’s flight operations.  She was recently charged with conspiracy to commit wire fraud, conspiracy to commit bank fraud and multiple counts of bank fraud.  She was a co-owner of a tour business as well.  Kay Ellison of Kentucky was indicted with similar criminal counts.  Apparently, the “ghost” reservations set up and defrauding the customers by taking their money from the escrow account at the bank was uncovered and the criminal justice system is working on these cases.

Executive Filed for Bankruptcy

Edward Warneck, of South Carolina, another executive of Direct Air, filed for personal bankruptcy under Chapter 7 in April 2014.  He listed $25 million in debt guarantees made to Merrick Bank for customer refunds as the significant portion of his debts.  His limited assets included a house in Myrtle Beach, South Carolina, where Direct Air was based.  His debts were discharged on August 5, 2014.  Apparently, after investigation, the US Trustee agreed not to object to a discharge in bankruptcy against the Mr. Warneck.

Contact Bankruptcy Attorney Neil Burns

Are you looking for a discharge of your debts?  Do you want a fresh start?  Attorney Neil Burns has been representing Massachusetts debtors and consumers in bankruptcy cases since 1985.  Call him at 617-227-7423 for a free consultation.