JOHN T. LEWIS

Watch Out for These Scams

Business aircraft are expensive to own, operate, and maintain, so lots of money changes hands in the corporate jet arena. For some, the opportunity to direct some of that money into their own pockets can be irresistible.

Tim Beverley is a good example. Eleven years ago, a federal grand jury indicted the Tyler Jet CEO and NASCAR owner on charges related to a business jet financing scheme. After a plea bargain, Beverley spent several years in jail; he was eventually sent home on “supervised release,” only to be convicted of stealing from his new employer, Majestic Jet. He was back in the news late last year, when he was found guilty of several related charges, including the filing of fraudulent tax returns.

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Truly, this is a marketplace where owners, buyers, and sellers—and everybody else, for that matter—must beware. Here are common schemes to watch out for:

Phony loans. Tyler Jet, which Beverley founded in 1986, bought and sold aircraft and operated an FBO at Pounds Regional Airport in Tyler, Texas. Jet dealers often borrow funds not only to acquire aircraft, but also to repair, upgrade, and refurbish them for sale in so-called floor-planning arrangements. Beverley and another officer of Tyler Jet realized that they could borrow funds pursuant to generous repair/refurbishment estimates that they provided to their oblivious lenders, and pocket the difference.

Then they ostensibly concluded that they could net even more by not actually doing the repairs. According to BJT sister publication Aviation International News, in one case they borrowed $300,000 for repairs on a jet that were never made; instead, they transferred $280,000 of the loan proceeds to Tyler Jet. This was so easy to do that they did it repeatedly, according to a 72-page, 34-count indictment. After digesting the indictment and facing up to 10 years in jail, Beverley and another officer pled guilty to a single wire-fraud count and were sentenced, respectively, to six and three and one-half years in jail. 

Diverted escrow funds. Escrow agents hold zillions of dollars in their accounts for aircraft closings. As a closing looms, the parties and their agents provide instructions about who should get paid how much. The list of payees is often an array of sellers, banks, lien holders, brokers, maintenance programs, and the like, so diverting some of these funds for your own benefit is not impossible. According to the U.S. Department of Justice, Beverley was able to steal more than $1.5 million by directing escrow agents who were paying brokerage commissions to Majestic Jet “to wire funds from the sale of planes to nominee bank accounts that Beverley controlled.” Federal prosecutors also presented evidence that he stole money directly from Majestic Jet’s bank accounts. Beverley used the ill-gotten gains to pay for personal expenses as well as other aircraft-related schemes, like buying airplanes for resale. After being convicted of federal charges in October 2017, he was sentenced to 90 months in prison. 

Shot-down deals. A brokerage can’t get paid in a business jet deal unless it is part of it. So when a broker spots a lucrative deal to which it is not a party, the temptation may exist to try to kill the sale and then insert itself in the picture. Aircraft transactions are fragile; buyers can usually cancel them after prebuys, and sellers occasionally threaten to “close up the aircraft and take it home” when the prebuy is costing too much or they get a better offer. Perhaps a broker who’s not part of a deal can convince the aircraft owner that it can facilitate a sale at a higher price—or maybe it can convince the buyer that the aircraft isn’t worth the price and that it can help arrange a much better purchase. Either way, the broker may be able to get a new deal on the table where it would be owed at least one fee—and maybe more than one.

Inside jobs. Aircraft owners and buyers should be on guard when a pilot, maintenance director, or other aviation adviser they employ seems overly enthusiastic about one particular option—buying a certain aircraft or model instead of another or using one service center instead of another. Of course, there are often legitimate reasons for such preferences. A pilot may favor an aircraft model simply because he thinks it’s more reliable or a service center because it does good work. But it’s not unknown for a pilot or other flight-department employee to advocate, for example, buying airplane X because—under the table, of course—the seller (even an aircraft manufacturer) makes it worth his while. Similarly, it’s not unknown for a maintenance facility to make a payment—also under the table, of course—in exchange for being chosen to work on an aircraft. Once again, the big numbers involved can make the payola an attractive option for both parties. 

Outside jobs. While employees and agents of business jet owners sometimes look for payola, people on the outside often expect to pay it. I have been approached, for example, by an aircraft seller and an aircraft financial institution willing to “reward me” for convincing a buyer to purchase an aircraft or for using the institution to finance a jet purchase. (I hasten to add that I have never asked for or accepted any such payments.) In some sectors of the corporate jet industry, businesses expectpeople to have their hand out.

Back-to-back transactions.The essence of the back-to-back is that someone (often a broker or trusted aircraft adviser) inserts himself in the transaction between buyer and seller. [See “Back-to-Back Transactions”] The middleman then either purchases the jet from the real seller for too little, sells the jet to the real buyer for too much, or both, pocketing the difference. A real master at this game might even collect a broker’s or finder’s fee from one or both parties on top of pocketing the price difference. Back-to-back transactions can net the middleman millions of dollars from unsuspecting (or maybe even suspecting) aircraft transactors. 

The foregoing merely scratches the surface of what greed and ingenuity can devise in business jet deals and doings, and there’s reason to think the situation has not been improving. In December 2017, a statement signed by the president, chairman, and Business Aviation Management Committee chairman of the National Business Aviation Association proposed policies and best practices designed to avoid “even the appearance of improper behavior when engaging in business transactions.” The proposed policies—which the National Aircraft Resale Association endorsed—include adhering to the highest standards of professional integrity; avoiding conflicts of interest; using company funds only for company purposes; and complying with applicable laws and regulations. [See “A Focus on Ethical Conduct,” April/May 2018, available at bjtonline.com.—Ed.]

Let’s hope that by drawing attention to this issue, the NBAA will help improve standards of ethical conduct in the business jet industry. 

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