Criminal probe into Silver State collapse likely

 - February 23, 2008, 4:07 PM

As more students come forward to say they believe they were swindled by the country’s biggest civil helicopter flight school, attorney general offices in several states are looking into the activities surrounding the bankruptcy of Silver State Helicopters.

The school abruptly closed its doors on February 3 amid allegations by students and former employees of mismanagement, ethical lapses and possible criminal activities at the Nevada-based company.

The growing scandal surrounding Silver State Helicopters and its founder, Jerry Airola, could hurt the entire helicopter training industry by making it harder for students to obtain loans for helicopter pilot training nationwide and exacerbating a looming shortage of commercial helicopter pilots.  

Several state attorneys general are looking into the activities surrounding the bankruptcy of Silver State. The company filed for Chapter 7 (liquidation) bankruptcy on February 4. Before it closed, the school had 750 employees, 2,500 students and 250 helicopters at 33 locations in 14 states. Silver State listed assets of less than $50,000 and debt of between $10 million and $50 million. The first creditors’ meeting is scheduled for March 14.

Silver State has been mired in litigation for years. A growing number of students have filed class-action lawsuits alleging the company took their money and failed to provide promised training. On Friday, February 1, Silver State electronically withdrew all the money from numerous student accounts, according to students’ attorneys. Most Silver State students financed their training with loans from $50,000 to $70,000. Silver State took full payment within six to 10 months, even though the training program, which promised to take students from zero time to certified flight instructor, lasted 18 months. Dan Reed, one of the lead attorneys representing the Silver State students, said the missing money was not part of the bankruptcy filing and that the activity appears “suspicious.”

In the week following Silver State’s bankruptcy, Reed fielded more than 750 calls from former Silver State students and employees throughout the U.S. He said he has received numerous reports of money from student accounts vanishing the Friday before Silver State declared bankruptcy. “That money was obviously not included in the bankruptcy filing,” Reed said. “Where is the money? The money went somewhere. It is not in these kids’ accounts anymore.”

While he said he has just begun to research his clients’ options, Reed emphasized that the first priority is to help Silver State students negotiate relief from their lending institutions. “We need to stop the payments from coming due so these students can survive,” he said.

In the longer term, Reed said he is exploring the possibility of pursuing a class action lawsuit “that would pierce Silver State’s corporate veil and go after the owners and officers individually.”

But Reed cautions that such a tack will not be quick or easy.  “There’s no way to accurately predict how long it will take. They [Silver State] have done everything to hide their tracks and make it as difficult as possible. It could easily take a few years” to recover the money Reed alleges was stolen from students. 

The school was founded by Airola with a single Robinson R22 in Henderson, Nev., in 1999. He had previously worked as a police officer and owned a home water filtration business. Airola quickly built the school into the nation’s largest, using targeted advertising blitzes, seminars, deeply discounted prices and other marketing strategies. By 2005, Silver State ranked 12th on the Inc. 500 list of fast-growing small businesses, and in 2006 it reported revenue of $78 million.

Critics including former employees, students and competitors claim Silver State was little more than a ponzi or pyramid scheme that used helicopters as props while Airola funneled the company’s assets to friends, family members and himself. Thanks in part to Airola’s alleged profligate spending habits, Silver State burned through the average student’s entire tuition in five to six months, almost a full year before they were due to complete training, and was dependent on recruiting ever-larger pools of new students to finance the training of earlier ones.

Several former employees assert Airola used Silver State funds to amass a personal collection of exotic cars including a $153,000 Ford GT, buy SUVs and cars for some Silver State employees, directly pay more than $1 million in expenses for an unsuccessful political campaign and buy political influence with a variety of office holders including incumbent Nevada Governor Jim Gibbons, himself the current target of a Federal bribery investigation. Airola is one of the top fundraisers for the governor’s legal defense fund. Just last month Gibbons appointed Airola to the Nevada Economic Development Advisory Board. Silver State’s business practices widely came to light when Airola unsuccessfully ran for sheriff of Clark County, Nev., in 2006.

Although Silver State is bankrupt, a new investor in the company may be partly liable if students can prove they were bilked of their training money. Last September, Airola sold a 60-percent stake in Silver State to Eos Partners, a $3 billion New York private equity firm, for an estimated $30 million. “At the very least it looks like they didn’t do their due diligence,” said attorney Reed. “They should have been watching.”

Eos officials declined to comment for this story and Airola could not be reached. Company insiders said Airola remained on Silver State’s board and continued to have check-writing authority even after the Eos capital infusion. Last August, Silver State received a $40 million line of credit from Orix Financials secured by Silver State’s aircraft. According bankruptcy court documents, Silver State had used $33 million of the line by February 3.