A pair of JetSuite SuiteKey jet card members contend wrongful conduct and breach of fiduciary duties
“JetSuite will fly again,” says its chief restructuring officer, debating the Trustee’s allegation that the private jet operator’s bankruptcy is a liquidation and not a restructuring
Just when it looked like JetSuite’s Chapter 11 bankruptcy filing was about to move quickly through the courts, it may have hit a pair of speed bumps.
One was the trustee’s objection to the plan, filed on the final day for comments, and reported here exclusively week. The hearing is scheduled for this Thursday.
SuiteKey customers allege misuse of funds
The second is from two jet card customers. Filed last Thursday as well, they also object to the scope of the non-consensual third-party releases in the plan.
Ted Gavin, managing director of Gavin Solmonese, who serves as JetSuite’s chief restructuring officer said the release is “justified by the circumstances in this case.” He disputed the trustee’s assertion that the procedure is a liquidation and not a reorganization. ” JetSuite will fly again,” he tells Private Jet Card Comparisons.
However, the two SuiteKey customers are seeking a deeper investigation into possible misconduct by JetSuite’s management.
Richard Brown and Julius Glickman accuse Superior Air Charter, LLC, the corporate name for the Part 135 private jet charter operator, and its officers, directors, and managers of “wrongful conduct and breach of fiduciary duties.”
The pair says JetSuite “solicited prepaid flight deposits from (them) through their SuiteKey program, at a time when they knew that they would not be able to provide the future flight time that the deposits were supposed to secure.”
They believe, “[W]rongful conduct and breach of fiduciary duties by the debtor and its officers, directors and managers may be covered by applicable insurance, and under established case law, cannot be released or enjoined by the plan to the extent covered.”
Both claim JetSuite knew it wouldn’t be able to fulfill the flight services they were pre-purchasing. They point to nearly $52 million in the unredeemed credits for future flights. On April 28, when Superior filed for Chapter 11 protection, there was only $911,747 in cash and cash equivalents left.
Gavin says the creditor’s committee already investigated the matter and did not find any malfeasance.
Was JetSuite a Ponzi scheme?
“The magnitude of the unmet obligations as of the petition date indicates that the Debtor’s misuse of funds was ongoing for many months. Without the infusion of equity adequate to support its operational losses, the SuiteKey program as implemented by the Debtor turned into a Ponzi scheme,” the Brown/Glickman filing stated.
In the case of Glickman, he cites language written into his original contract from 2011. An amendment to the contract he filed with the court indicated his funds were supposed to be held in a segregated account for his use. He alleges, “[T]he Debtor continued to solicit deposits from him without informing him that the funds he provided were not being segregated.”
Gavin says the documents Glickman provided were not the final contract. That was executed six days later without a provision for a separate account.
Brown purchased 10 hours of flight time in JetSuite’s Phenom 300 program for $70,896 in December 2019. His executed agreement wasn’t returned until Jan. 7, 2020. JetSuite halted operations on April 16th of this year before making its Chapter 11 filing in Delaware.
Glickman said he added $53,750 to his SuiteKey account in May of last year for its Phenom 100 program. Records show he didn’t need the extra funds for immediate use. He contends he only added funds after being solicited to do so by JetSuite.
Without providing the extra funds, he would have had $31,958 left in his account at the end of 2019. A usage statement Glickman supplied shows he had over $50,000 in available credits before his last deposit. He is currently out of pocket to the tune of $81,958.
COVID-19 “stopped the music”
JetSuite blamed its shutdown on the COVID-19 travel crisis. Glickman and Brown contend, “The misrepresentations and misuse of funds submitted by SuiteKey members occurred well before the COVID-19 pandemic materialized in March 2020.”
They allege, “In fact, the COVID-19 pandemic stopped the music and brought the Debtor’s gross
misuse of funds to light.”
Any jet card monies used to expand to the East Coast was “blatant misuse of their deposits,” they assert. The company blamed the failed push on an unnamed aircraft manufacturer, likely Textron. It had operated its Citation CJ3s before returning them as part of a separate legal dispute.
The Glickman/Brown filing noted multiple cash injections from related companies. “The Disclosure Statement indicates that in 2019 the Debtor received the equivalent of $19,798,185 from its parent company JetSuiteX, Inc. and two affiliates – JSI LLC and Delux Public Charter, LLC (which provided shared employees and services under an MSA). In 2020, the Debtor received $13,966,991 from these entities for a total of $33 765,176 in the 16 months leading up to the petition date. JetSuiteX also loaned the Debtor $16.2 million between September 2019 and March 2020 pursuant to unsecured demand promissory notes.”
“The Debtor treated the pre-paid flight expenses as the equivalent of equity contributions, when in fact they were solicited and identified as pre-paid deposits for future flights,” the pair claim.
Gavin acknowledged that both Glickman and Brown are “disappointed.” However, he disputes their allegations of a Ponzi scheme. “Nobody was getting any money out,” he said during an interview earlier today. He points to the surplus of money being transferred into JetSuite from related companies as proof.
Documents indicate cash transfers to and from related companies show JetSuite received $55 million more than it sent out since 2016.
Alex Wilcox, the group’s founder and CEO, in his filing, called the claims of “wrongful conduct and breach of fiduciary duties” false. He wrote, “All funds received by the Debtor, including from SuiteKey members, were used solely to fund the Debtor’s operating expense.”
Jet Card escrow accounts
While a copy of Brown’s contract was illegible, in the documents provided by Glickman, it stated both, [J]etSuite Air shall have immediate and full right to use such funds,” and, “JetSuite Air will utilize funds from the account to pay for flight costs after a trip is flown.”
Gavin says Suite Key customers were “sophisticated buyers.” He added in total, the contract makes it clear the customer has a “notional balance,” not cash. He also noted the FAA’s Part 135 regulations don’t require operators to escrow advanced payments.
A number of jet card providers do offer escrow accounts. Glickman’s tale provides an added lesson. It is critical to ensure a separate account is being maintained and understand the process for accessing funds. According to Gavin, the account was never agreed to or established. It also re-enforces consumers need to understand how their funds will be used. Most of all, they need to be comfortable their provider has staying power.
In his filing, this afternoon, Wilcox affirmed plans to restart flights. “[T]he Reorganized Debtor maintains its most valuable assets, namely, its Part 135 Certificate, its core staff to operate the same, and its owned aircraft. We are eager to resume charter flights and are well-positioned to do so upon return of the market for charter flights.”
He added, “Indeed, the Debtor’s other principals have been engaged in discussions with potential customers to resume charter services.”
Wilcox said JetSuite 2.0 will “no longer be burdened by the expensive acquisition and maintenance costs associated with the defective East Coast fleet of aircraft, which led to a significant loss of clients and revenue, costing the Debtor upwards of $24 million dollars (independent of litigation costs) over the years prior to the Petition Date and precipitated the litigation.”
The attorney representing Glickman and Brown didn’t respond to a request for comments.
Read the filings: