Former Verijet Board Member Mark Kahan used insider knowledge to undermine the operator in a plot assume control via bankruptcy, according to a new lawsuit.
Facing multiple lawsuits from aircraft lessors, Verijet is suing a former board member for double-dealing to bankrupt the company in a takeover bid.
Verijet Founder and CEO Richard Kane had previously said Michael Marcotte, who displaced Kane in the corner office for a brief period last Fall, had derailed negotiations with aircraft owners who had leased their airplanes to the charter and jet card operator.
He said Marcotte’s tenure was “like dropping a grenade into a swimming pool.”
However, a lawsuit filed late last month claims another former executive plotted to gain control of the Miami, Florida-based operator.
According to the 11th Judicial Circuit filing in Miami-Dade County, Florida, Mark Kahan served on Verijet’s board from Mar. 11 through Dec. 10, 2020.
Kahan served as Vice Chairman, Chief Operating Officer, and General Counsel of Spirit Airlines from 1996 to 2006.
He came to the budget airline via his legal work in aviation.
His profile notes, “I specialized in international routes, pricing, and other marketing matters; investigations related to air safety; representation before the US Congress and regulatory agencies; aircraft financing and acquisitions; and formation of new entrant airlines.”
It continues, “One of the new entrant airlines that sought my counsel was Charter One, the forerunner of Spirit Airlines, to procure necessary regulatory licenses and source its initial aircraft and financing.”
His LinkedIn profile shows current roles as Senior Counsel at HCH Legal, LLC, Adjunct Professor at American University, and Chairman of Covington Frabric & Design.
Verijet alleges during Kahan’s brief time with the start-up, he misled the board about his role with companies Verijet was negotiating with to lease Cirrus SF50 Vision Jets, he used insider knowledge to negotiate leases that weren’t commercially viable, he pressured Verijet into accepting the terms, and he disrupted Verijet’s efforts to raise money. Then, he plotted to eject Kane and gain control via bankruptcy.
Of leases for aircraft in which Kahan allegedly had an interest, Verijet wrote in the filing, “Although the supposedly shared goal was to arrive at terms fair to Plaintiff Verijet, as well as lessors, this rental amount was skewed substantially in favor of the lessors.”
It continued, “The leases were to cost Plaintiff Verijet approximately $55,000.00 a month for the first 36 months, and $43,000.00 thereafter, while the lessor’s financing costs would be approximately $12,000.00 a month.”
Verijet added, “Moreover, the lessors would be able to offset those financing costs because they would be getting a massive tax break for ownership of the planes as a result of a new provision on depreciation adopted to combat the economic effects of Covid.”
However, that was just the start.
“After weeks of negotiation about price resulted in an agreement on a $55,000.00 a month price, Defendant Kahan suddenly demanded that each lessor also get $420,000 in Class A Membership Interests in addition to rental payments. He said this was take it or leave it for all of the leases,” according to the lawsuit.
As a Board Member, Kahan knew Verijet “could not afford to walk away from all of the leases, which would, at a minimum, mean a very substantial delay in ramping up service.”
It agreed to the leases in July 2020 “under extreme duress.”
At the same time, Verijet says Kahan agreed to assume a $385,900 payment to Cirrus Aircraft for a maintenance program, which he later backed out of.
Kahan also dissuaded potential investors of a Series A raise targeting $15 million, encouraging them to buy and lease more Vision Jets to the operator instead.
Additionally, he allegedly pressured Verijet’s Board to lower the offering price, threatening not to deliver the leased aircraft.
Verijet also says Kahan told Cirrus that Kane and CFO Steve Wagman “were incompetent and not trustworthy.”
According to the filing, Kahan hired a bankruptcy attorney to assess reorganization options without informing Verijet’s board.
The lawsuit contends, “On information and belief, his goal in hiring bankruptcy counsel was to induce the bankruptcy of Plaintiff Verijet, buy the assets, and run the airline himself via a pre-packaged Chapter 11 bankruptcy.”
As of last week, Kane said he was still negotiating to close an $85 million infusion announced last November.
He said Verijet has three airplanes operating, down from a peak of 23 SF50s.
Kane had previously said it had about 100 members in its jet card program.
Verijet started quickly, making it into our annual list of 2022’s 30 largest private jet charter and fractional operators.
Kane declined to comment. Kahan did not respond to a request for comment earlier today.