FAPA.aero | Pilots among those who invested in what SEC calls 'fraudulent' offerings

Money Matters

Pilots among those who invested in what SEC calls 'fraudulent' offerings

David Jones, Consulting Editor

Pilots have faced numerous threats over the past five years: pay cuts, furloughs, pension freezes and terminations, and employer and, in some cases, personal bankruptcies. Now it appears that a number of pilots—although it's unclear how many—may lose at least part of what they thought were successful investments with Jack Utsick and Worldwide Entertainment.

According to the Securities and Exchange Commission (SEC), Utsick and Worldwide Entertainment sold unregistered securities in the form of loan agreements or units in special-purpose limited liability companies (LLCs) between 1998 and 2005. The SEC alleges that Utsick and his companies told prospective investors that their investments would earn annual returns from 15% to 25%. The SEC further alleges that Utsick used investor funds "inconsistently with the purposes promised to investors" and to "fund his lavish lifestyle." The term of the investments varied, and investors could roll over their principle and their "profits" at the end of the term. And apparently that's what many of the investors did.

Although I'm not sure how many pilots were among the 3,300 or so investors the SEC says took part in the "fraudulent" offerings that raised in excess of $300 million, it appears that Utsick and Robert (along with wife Donna) Yeager, principal of American Enterprises Inc. and Entertainment Funds Inc. and co-defendants in the SEC's injunctive action, both former airline pilots, gained the trust of more than a few pilots. An email sent out to FAPA.aero subscribers generated response from several pilots who claim to be investors with Utsick's Worldwide Entertainment.

"Because [Utsick and Yeager] were pilots, I trusted them," an American Airlines MD-80 captain told me this week about his investments. "I started in 2000 with a $10,000 investment in a four-month deal. I received a check for $11,000 four months later, which I sent in and invested in a six-month deal. Six months later, I got a check for $12,500." The captain added that a longtime friend, a FedEx pilot, mentioned how well he was doing with his Worldwide Entertainment investments, making him feel more comfortable with the initial $10,000 investment. Another friend, also an airline pilot, also invested in Worldwide Entertainment's offerings.

"I originally saw an ad, and I thought it was a scam," the pilot said. "But when my friend called years later and discussed his returns, I thought I would try it."

Before the courts appointed a receiver for Utsick's companies on Jan. 18, 2006, the American captain had entered into seven or eight transactions. He currently has $150,000 invested and has no idea how much of that he might ever see again and when. With his oldest of several children college-bound soon, he's worried about the possible outcome of the receivership.

In fairness, it's important to note that neither Utsick nor the Yeagers have been convicted of any crime. Utsick has reportedly made statements indicating that the company grew too fast and that led to accounting issues. The defendants agreed that their companies should enter receivership, and without admitting wrongdoing, the defendants agreed to a permanent injunction and an asset freeze, according to the SEC. The SEC, which last month filed a civil injunctive action in the U.S. District Court for the Southern District of Florida against Utsick, the Yeagers and their respective companies, said Utsick did not maintain "any separate accounts or books and records for each project, [so] it was impossible for defendants to determine the profitability of any event."

How much money is there to return to the investors? That's a good question, but it's too early to know the answer. The SEC, in a statement, said that "most" of the entertainment projects lost money, and "as a result, Utsick and his companies paid earlier investors with funds raised from new investors." Folks, what the SEC is alleging is that Utsick created a Ponzi scheme. That's a serious allegation, and for the sake of the investors, let's hope that Utsick's explanation of fast growth and a lack of accounting is closer to reality than the SEC's allegations of Utsick using investor funds to pay millions in commissions to Yeager, losing nearly $17 million in options trading and purchasing two multimillion-dollar condominiums in Miami Beach, Florida. If the SEC is right and many of the events lost money, one has to wonder how much money will be available to repay the investors.

There's truth to the adage, "If it seems too good to be true, it probably is." Guaranteed returns can be a sign of a scam. David Nelson, director of the SEC's Southeast regional office in Miami, said it best in a statement announcing the injunctive action: "Investors should keep in mind that investments that are not registered with the SEC are often among the riskiest."

Given all that pilots have gone through in recent years, the Worldwide Entertainment receivership may end up being yet another nasty blow to the financial positions of more than a few pilots. The irony is that I suspect that some of the pilots who invested in the Worldwide offerings may have done so in an effort to "make up" some of what they've lost through a series of pay cuts, pension freezes or losses in their retirement plan. FAPA.aero will continue to monitor this story, and will update subscribers with pertinent information as it becomes available.

Sincerely,
David Jones
Contributing Editor
FAPA.aero

P.S. If you were a Worldwide Entertainment investor, FAPA.aero would like to hear from you. Send an email with your name, email and phone number to louis@fapa.aero. A FAPA.aero writer may contact you as the story unfolds; however, your name will not be used in any news coverage on the issue without your permission.

Note: According to government reports, Utsick fled to Brazil in 2006. The FBI reported on December 8, 2014 he was extradited from Brazil to the U.S. to stand trial for securities & mail fraud.

Meet the FAPA team

G.W. "Bo" Corby

Director of Flight Training Standards

G.W.

Captain Corby began his aviation career as a Flight Crew Instructor for the Boeing Company, followed by 3 years in the Middle East as a pilot/flight engineer for several airlines, returning to the U.S. in 1977 as a pilot for Hughes Airwest in San Mateo, California. Hughes Airwest later merged with Republic Airlines and eventually Northwest Airlines (NWA).  At NWA, he served as NWA ALPA Training Committee Chairman and in this position participated as one of 3 Board Members on the Pilot Training Review Board at NWA. This Board evaluated issues in the NWA training department relating to pilot training deficiencies. He retired from NWA in 2006.

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