FAPA.aero | Update: 1,500 pilots invest in what SEC terms 'fraudulent offerings'
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Update: 1,500 pilots invest in what SEC terms 'fraudulent offerings'

David Jones, Consulting Editor

Editor's Note: During a recent interview, FAPA.aero asked Michael Goldberg, the receiver handling the Worldwide Entertainment case, to provide some warning signs of Ponzi schemes or other fraudulent financial offerings, along with the ways to avoid them. Following is an update, in editorial format, on the Worldwide case, along with Goldberg's response, which is part of a series of articles covering the case. Also, as an update to Worldwide Entertainment Principal Jack Utsick's own financial fate, Goldberg asked the U.S. District Court of the South District in Miami, Fla., to eliminate Utsick's $10,000 monthly payment from his "personal assets." Opposition has also been raised to Utsick's lawyers receiving payments, which they have not received since July 2006. The Judge, on Feb. 8, continued the case considering Utsick's payments at his request, delaying that decision for an unknown amount of time. This editorial, and other FAPA.aero coverage of the Worldwide case, should not be construed as financial or legal advice.

Last May, FAPA.aero covered a developing story about Worldwide Entertainment Inc. and its principal, Jack Utsick, which detailed what the Securities and Exchange Commission termed a "fraudulent offering" that raised more than $300 million from more than 3,300 investors nationwide. The electronic editorial detailed facts as provided by the Securities and Exchange Commission, which filed a civil injunctive action in U.S. District Court against Worldwide Entertainment, Utsick, and two other affiliated companies: American Enterprises Inc. and Entertainment Funds Inc., and their principals: Robert Yeager and Donna Yeager. Several pilots related their stories of initial investments that were promptly returned, with earnings, which were almost always reinvested. Eventually, the pilots I spoke with were comfortable enough to roll over their initial "investment," plus the earnings they thought they had and, in many cases, additional personal assets. Now those pilots are left wondering how much of their money they'll ever see again, and when they'll see it.

Although I knew last May that the assets of a number of pilots were at risk, FAPA.aero has since learned that more than 1,500 pilots invested with Worldwide. Several, according to Michael Goldberg, the receiver handling the case, invested at least $1 million each. So, once the dust settles and pilots receive whatever portion of their investments they are eligible for as assets are sold--a process that could take five to seven years or longer--there will be more than 1,500 pilots who once thought their investments were growing at high double-digit rates, but instead will receive likely nickels or dimes on the dollar. And while pilots nervously await the return of even some of their money, Utsick receives $10,000 a month from his "personal assets," although Goldberg told FAPA.aero that "legal steps are being taken to ask the court to withdraw."

So how do pilots, or other folks, avoid this type of what the SEC believes is a "fraudulent offering?"

"If it [seems] too good to be true, it probably is," Goldberg said. "There is no way that investments can continue to beat the market [by such wide margins] year after year; there would be many people entering the field."

Added Goldberg, "Clearly, many of the investors violated a primary rule of investing: 'Don't put all your eggs in one basket' and certainly people should not have been in this with their life savings." Some pilots took their lump-sum pension payments from major airlines and invested them entirely with Worldwide.

Goldberg recommends asking for opinion letters from attorneys and accountants that represent a company prior to investing in it. Because one of the ways a Ponzi scheme or unscrupulous offering often works--with some "investors" getting their money back along with a healthy return--asking fellow investors for references on a company is not enough.

"I would ask for financial records, all of their information. I'm not taking anybody's word on my savings. If they say they don't disclose their secrets, then run," Goldberg said. "People can't let greed overtake common sense. Ask the hard questions; ask for documents."

While conducting research for the original editorial last April and May, I spoke personally with several pilots who told of their investments with Worldwide and how the fact that Utsick was a former airline pilot led them down the path of an ill-fated financial relationship. In the past seven months, several other pilots have corresponded with FAPA.aero. Most I spoke with generally hope for two things: a return of as much of their investment as possible, and, for the players to be held accountable, or as one pilot wrote in an email, for Utsick to spend some time "crushing rocks." It's important to point out that criminal charges have not been filed against Utsick, and that he did run a legitimate business promoting concerts. In fact, that is one of the variables that made the Worldwide case different from many other historical offerings that resulted in collapse and/or receivership.

"That made it different, but that company was not operating profitably," Goldberg said.

Given that the past five years have been financially devastating enough to pilots--with furloughs, forced downgrades, pay cuts, pension collapses and a stock market crash (or correction, depending on your perspective) thrown in--this alleged scheme leaves yet another bitter pill for pilots to swallow. Many pilots I've spoken with in recent months are trying to limp into--or sustain--retirement with enough assets to fund a decent lifestyle when, just a few years ago, a number of these same pilots had enough assets on paper for a comfortable, if not extravagant, lifestyle.

Goldberg said he believes some pilots may have been drawn to Utsick because they thought he was a "pilot gone big," and they wanted to share in the purported outrageous investment returns.

"It's sickening," Goldberg said. "I feel sorry for these people. They could have been drawn to the legend of how this pilot is [purportedly] making gazillions of dollars. If he was a doctor, there may have been tons of doctors in this. Pilots are very intelligent and very analytical. They are a smart class of investors. I can see where smart people can fall into this because they had a legitimate underlying business, but in the end, it comes down to the hard questions." Goldberg added that he has handled dozens of similar cases.

"Some involved mostly farmers, some football players and others involved doctors. At any given time, there are 20 to 30 of these [large-scale schemes] going on in the U.S.," Goldberg added. "They will go on for years, but eventually, they collapse."

I have a theory that, given the brutal beating pilots have taken financially in recent years, that some became overtaken by a desire to "get it back," almost like a gambler who determines his sunk costs are too high and he then becomes willing to increase the risk in order to increase the possible return.

This particular case immediately reminds me of a somewhat similar case from 20 years ago in my hometown of Huntsville, Ala. There was a man who was very well respected in the community whose career as a money manager had afforded him a large house, comfortable lifestyle and a reputation for finding "investments" for his clients that yielded much higher-than-typical returns. Having been a member of one of the larger churches in town, his reputation spread throughout the church. A number of members "invested" and, you guessed it, eventually, the scheme collapsed, devastating many people who trusted such a well-respected man with a reputation for big investment returns. It was widely reported that his large house--and the rest of his lifestyle--was paid for not with his earnings as a money manager, but rather in part by his clients' "investments."

Just as more than 1,500 pilots trusted a fellow pilot, investors in this example trusted a man who was a leader in their church and community. Investment schemes can't go on forever, and eventually, his clients received a portion of their money and the principal received jail time. There aren't any happy endings with these types of financial relationships.

Because this case underscores the risks that exist for pilots and particularly their money, FAPA.aero has expanded the coverage of this devastating development by adding an opinion piece by FAPA.aero contributing writer Andy Simonds, a first officer with American Airlines. Also included are the original May 2006 electronic editorial. To view these articles, visit FAPA.aero and click on the Career Management and Financial Planning gateway. What isn’t included is a response from Utsick. FAPA.aero did ask for an interview, through messages left on his attorney's voicemail. The calls have not yet been returned. Future updates can be expected as the case unfolds.

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.