Former Direct Air officials indicted for fraud, CFO facing jail time

Some of the top officials of the now-defunct Direct Air have been indicted or reached plea agreements related to the charter service’s operation that led to its abrupt closure in 2012.

Robert Keilman, 71, Direct Air’s former chief financial officer, reached a plea agreement with federal prosecutors in September. He is facing five years in prison and $250,000 in restitution after pleading guilty to one charge of conspiring to commit wire and bank fraud.

He was scheduled for sentencing Jan. 6 but it was delayed until July 7 in U.S. District Court for the District of New Jersey, said Will Skaggs, a spokesman for the U.S. Attorney’s office.

Direct Air began offering charter service out of Myrtle Beach International Airport in March 2007. Before the company filed for bankruptcy in 2012, the service accounted for more than 10 percent of the airport’s traffic from 17 cities.

Former CEO Judy Tull, 70, and former managing partner Kay Ellison, 55, were indicted in December for using fraudulent documents and “ghost” reservations to prematurely collect millions of dollars in payments, according to a statement from the U.S. Attorney’s office.

Tull and Ellison were indicted by a federal grand jury on one count of conspiring to commit wire fraud and bank fraud, seven counts of wire fraud and seven counts of bank fraud. They face 30 years in jail plus a $1 million fine for each count, if convicted.

The women are also accused of double-dipping by submitting requests for passenger payments designated as membership fees prior to completed flights, then resubmitting requests for the same funds after the flights, according to the indictment handed down in Newark, New Jersey, one of the cities where Direct Air operated.

Federal rules require that charter flight payments, unlike commercial flight charges, be collected after flights are completed.

Both women were ordered to begin conferencing with federal officials last week to begin the judicial process. Skaggs declined to say whether Tull of Texas, or Ellison of Kentucky, have been offered a plea deal.

“That would not be public if it were offered. All I can say is that their case is still pending,” Skaggs said.

Keilman’s and Tull’s lawyers could not be reached for comment. Ellison’s attorney said he had no intention of making a plea deal and they are preparing to go to trial.

“Miss Ellison does not think she did anything wrong,” said her lawyer, James B. Lees, Jr.

Lees noted that the company was taken over by another entity six months before filing for bankruptcy in 2012.

The bankruptcy case was settled in 2014, and Keilman was ordered to pay $250,000 while Tull paid $10,000 and Ellison was ordered to pay back more than $90,000. Bankruptcy documents say the charter service had $80 million in unpaid bills.

Prosecutors say that tens of thousands of airline tickets had already been purchased when the company filed for bankruptcy, and that $30 million should have been in a bank escrow account, but the remaining balance was $1 million.

The U.S. Transportation Department fined several other carriers for their roles in the canceled flights. Federal officials also reworked regulations for charter services to ban the practice of selling vouchers to buy non-specified flights in one bulk payment -- a practice Direct Air used.

Lees says his research shows that Justice and Transportation Department officials typically seek fines rather than criminal charges when the regulations are violated in the handling of escrow accounts.

“Maybe they’re getting tired of charter companies not following the rules, maybe it’s pressure from insurance companies or banks, I have no idea,” Lees said.

“They may be toughening the rules, which is understandable. I’m not criticizing them for that, but my main point is that my client did not have any intention to steal or defraud anyone, and will ultimately be in a courtroom putting forth that position,” Lees said.

With more than 92,000 passengers in 2011 before the company filed for bankruptcy, Direct Air was the fourth-largest operator in Myrtle Beach behind Spirit Airlines, US Airways and Delta, according to airport statistics.

Another Direct Air executive, Edward S. Warneck of Myrtle Beach has filed for personal bankruptcy, and is named in civil litigation filed in federal bankruptcy court, according to the Telegram & Gazette in Worcester, Mass. He has not, however, been criminally charged by federal prosecutors.

This story was originally published January 16, 2016 at 1:33 PM with the headline "Former Direct Air officials indicted for fraud, CFO facing jail time."