This file image depicts an aircraft in the livery of now-defunct Direct Air. (Photo: Direct Air)
WASHINGTON – Remember Direct Air, the niche airline brand that left thousands of customers stranded across the eastern United States when it abruptly shut down in 2012?
The federal government does, and it’s holding the failed company’s management scheme responsible.
A former executive of the now-bankrupt Direct Air charter service was sentenced Wednesday to nearly eight years in prison for stealing millions from passengers collected for future travel, the Justice Department announced.
The former vice president of the company, Kay Ellison, 58, of Edenton, North Carolina, was convicted March 28 after a federal trial of one count of conspiracy to commit wire fraud and bank fraud, four counts of wire fraud affecting financial institutions and three counts of bank fraud.
U.S. District Judge Susan Wigenton in New Jersey sentenced Ellison to 94 months in prison and ordered her to pay $19.6 million in restitution.
“Kay Ellison stole tens of millions of dollars of passenger money in a brazen scheme that put a veneer of success on a failing company, and left others holding the bag – until today,” said Brian Benczkowski, assistant attorney general for the criminal division.
He said her sentence would send a powerful deterrent message to corporate executives that prosecutors would fight corporate fraud wherever it was found.
Sam Liao, Jill Lin, and Alice Gu, all 22, and international students at Millikin University in Decatur, Ill., are stranded March 12, 2012, at the Abraham Lincoln Airport in Springfield, Ill., when the DirectAir flight taking them to Florida for spring break was cancelled. (Photo: Jason Johnson, AP)
Ellison was the vice president and managing partner of Myrtle Beach Direct Air and Tours, which was known as Direct Air, headquartered in South Carolina with operations in West Virginia.
Ellison’s co-defendant, former CEO Judy Tull, 73, also of Edenton, was also convicted of the same charges. She will be sentenced later.
Direct Air’s former chief financial officer, Robert Keilman, 73, of Marlboro, New Jersey, pleaded guilty to charges stemming from his role in this scheme and will be sentenced separately.
The Transportation Department had fined Xtra Airways, which flew charters for Direct Air, $300,000 in 2012 for suddenly canceling flights typically to Florida and South Carolina from the Midwest and Northeast. Thousands of passengers were stranded.
The cancellations followed a lack of payments from Direct Air, which declared bankruptcy. Federal rules require charter operators to secure customers’ money in a bond or escrow account, in case flights are canceled.
From October 2007 through March 2012, Ellison and Tull engaged in a scheme to steal passengers’ money for future travel from an escrow account by artificially inflating the amount of money that the defendants claimed they were entitled to receive, according to evidence presented at trial.
Then they sent a falsified amount in a letter to the escrow bank telling the bank to release the money, according to evidence at the trial.
Ellison and Tull also falsified profit and loss statements to make it look like the company was making rather than losing money, according to evidence at the trial.
Two financial institutions lost nearly $30 million for having to refund thousands of passengers their money that should have been held in escrow, but was actually stolen by Ellison and Tull, according to the Justice Department.
“Together with the Department of Justice, we will continue to vigorously pursue and prosecute fraud that erodes consumer confidence in the integrity of transportation-related goods and services,” said Douglas Shoemaker, regional special agent in charge of the Transportation Department’s inspector general.
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