Investor in bid for airline arrested in fraud scheme

By Dan Nakaso
Advertiser Staff Writer

One of the principal players in a plan to take over Hawaiian Airlines was arrested by FBI agents yesterday on charges of conspiracy to commit bankruptcy fraud and attempting to bribe an FBI undercover agent to help finance the deal.

Conspiracy to commit bankruptcy fraud and commercial bribery each carry a maximum sentence of five years.

The arrest is not expected to affect the timetable for Hawaiian Airlines' emergence from bankruptcy protection scheduled for later this month.

"If these allegations are true ... what a travesty of justice," said U.S. Trustee Steven Katzman, who oversees the southern district of California, Hawai'i, Guam and Saipan.

"People were relying on the representations of this competing plan," said Katzman, whose office represents the federal government in bankruptcy proceedings. "People had placed hopes in this competing plan. Resources were spent examining this competing plan, resources that could have been put to better use toward the company."

No challengers

A federal complaint unsealed yesterday in New York said Boghosian controls Nevada-based Hawaiian Investment Partners Group LLC, which submitted one of two bids to take over Hawai'i's largest airline two years after it filed for federal bankruptcy protection.

Boghosian's arrest comes on the eve of a two-day hearing in U.S. Bankruptcy Court to consider the plans to bring Hawaiian Airlines out of bankruptcy.

The leading proposal by RC Aviation LLC was scheduled to be heard today. The plan by Hawaiian Investment Partners Group's was scheduled for a hearing tomorrow.

Boghosian's arrest leaves no challengers to RC Aviation's plan to bring Hawaiian out of bankruptcy.

In June, RC Aviation's parent, Ranch Capital LLC, purchased the majority share in Hawaiian's parent company, Hawaiian Holdings. RC Aviation's plan has the support of Hawaiian Holdings, Hawaiian's committee of unsecured creditors and Hawaiian's bankruptcy trustee, Josh Gotbaum.

But yesterday, Honolulu attorney Randal Yoshida, and attorneys Timothy Philipp of St. Louis and Eliot F. Bloom of New York, filed a motion asking to withdraw as counsel for Hawaiian Investment Partners Group and others.

The federal complaint against Boghosian alleges he made several misrepresentations to the U.S. Bankruptcy Court in Ho-nolulu regarding HIP's ability to provide $300 million in new equity funding and financing to take over Hawaiian.

On Nov. 11, 2004, Boghosian and other HIP principals told the court that HIP would provide at least $200 million in new equity funding for Hawaiian and that HIP had a commitment for an additional $100 million line of credit for Hawaiian, according to the complaint.

Started with a fax

Robert Konop, a Hawaiian Airlines pilot who helped put together HIP's plan, said in a January interview that HIP would receive $350 million in financing from two Native American investment funds, E&M Trust and Hachador No. 3.

Konop, who flies regularly for Hawaiian, did not respond to telephone calls or e-mails.

The FBI's investigation began in November when Boghosian sent a fax to an unnamed investment firm seeking funds to reorganize Hawaiian, according to the complaint.

The person who received the fax became a cooperating witness for the FBI. In the weeks that followed, an undercover FBI agent posing as a hedge fund manager began e-mailing and speaking to Boghosian about the financing for HIP's reorganization plans for Hawaiian.

In February, Boghosian sent the undercover agent an e-mail with a copy of the cooperating witness's affidavit and supposed documents from Amsterdam-based ABN-Amro Bank, according to the complaint.

Boghosian and the undercover agent met in Manhattan on Feb. 21, when the agent told Boghosian that the documents were false.

The agent pointed out that the word Amsterdam was misspelled in the supporting documentation and many of the terms used, such as "master codes" and "blocked funds," were typical of a type of scam known as "prime bank note fraud."

'Stealing money'

The agent also told Boghosian that an Internet site that tracks prime bank note frauds listed the cooperating witness and the other beneficiary of the E&M Trust identified in the documents as having been involved in prime bank note frauds.

In exchange for involving his hedge fund, the undercover agent said he wanted $500,000 from an off-shore account. Boghosian said he would require $2 million for "mobilization funds" to cover operating costs and legal expenses related to the Hawaiian plan, as well as the $500,000 to kickback to the undercover agent.

The agent told Boghosian that the agent "was essentially stealing money from the hedge fund," according to the complaint. "Boghosian stated that he had no problem with that, but that those were the (undercover agent's) terms."

Four days later, the undercover agent told Boghosian that E&M Trust did not have the funds it said it had in its court filings, according to the complaint. The agent told Boghosian that he had also contacted ABN-Amro Bank and discovered that the account number listed in court documents was not valid.

Later that day, the undercover agent wired about $8,000 that Boghosian said he critically needed to pay for travel and legal costs to attend a Hawaiian Airlines deposition.

At the deposition on March 4, according to the complaint, Boghosian falsely testified about several points, including that he had no concerns about E&M Trust's ability to finance the HIP plan; that he had not spoken with anyone about providing alternate financing; and that he had not solicited any additional investment since September 2003.

On Monday, Gotbaum asked the bankruptcy court to reject HIP's plan. Yesterday, he cited Boghosian's arrest in filing another motion asking the court to reject HIP's disclosure statement "with prejudice."

Reach Dan Nakaso at dnakaso@honoluluadvertiser.com or at 525-8085.