LEGAL WRIGHT BROTHERS
INSIGHT: WRIGHT BROTHERS
Three years on: Lessons learned or chances spurned?
The arrest and trial of Debbie Mercer-Erwin rocked Oklahoma’s tight-knit business aviation transaction community and there are lessons to be learnt. Words: Yves Le Marquand
It’s vitally important to know who you are dealing with when closing aircraft transactions.
INSIGHT: WRIGHT BROTHERS
Three years on: Lessons learned or chances spurned?
The arrest and trial of Debbie Mercer-Erwin rocked Oklahoma’s tight-knit business aviation transaction community and there are lessons to be learnt. Words: Yves Le Marquand
LEGAL WRIGHT BROTHERS
It’s vitally important to know who you are dealing with when closing aircraft transactions.
OKLAHOMA IS NOT known for earthquakes, but before Christmas 2020 it was struck by one. Police officers raided the offices of Wright Brothers Aircraft Title Inc., arresting its owner Debbie Mercer-Erwin.
Mercer-Erwin, who also owns Aircraft Guaranty Corporation, was convicted of money laundering, wire fraud and two drug conspiracy felonies. But three years on what has changed, what did that quake measure on the Richter scale and have any lessons been learnt?
According to court documents, the prosecution said that between 2010 and 2020, Mercer-Erwin used Aircraft Guaranty Corporation to create trusts that hid the identity of foreign owners, failed to conduct due diligence on foreign owners, provided false aircraft locations and falsified and forged documents.
The US government said that it started the investigation after several aircraft held in Aircraft Guaranty Corporation trusts, and registered by Wright Brothers Aircraft Title Inc., were involved in smuggling cocaine. The prosecution said that when authorities asked Mercer-Erwin for more information she did not help them. It also accused her of transferring ownership of aircraft after they were seized.
Speaking after Mercer-Erwin was convicted in May 2023, US attorney Brit Featherston said: “Mercer-Erwin found ways to exploit the registration process in order to profit from illegally-obtained money being paid for her services. Mercer-Erwin became a drug dealer when she became aware of planes she had registered were being used to transport large quantities of cocaine. Mercer-Erwin knew that many of her clients were in the illegal drug business and she hid their identities and the sources of their money in order to reap a large profit. She became a money launderer when she created fake sales of planes that were not actually for sale in order to hide and move drug money.”
David Hernandez, shareholder at Vedder Price and a member of the firm's Global Transportation Finance team found the deception at the heart of the case most disheartening. “I think it is important to understand for the bigger picture, don’t assume everything is OK – myself included,” he tells Corporate Jet Investor. “I had a client with $2m in funds with Aircraft Guarantee when it collapsed. Now we got all that back, but it took almost two months.”
Hernandez stresses the importance of using trusted escrow agents. “To emphasise that, there are still a lot of people who don’t use escrow agents at all. Which is crazy. This is the case particularly with international transactions and I would bet people involved in those transactions typically find they collapse, ending in some sort of dispute resolution or lose their deposits. I see that more than I should,” he says .
So how can an escrow agent’s trustworthiness be assured? Short answer: it can’t. But, according to Hernandez, it can be all but guaranteed through proper due diligence. He uses only four escrow agents, there are more than 55,000 escrow officers currently employed in the US. “Reputation helps. Research them. All the agents I use are based in Oklahoma City, I have met them all.
“But even that may not be enough particularly in the case of Debbie Mercer-Erwin and Wright Brothers Aircraft Title. Still, you have to do as much as you possibly can to avoid any type of criminal exposure. At the end of the day, you still may not know what companies’ activities are. You don’t know until you know.”
The first lesson the industry should learn is not to keep money in escrow when the deal collapses. “You see that happen all the time. A deal will collapse and the buyer will say: ‘Ah, just keep my $250,000 in escrow and wait for the next aircraft. With this new environment I wouldn’t do that, I would pull it back out. It should only be in escrow for a specific reason and not just parked there because you don’t want to make another wire transfer or more importantly because your broker tries to convince you to keep it there. It is lazy and there is a risk.”
“There are no lessons learnt because there is still no regulation …"
David Hernandez, Vedder Price, stresses the importance of using trusted escrow agents.
“There are no lessons learnt because there is still no regulation …"
David Hernandez, Vedder Price, stresses the importance of using trusted escrow agents.
David Hernandez: “A $500m Ponzi scheme where people lost millions and millions of dollars and not one change has been enacted.”
Eric Lewin, virtual closing service, CEO, AIC Global Solutions tells Corporate Jet Investor people initially expressed concern about reputational stains. “[However] Here in Europe, the focus has been on the environmental impact of aviation.
“All things being equal, people should do whatever is right for them, so long as it is legal,” he adds. “Brokers love to say time kills deals and it is true. But what Wright Brothers did also killed a lot of deals.”
Referring to the business model used by AIC Global Solutions Lewin said: “Our model, since inception, is trust and verify: we show our users their transaction status in real time using access-restricted [you have to be invited to a virtual closing to access it], password-protected, cutting-edge technology.
“Likewise, we perform KYC [know your customer] on our users as soon as they come to us and we update KYC on an as-needed basis,” he says. “We are leaders and we actively seek to remain ahead of the curve to anticipate problems and mitigate the risk of those problems arising. Our users have, therefore, entrusted us with very complicated, sophisticated work.”
AIC says it gives users real-time transparency. As a deal evolves, transaction parties can see their deal status on its web-based platform including the documents and funds that AIC is holding and what needs to occur to close. And, post-closing, they can also see if AIC followed their instructions to close the transaction. “We also include the audit trail, which, along with the transaction documents, forms the record of their transaction,” adds Lewin.
The Texan jury did not find Mercer-Erwin guilty of conspiracy to commit export violations. But a light was shone on potential errors from numerous firms in filing paperwork when exporting aircraft.
So what has changed as a result of the case of Mercer-Erwin? Nothing much, says Hernandez. “It could happen again. You or I could start an escrow company. There are no barriers to entry – you’re not a financial institution, you’re not a bank, you’re not regulated. Now there might be some state law and fraud concerns you have to worry about but none of this stuff is reportable transactions.
“We perform KYC on our users as soon as they come to us …”
Eric Lewin, AIC Global Solutions
“That would be the important aspect for me. There are no lessons learnt because there is still no regulation and this continues. A $500m Ponzi scheme where people lost millions and millions of dollars and not one change has been enacted,” says Hernandez.
Half a billion dollars, in any market, is a lot of money. The lesson for buyers is use escrow but keep your money out of escrow until it has a reason to be there and triple check your KYC.
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