Silver State Helicopters Complaint - Company files bankruptsy and thousands of students nationwide suffer

Review by moofish on 2008-02-07
LAS VEGAS, NEVADA -- Please read the article below. Then come back to these comments:

My fiance is one of the victims of this company. How can the owner of this company walk away with millions and the students are left broke! The company that bought Silver State is called EOS. They say the fall out is "not their responsibility". My fiance and I make less than $70,000 a year and that is the amount of the student loan that was taken out with 10% interest. The loan is a private student loan. What can we do in a situation like this?

News article:
Two years ago, Kristian of Provo took out a $75,000 student loan for a course with Silver State Helicopters that claimed he could become a certified flight instructor in 18 months. Today, he still doesn't have his license, and even worse, the Las Vegas flight training company has gone bankrupt and he's not sure if he can recover the money he had prepaid.

Kolste, 26, is one of an estimated 2,700 flight students nationwide who are now on the hook for what one attorney says could total millions of dollars in loans after Silver State filed for Chapter 7 bankruptcy on Monday, one day after it suddenly closed its doors at more than 30 schools nationwide, including two in Provo and Ogden.

There are an estimated 120 students in Utah, according to several former Silver State employees. The company has about 750 workers nationwide including 50 in Utah. Its aircraft and other collateral at its 41 locations nationwide including Provo are now locked down by agents hired by Orix Finance Corp., a secured creditor that is owed more than $33.1 million.

In a statement Monday, Silver State cited "downturns in the U.S. credit markets, which severely curtailed the availability of student loans ... and resulted in sharp and sudden downturn in new student enrollment."

In Tuesday's statement, the company added "the recent loss of financial institutions utilized by the organization for funding" to its list of reasons for filing bankruptcy.

But some attorneys aren't buying that.

Dan Reed, an attorney who is planning to file a class action lawsuit on behalf of a number of Silver State students nationwide and in Utah, said he was skeptical that the ongoing credit crunch caused the company to file bankruptcy.

"Generally, lower interest rates make people more inclined to borrow," he said. "I've spoken with more than 100 Silver State students nationwide in the last three days. I've been told by some who were nearing the end of their training that they had to pay more money or won't be allowed to finish. Even more disturbing is that some students alleged they were told Feb. 1, just two days before the company closed, was a deadline to make payment. And I've been told the company, in some cases, withdrew money electronically from their students' accounts right before filing bankruptcy."

Kolste, who owes $72,696 to date and pays a 15 percent monthly interest on the loan, said he hasn't taken a flight class for the past two months because he refused to sign a document that required him to pay several hundred dollars more.

"I've only used half of the 200 flight hours I was allotted. Yet they expect me to pay more to continue flying. I wasn't allowed to fly until I agreed to sign the document that requires me to pay more and also to finish the course in four months. That's five flights a week plus training to get my commercial and certified flight instructors' licenses, which I can't possibly complete in four months. I don't even have my private license yet," he said.

Kolste said he believes the school had more students than it could handle and there weren't enough helicopters, resources and training opportunities.

"They had seven helicopters in Provo originally, then they got rid of two about six months ago. That made it a lot harder to schedule and get flight training," he said.

Pete Lown, an attorney who last year filed a breach of contract lawsuit on behalf of 40 former Silver State students in Arizona against founder Jerry Airola, called the company a Ponzi scheme that depended on an influx of new students to support the existing students.

"Silver State had a training program that was supposed to be 18 months long. But few students ever completed the program in that time frame," Lown said. In reality, a lack of helicopters and flight instructors dragged out the training for several years, he said.

"And the company had an arrangement with lenders so that 100 percent of the student loans were paid to Silver State in the first five to six months of signing up for the course. After that, they tied the students up in ground school classes and didn't let them fly. And when it came time to fly, the company didn't have enough helicopters and put all kinds of obstacles to keep the students from flying," he said.

Lown said he believes the company's funding dried up after lenders found out it didn't have the resources to provide the training it promised.

"We were in discovery phase to recover detailed financial information from Silver State when it filed for bankruptcy," he said. "The company claimed in press releases it took in $78 million last year. Where did all that money go?"

As of Monday, Silver State's bankruptcy filing listed less than $50,000 in assets. The company had at least 5,000 creditors and its liabilities ranged between $10 million and $50 million.

"It's a tragedy. The student loan program is so poorly designed that when shady operators like Silver State go broke, the students are the ones put in financial disrepair," Lown said.

Brian Peterson, owner of Utah Helicopter LLC in Spanish Fork, said Silver State's bankruptcy highlights the need for more regulation of payment policies at non-accredited trade schools including flight training schools.
Comments:4 Replies - Latest reply on 2008-02-07
Posted by jktshff1 on 2008-02-07:
Sounds like it's a borrow from Peter to pay Paul operation.
You have a long hard row to hoe.
Good luck.
Posted by Anonymous on 2008-02-07:
Wow, Enron and the rest of these sham operations are run by a bunch of crooks. Wonder how the owners of these companies sleep at night. (VH post and info)
Posted by tnchuck100 on 2008-02-07:
There are some problems with some of this information.

1. 15% monthly interest on a student loan? Sounds more like a payday loan.
2. If a class action law suit did work you would probably end up with 1/10 cent on the dollar.
3. Why would an attorney file a class action suit on a bankrupt company?
4. In a bankruptcy with $50,000 in assets and $10+ million in debts you can bet the students are way down at the bottom of the list for distribution of assets.
5. I question the $50,000 in assets. Where are the helicopters?
Posted by Slimjim on 2008-02-07:
They may have leased the birds chuck. Unless an attorney can prove the bankruptcy was deliberate fraud and the shareholders gained, you can forget it. You can't sue a defunct business solely because it ran out of money, even if it was due to not the best business plan. It would be a little questionable that the company pulled money for tuitions knowing it was in the process of filing bankruptcy. That's where they might get problems.

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