On February 12, the United States Court of Appeals for the Third Circuit affirmed the convictions and sentences of former Direct Air senior executives Kay Ellison and Judy Tull on eight counts of wire fraud, bank fraud, and conspiracy. Ellison and Tull had co-founded and served as managing partners of a charter airline called Southern Sky Air & Tours (d/b/a Myrtle Beach Direct Air & Tours (Direct Air)).
Both women were indicted for conducting a scheme to violate U.S. Department of Transportation regulations, which “require airlines to deposit customer payments into an escrow account and prohibit airlines from withdrawing those funds until the completion of the associated flights.” Instead, Ellison and Tull “inflated the number of passengers on the flights with ‘dummy’ listings,” which enabled them to submit similarly inflated withdrawal requests to the bank, and falsified Direct Air’s profit and loss statements to conceal the scheme. After their conviction on all counts at trial, the U.S. District Court in New Jersey sentenced them both to 94 months’ imprisonment.
On appeal, the defendants challenged their convictions, claiming prosecutorial misconduct, lack of sufficient evidence, and violations of their constitutional right against self-incrimination, and challenged the sentences as unfair. The Court of Appeals disposed of each of their claims, finding that the prosecutors did not suppress favorable material evidence and did not engage in misconduct, that there was sufficient evidence of wire fraud and bank fraud, that there was no compelled self-incrimination, and that the District Court did not err in its calculations under the U.S. Sentencing Guidelines.
Note: This case, considered on its facts, involves no more than garden-variety fraud. Corporate compliance officers responsible for antifraud programs, however, should use this case in internal briefings and training, as a concrete example of why such programs need to include monitoring and internal controls that reviews transactions and activities of the most senior executives, as well as mid- and lower-level employees. If some C-level officials are annoyed or discomfited by compliance measures that scrutinize their activities, their board of directors needs to remind them that such measures must extend to all levels of their companies, and be consistently applied, for regulators to conclude that their corporate antifraud program is effective.