Claim Key Bank Enabled 'Ponzi Scheme'

On February 3, when Silver State Helicopters went tango-uniform, many of its more than 2,400 students were left with incomplete training... but owing student loans of $50,000 or more. Comparisons to a ponzi scheme were common, especially after Silver State's official press release said it's Chapter 7 bankruptcy filing resulted from "a sharp and sudden downturn in new student enrollment."

Charles Ponzi was a legendary swindler in the early 20th century. His name is still associated with fraudulent business schemes which pay attractive returns to early investors with income from later investors, concealing operating losses and, often, disproportionate payments to company executives. When the growth of new investors slows, the scheme collapses.

Now, the Sacramento Business Journal reports a group of students has filed class-action lawsuit against Key Bank USA NA, based in Ohio, claiming that the bank not only was a knowing participant in a fraudulent investment operation, but that it has a history of partnerships with other failed vocational training enterprises.

The lawsuit has been filed in California Superior Court in Alameda County by Pinnacle Law Group, LLP in San Francisco. Pinnacle attorney Kevin Rooney told the paper the suit asks the court to block Key Bank from collecting on the loans, and prohibit the bank from reporting delinquent payments to credit reporting agencies.

In a press release, the law firm alleges, "As with KeyBank's previous failed vocational school 'partners,' Silver State was unregulated and unaccredited and, when its ponzi scheme collapsed, it filed bankruptcy leaving its students facing KeyBank's threat to enforce the loans."

In particular, the suits charges that KeyBank violated Federal Trade Commission regulations by issuing student loans, "without including very specific language that the borrower has the same claims and defenses against the lender as they have against the school."

Silver State led a controversial existence even before its shutdown in February. In 2006, nine former students sued the school over advertising claims they said misrepresented the employment prospects awaiting graduates.

Others complained the school did not maintain a large enough aircraft fleet to provide students the opportunity to fly the hours they'd been sold.

FMI: www.key.com