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
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
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.