Avery pleads guilty to $52 million wire fraud and money laundering scheme

March 8, 2007

Anchorage, Alaska - The former owner of Security Aviation, Inc., Mark J. Avery, plead guilty in federal court in Anchorage to five counts of wire fraud and ten counts of money laundering in defrauding the May Smith Trust of over $52 million dollars.

From the FBI Alaska press release: United States Attorney Nelson P. Cohen announced today, March 6, 2007, that Mark J. Avery (hereafter Avery), former owner of Security Aviation, Inc., plead guilty in federal court in Anchorage to five counts of wire fraud and ten counts of money laundering in defrauding the May Smith Trust of over $52 million dollars. The plea agreement requires Avery to serve a sentence of imprisonment that ranges from 14 to 17 and a half years and to pay restitution to the May Smith Trust in the amount of $52.125 million dollars. The prosecution was the result of a joint investigation conducted by the United States Attorney's Office, Federal Bureau of Investigation (FBI) and Internal Revenue Service-Criminal Investigation (IRS-CI), and was based on evidence obtained from the simultaneous execution of search warrants for the businesses of Avery in February, 2006. As a result of those searches investigators of the FBI and IRS-CI came into possession of thousands of pages of documents detailing Avery's breach of fiduciary duty as Trustee to the May Smith Trust and May Wong Smith.

In connection with the guilty plea, Assistant United States Attorney Steven E. Skrocki advised the court that the United States has established the following facts:

Avery was a trustee and lawyer for the May and Stanley Smith Charitable Trust and the May Smith Trust. Avery held those positions since early 2002 and received yearly compensation in the amount of $600,000 in trustee fees for his role as trustee and fiduciary to these Trusts. Avery was also owner/operator of Avery and Associates, L.L.C., Security Aviation, Inc., and Regional Protective Services, L.L.C., located at 3230 C Street, Anchorage, Alaska. Avery's companies were engaged in, among other things, air charter services, aeromedical evacuation, legal services, development of real property, and court imposed electronic monitoring.

As a trustee of the Trusts, Avery had a fiduciary obligation to act in the best interests of the Trusts. While acting as trustee and lawyer of the May Smith Trust, Avery was responsible for protecting the Trusts' assets and insuring that sound and legitimate business practices were employed with regard to all Trust business.

The beneficiary of the May Smith Trust, May Wong Smith, was born in China in 1914. Shortly after World War II, May Wong Smith married Stanley Smith, a citizen of Australia. Stanley Smith amassed millions of dollars from his business investments and became a quiet benefactor of various charitable organizations. Stanley Smith died in 1968. May Wong Smith never remarried.

In the early 1980's, May Wong Smith began to show signs of dementia. From that time, her mental condition began to deteriorate to the point where she was not capable of living without assisted care. Due to her mental condition she had full time live-in care from at least 1991 until her death in Nassau, Bahamas on July 15, 2006.

The May Smith Trust was established on October 10, 1982, to provide for May Wong Smith's support and maintenance during her life and certain charitable purposes after her death. May Wong Smith was a trustee of her own trust since inception and in spite of her compromised mental capacity remained a trustee until her death in July, 2006.

The May Smith Trust underwent several modifications since its creation. In 1989 one such revision created the May and Stanley Smith Charitable Trust which was funded with assets of the May Smith Trust and other assets of May Wong Smith. The May and Stanley Smith Charitable Trust was an irrevocable private charitable trust created for the express purpose of supporting only charitable organizations which qualified under Internal Revenue Code Section 501(c)(3) as tax exempt. In addition to the said modifications, the trustees obtained from May Wong Smith various powers of attorney over her health, finances and assets. By June, 2005 the May and Stanley Smith Charitable Trust possessed assets that exceeded $350 million dollars.

The Trusts permitted the trustees to bill the Trusts for investment and legal services in addition to the annual trustee fee of $600,000 paid to each trustee. For example, securities of the Trusts were managed by a trustee owned and controlled company which, in addition to that trustee's $600,000 annual fee, billed the Trusts for investment services.

In early 2005, and after having been a trustee for three years, Avery and another businessman became interested in a government contract which would have required the purchase and financing of several executive jet aircraft. This businessman was unable to obtain financing so Avery approached the trustees of the Trusts about the possibility of financing the purchase of executive jet aircraft through this businessman.

In order for Avery to acquire a multi-million dollar loan for his business ventures, the trustees of the May Smith Trust pledged the U.S. Treasury Notes of the May Smith Trust as collateral. In exchange for the loan, the trustees of the May Smith Trust received heavily discounted and free jet service.

The $52 million loan arrangement was devoid of any reasonable business measures to protect the interests of the Trust. Specifically, Avery used the assets of the May Smith Trust for his personal use with no written business plan, no controls over how the money was to be spent, no collateralization, no terms written as to the source of repayment, no timetable for repayment of principle or contract for use of the funds. Indeed, Avery was not personally obligated to repay any portion of the loan. The monthly loan interest that Avery paid came directly from loan proceeds.

Avery admitted to using funds obtained from the pledging of assets from the May Smith Trust not only to create and purchase businesses, but to pay off two home mortgages, personal debt, and to purchase property for his personal benefit. This property included, but was not limited to, real property, two World War II era fighters, a P-51D Mustang, and an F4U-4 Corsair, both prized by aircraft collectors. Other purchases included other antique aircraft, a 47' Carver Yacht, a 37' heavy-duty patrol boat, allterrain vehicles, motor homes and snowmachines. Avery titled these assets either in his business or in his name. None of these transactions or assets inured to the benefit of the May Smith Trust or May Wong Smith. Avery also admitted that the financing scheme allowed him, his family members, and others to benefit from free use of executive jet aircraft services. In the end, Avery intended, in part, to use the assets purchased by the loan collateralized by the May Smith Trust assets to bill the May and Stanley Smith Charitable Trust for work performed on behalf of the May and Stanley Smith Charitable Trust. The government's investigation revealed that Avery's loan, secured by assets of the May Smith Trust, would be repaid in the event of default by funds from the May and Stanley Smith Charitable Trust.

By his plea of guilty, Avery acknowledged as trustee that he permitted, approved and allowed for the expenditure of funds for his personal use and business ventures with the knowledge that the interests of the May Smith Trust and May Wong Smith were not being represented.

"This is the largest money laundering investigation in the State of Alaska's history," according to IRS-Criminal Investigation, Supervisory Special Agent Terry Zeznock. "The tracing of over 52 million dollars is an example of the financial investigative expertise IRS special agents bring to the table during joint investigations. This case involved the analysis of a virtual mountain of records and the interviewing of numerous witnesses."

Mr. Cohen commended the FBI, the IRS-CI and his staff for their efforts in the prosecution of Avery. "The excellent work by the prosecution team has revealed previously unknown sources of and methods for the funding of Avery's businesses," said Mr. Cohen. "Although many questions have been answered, this investigation is ongoing."

The maximum penalties for Counts 1-5, which charged Mark J. Avery with Wire Fraud, in violation of 18 U.S.C. §§ 1343 and 1346, include a term of imprisonment of 20 years and a $250,000 fine, a $100 mandatory special assessment, and a three-year term of supervised release for each count. The maximum penalties for Counts 6-15, which charged Avery with money laundering, in violation of 18 U.S.C. §§ 1957(a), include a term of imprisonment of 10 years, a $250,000 fine, a $100 mandatory special assessment, and a three-year term of supervised release. A sentencing date has not been set.