Charges set aside in Hawaiian Air fraud case

Two men sentenced to prison in connection with an ill-fated Hawaiian Airlines reorganization plan have had bankruptcy fraud conspiracy charges against them set aside and sent back for retrial by the U.S. Court of Appeals for the Second Circuit in New York.

William Spencer had been sentenced to 51 months imprisonment for the conspiracy charge while Paul Boghosian had been sentenced to 24 months for conspiracy and commercial bribery. In its ruling Tuesday, the three-judge panel reaffirmed the commercial bribery conviction against Boghosian.

In vacating the conspiracy judgment by the U.S. District Court for the Southern District of New York, the appellate judges said the lower court erred in instructing the jury that Boghosian's interest in the outcome of his prosecution created a motive for false testimony. And since the conspiracy involved both Boghosian and Spencer, the appellate judges set aside Spencer's conspiracy conviction as well.

The arrest of Boghosian in March 2005, on the eve of Hawaiian Airlines' reorganization plan confirmation hearing, sent a buzz through the courtroom the following day and effectively eliminated the only competing plan to bring the company out of bankruptcy.

A reorganization plan backed by then-Hawaiian trustee Joshua Gotbaum, the airline's unsecured creditors' committee and San Diego-based RC Aviation LLC ultimately was approved. The airline, which had filed for bankruptcy in March 2003, emerged in June 2006.

Boghosian, the head of Hawaiian Investment Partners Group LLC, and Spencer, a trustee for E&M Trust, were indicted on conspiracy charges for lying about their ability to inject $300 million in new capital to bring the airline out of bankruptcy. Boghosian also was indicted for commercial bribery after agreeing to pay a $500,000 bribe to an FBI agent posing as a hedge-fund manager in exchange for a $2.5 million loan.

Veteran Hawaiian Airlines pilot Robert Konop, who teamed with Spencer and Boghosian on the failed reorganization plan, was not indicted but was held in contempt and ordered to pay financial damages.

Konop also was fired by Hawaiian from his $146,700-a-year position. Last month, the U.S. District Court in Los Angeles set aside an arbitration award which had sustained Konop's termination from Hawaiian. Hawaiian has filed a notice of appeal.