Hawaiian Air plan
hits FBI turbulence

A financier's arrest rocks
a competing proposal to
revamp the bankrupt airline

One of the principals in an outside group's reorganization plan for Hawaiian Airlines said he intends to withdraw his proposal after a key financial supporter was arrested for allegedly attempting to bribe an undercover FBI agent.

Hawaiian Airlines pilot Robert Konop said yesterday the developments surrounding St. Louis businessman Paul Boghosian's arrest on the eve of the airline's confirmation hearing necessitates pulling the only competing proposal to a company-backed plan for Hawaiian. All three attorneys connected with the outside group's plan also withdrew from the case yesterday.

Boghosian, president and chief executive of the Barron Group Ltd., had agreed to pay a $500,000 bribe to the agent, who was masquerading as a hedge fund manager, in return for a loan of approximately $2.5 million, according to U.S. Attorney David Kelley in New York City.

The 50-year-old Boghosian was charged with conspiracy to commit bankruptcy fraud and commercial bribery. Each count carries a maximum penalty of five years in prison.

His arrest was announced yesterday by Kelley, U.S. attorney for the Southern District of New York.

The surprising turn of events will likely give a boost to the company-backed reorganization plan that is supported by Hawaiian Airlines trustee Joshua Gotbaum, the airline's unsecured creditors' committee and investor group RC Aviation LLC. A two-day hearing to confirm the plan begins at 9:30 a.m. today in federal Bankruptcy Court. The company intends to ask for conditional approval of its reorganization plan, pending votes of Hawaiian's pilots and flight attendants on labor contracts.

"I think this makes it clear that there is only one plan of reorganization for Hawaiian Airlines," Gotbaum said.

Konop, though, said he still objects to the trustee-backed plan because he said it will leave the company with too much debt and too little cash. Konop said he intends to argue his points himself in court today.

Boghosian controls Hawaiian Investment Partners Group LLC, which together with the Hawaiian Reorganization Committee LLC and Konop had filed a reorganization plan to bring the carrier out of bankruptcy.

In mid-January, Boghosian attempted to buy RC Aviation's stake in Hawaiian Airlines parent Hawaiian Holdings Inc. for $25 million, then doubled his offer to $50 million, according to court filings. Both offers were rejected by Hawaiian Holdings Chief Executive Larry Hershfield, who also is the managing director of RC Aviation.

Timothy Philipp, Boghosian's personal attorney, said he would not discuss his client's arrest.

"I have no comment until things are resolved -- whatever the current situation is," he said.

Randal Yoshida, the local counsel for the competing group, said he was "disappointed" to hear about the arrest but declined further comment.

Later yesterday, Philipp, Yoshida and New York attorney Eliot Bloom, who was going to handle some of the group's depositions, withdrew from the case.

Konop said yesterday that he did not have much of a reaction to Boghosian's arrest, but suggested Boghosian was set up following a deposition that Boghosian gave to Hawaiian Airlines attorneys on Friday.

"I had no reason to believe he wasn't sincere in what he was saying and what he was trying to accomplish," Konop said. "He put a lot of work into it, and his sole goal was to make sure the Hawaiian reorganization worked out properly."

Ken Elsey, a former principal of Hawaiian Investment Partners, was stunned yesterday by Boghosian's arrest. Elsey said he sold the entity to Boghosian last month for "a token" $10.

"No kidding. Oh, my God. That's a shocker," Elsey said. "I never would have believed it from this guy. That's truly amazing."

Elsey said the financial declarations he saw regarding Boghosian's funding "appeared to be in order."

"I thought (selling Hawaiian Investment Partners to Boghosian) would be a prudent move on my part to allow him to participate in the deal directly as a party of interest since he was providing the money, and all I was primarily doing was trying to seek out some money sources for the project," Elsey said. "If this (alleged fraud) is true, then I was certainly hoodwinked."

In November, Boghosian submitted a declaration to federal Bankruptcy Court testifying that he had access to $300 million needed to fund the plan. Court approval for that plan to be sent to creditors was delayed several times, though, so that the Gotbaum-backed plan could be considered by Bankruptcy Court.

On Monday night, Gotbaum, Hawaiian Holdings and RC Aviation said in court papers that the competing plan was a "hoax" and should be disqualified. The papers also said that Boghosian associate William Spencer, who controls E&M Trust, had refused to answer substantive questions about two $500 million deposits the trust allegedly had in ABN-Amro banks in Taiwan and the Netherlands. The criminal complaint filed against Boghosian yesterday said that ABN-Amro account numbers listed in documents submitted to the Bankruptcy Court were not valid.

The complaint against Boghosian also alleges that in January he solicited funds from the undercover agent's hedge fund by requesting $2 million in "mobilization funds" to cover, among other things, legal expenses related to the Hawaiian Airlines reorganization. Boghosian allegedly told the agent that he had commitments for additional funding but that the funds had not been transmitted.

Later, the complaint alleges, Boghosian asked whether the agent's hedge fund would provide approximately $200 million required for the Hawaiian Investment Partners plan. On Feb. 21 the agent and Boghosian met in Manhattan where the agent allegedly told Boghosian that the supporting documents submitted to Bankruptcy Court on behalf of Hawaiian Investment Partners were bogus.

The agent, according to the complaint, warned Boghosian that the Hawaiian Airlines deal would collapse because there was no real funding and that for the agent to get his hedge fund to make a loan, the agent wanted a kickback of about $500,000 from the loan proceeds.