Witnesses in federal trial of ex-Security Aviation chief tell of $50 million deal
February 9, 2016
Two explanations of how an Anchorage lawyer spent $52 million in six months from an elderly widow’s trust are beginning to unfold in a federal fraud trial in Anchorage.
Mark Avery, who went bankrupt after his aviation empire crumbled and later was disbarred, faces 17 federal felonies over money he secured in 2005 through his position as one of three trustees of two significant California-based funds -- the May Smith Trust of about $100 million and the May and Stanley Smith Charitable Trust, valued in 2005 at $350 million.
Avery’s defense lawyer, Mike Dieni, told jurors Tuesday in his opening statement that the $52 million spent from the personal trust for May Wong Smith’s care was approved by all three trustees, who wanted to invest in an air charter as a new way to make money. The trust was unusual in that the three trustees were allowed under the trust terms to do business with it, Dieni said.
“He did not lie or cheat to obtain the money,” the defense attorney said.
But assistant U.S. Attorney Bryan Schroder told jurors that Avery misused his position and blew through trust money on luxury items including vintage planes, two boats, RVs and houses -- plus paid off his own debts -- that deviated from what the other trustees approved.
“This case is about trust and betrayal of trust,” the prosecutor said.
Avery also bought the air charter Security Aviation two corporate jets and a fleet of Czech-built fighter jets, which Dieni said could have been used for military training.
Jurors also began to get a glimpse of the couple whose great wealth created the trusts. One of the first witnesses was Ruth Collins, who is currently one of the three trustees and whose father and grandfather -- John P. Collins Jr. and Sr. -- were trustees before her. Her grandfather was a close friend of Stanley Smith, she said. The other two original trustees were Avery’s father, Luther, a noted San Francisco tax attorney, and Dale Matheny, an accountant. Those men all have since died. They all benefited richly from the allowed self-dealing, prosecutors said.
Stanley Smith was an Australian who met May Wong in Chongqing, China, after World War II, Ruth Collins told jurors. She was from China, studied economics at the University of St. Andrews in Scotland and worked as a translator. Stanley spent World War II behind Japanese lines working for the British Ministry of Information -- putting out psychological propaganda, a brief biography of him that is part of the evidence in the case suggests. They married in 1951, Collins said.
The biography is on the website of Churchie, the nickname for Anglican Church Grammar School for boys in Australia. Smith attended it for a couple of years in the 1920s and became its chief benefactor, Collins said. Smith or the trusts provided money for a library, a prep school, a science center and more, she said.
After the war, he and a friend bought a dying newspaper in Japan, an inside track to becoming foreign traders there. He made most of his money mining iron ore in Malaysia. The couple lived in Hong Kong, Singapore, London and the Bahamas, Collins said. Stanley Smith died in 1968 and May Smith, who never remarried, died in 2006, she said.
May Wong Smith set up the personal trust in 1982 to provide for her care and to go to charity after her death. She later created the separate charitable foundation.
Avery, who inherited his trustee position in 2002 after his father’s death the year before, pushed for approval in May 2005 from Matheny and John Collins Jr. for a loan of up to $50 million using the May Smith Trust as collateral. He got the idea after moving May Smith from her home on the island of Guernsey in the English Channel to the Bahamas and pitched it as a way to provide private jet travel for the trustees. The action came at a hastily set board meeting that was reconvened from one just a couple of weeks earlier.
The meeting minutes, which assistant U.S. Attorney Steve Skrocki directed Collins to read to jurors in court Tuesday, provide a one-paragraph outline of a $50 million deal.
Was there a business plan? Skrocki asked Collins. Specifics on expected return on the investment? A contract? A promissory note from Avery?
No, answered Collins, whose term as trustee began after that, in March 2006. Only meeting minutes, she said.
A group that included Doug Gilliland, an established Alaska air charter owner, and J. Michael Farrell, a former Reagan White House lawyer, presented the proposal “for an aircraft scheme which entailed the use of Trust assets as collateral for the acquisition, refurbishment, operation and ultimate sale of aircraft.”
“Trustee Avery should proceed with the correct arrangements,” the minutes say.
But by June 2005, Gilliland -- the experienced backbone of the original plan -- was out and Avery was in charge. On June 7, Avery made the first request to draw down the loan, which worked like a line of credit, according to testimony from Bruce Raabe, a Marin County investment manager. Raabe now has his own firm but at the time was a partner with his father-in-law, John Collins, the trustee. Their firm managed the Smith trusts.
Raabe said the $50 million investment sounded risky and he thought it was a terrible idea. The May Smith Trust to that point had its $100 million in safe U.S. treasuries. Raabe emailed his father-in-law results from a Google search that showed the trustees could charter jet flights and didn’t need to buy their own planes.
But the trustees had decided and Avery soon sought regular transfers of millions.
On Oct. 5, 2005, Avery asked for an additional $2.4 million, adding onto the nearly $50 million already in hand. Raabe said he checked and Matheny told him the extra money was approved. Days later, Avery bought a World War II vintage Corsair fighter, for $2.4 million, prosecutor Schroder told jurors.
But even then he was running out of money, prosecutors said. He secured a $500,000 Wells Fargo line of credit in October 2005, the prosecutor said, but didn’t mention that he was $52 million in debt.
Dieni, the defense lawyer, told jurors that Avery's plan was on the brink of success when the businesses collapsed after FBI raids and bad publicity in February 2006.
The trial resumes Wednesday with Collins continuing to testify. It is expected to take three weeks.
Mark Avery, who went bankrupt after his aviation empire crumbled and later was disbarred, faces 17 federal felonies over money he secured in 2005 through his position as one of three trustees of two significant California-based funds -- the May Smith Trust of about $100 million and the May and Stanley Smith Charitable Trust, valued in 2005 at $350 million.
Avery’s defense lawyer, Mike Dieni, told jurors Tuesday in his opening statement that the $52 million spent from the personal trust for May Wong Smith’s care was approved by all three trustees, who wanted to invest in an air charter as a new way to make money. The trust was unusual in that the three trustees were allowed under the trust terms to do business with it, Dieni said.
“He did not lie or cheat to obtain the money,” the defense attorney said.
But assistant U.S. Attorney Bryan Schroder told jurors that Avery misused his position and blew through trust money on luxury items including vintage planes, two boats, RVs and houses -- plus paid off his own debts -- that deviated from what the other trustees approved.
“This case is about trust and betrayal of trust,” the prosecutor said.
Avery also bought the air charter Security Aviation two corporate jets and a fleet of Czech-built fighter jets, which Dieni said could have been used for military training.
Jurors also began to get a glimpse of the couple whose great wealth created the trusts. One of the first witnesses was Ruth Collins, who is currently one of the three trustees and whose father and grandfather -- John P. Collins Jr. and Sr. -- were trustees before her. Her grandfather was a close friend of Stanley Smith, she said. The other two original trustees were Avery’s father, Luther, a noted San Francisco tax attorney, and Dale Matheny, an accountant. Those men all have since died. They all benefited richly from the allowed self-dealing, prosecutors said.
Stanley Smith was an Australian who met May Wong in Chongqing, China, after World War II, Ruth Collins told jurors. She was from China, studied economics at the University of St. Andrews in Scotland and worked as a translator. Stanley spent World War II behind Japanese lines working for the British Ministry of Information -- putting out psychological propaganda, a brief biography of him that is part of the evidence in the case suggests. They married in 1951, Collins said.
The biography is on the website of Churchie, the nickname for Anglican Church Grammar School for boys in Australia. Smith attended it for a couple of years in the 1920s and became its chief benefactor, Collins said. Smith or the trusts provided money for a library, a prep school, a science center and more, she said.
May Wong Smith set up the personal trust in 1982 to provide for her care and to go to charity after her death. She later created the separate charitable foundation.
Avery, who inherited his trustee position in 2002 after his father’s death the year before, pushed for approval in May 2005 from Matheny and John Collins Jr. for a loan of up to $50 million using the May Smith Trust as collateral. He got the idea after moving May Smith from her home on the island of Guernsey in the English Channel to the Bahamas and pitched it as a way to provide private jet travel for the trustees. The action came at a hastily set board meeting that was reconvened from one just a couple of weeks earlier.
The meeting minutes, which assistant U.S. Attorney Steve Skrocki directed Collins to read to jurors in court Tuesday, provide a one-paragraph outline of a $50 million deal.
Was there a business plan? Skrocki asked Collins. Specifics on expected return on the investment? A contract? A promissory note from Avery?
No, answered Collins, whose term as trustee began after that, in March 2006. Only meeting minutes, she said.
A group that included Doug Gilliland, an established Alaska air charter owner, and J. Michael Farrell, a former Reagan White House lawyer, presented the proposal “for an aircraft scheme which entailed the use of Trust assets as collateral for the acquisition, refurbishment, operation and ultimate sale of aircraft.”
“Trustee Avery should proceed with the correct arrangements,” the minutes say.
But by June 2005, Gilliland -- the experienced backbone of the original plan -- was out and Avery was in charge. On June 7, Avery made the first request to draw down the loan, which worked like a line of credit, according to testimony from Bruce Raabe, a Marin County investment manager. Raabe now has his own firm but at the time was a partner with his father-in-law, John Collins, the trustee. Their firm managed the Smith trusts.
Raabe said the $50 million investment sounded risky and he thought it was a terrible idea. The May Smith Trust to that point had its $100 million in safe U.S. treasuries. Raabe emailed his father-in-law results from a Google search that showed the trustees could charter jet flights and didn’t need to buy their own planes.
But the trustees had decided and Avery soon sought regular transfers of millions.
On Oct. 5, 2005, Avery asked for an additional $2.4 million, adding onto the nearly $50 million already in hand. Raabe said he checked and Matheny told him the extra money was approved. Days later, Avery bought a World War II vintage Corsair fighter, for $2.4 million, prosecutor Schroder told jurors.
But even then he was running out of money, prosecutors said. He secured a $500,000 Wells Fargo line of credit in October 2005, the prosecutor said, but didn’t mention that he was $52 million in debt.
Dieni, the defense lawyer, told jurors that Avery's plan was on the brink of success when the businesses collapsed after FBI raids and bad publicity in February 2006.
The trial resumes Wednesday with Collins continuing to testify. It is expected to take three weeks.
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