After $7.2 million of taxpayers’ money was funneled into a failed deal with BVI Airways in 2016 and 2017, angry residents called for answers, and then-Premier Dr. Orlando Smith promised last year to hire an outside firm to try to recoup the funds.
Now, citing an investigation by the law firm Martin Kenney & Co, the government is placing the blame largely on Washington DC attorney Lester Hyman, who helped broker the BVI Airways deal starting about five years ago, according to documents that Attorney General Baba Aziz filed last month in the United States District Court for DC.
The government believes that Mr. Hyman — who earned a $100,000 annual retainer from the territory for much of the 30 years that he served as its counsel in the US — breached the government’s trust by accepting
undisclosed payments from BVI Airways while giving the impression that he was acting solely on the government’s behalf, Mr. Aziz stated in an application asking for the DC court’s assistance in gathering more information about the lawyer.
Because of its findings, government is considering suing Mr. Hyman for fraud at equity; breach of fiduciary care and loyalty; and negligence, but because such lawsuits require heightened standards of evidence in the Virgin Islands the government is asking the DC court to assist with subpoenaing Mr. Hyman’s bank accounts, tax records and other information.
“The record shows that Mr. Hyman pushed his own client hard to enter into the then-proposed airline venture,” the government states in its 259-page application. “In doing so, he put his client into harm’s way. The available evidence suggests that Mr. Hyman did so because he was secretly being paid by the other side.”
Mr. Hyman, whose retainership with government was terminated amid the BVI Airways fallout in 2017, declined to comment in detail, but he told the Beacon last week that he is 88 years old and that the deal occurred “long ago.”
“I regret that I cannot be helpful to you regarding the BVI Airways matter,” he said. “All I can say for the record is that for more than 30 years I served as the BVI’s Washington attorney and always acted in the BVI’s best interest.”
The VI government’s DC court filing — officially an “application for judicial assistance to obtain evidence for use in a foreign proceeding” — includes an extensive declaration by VI attorney Martin Kenney, the managing partner of the firm that government hired last fall to probe the airline deal. Mr. Kenney’s statement outlines the firm’s investigation, including questions asked of Mr. Hyman that sometimes were met with misleading responses, according to government.
Government’s application also includes several emails between Mr. Hyman, Dr. Smith and other parties, as well as other documents.
In late 2013 or early 2014, the applications states, Mr. Hyman introduced government officials to “certain business promoters from the United States” who proposed an airline that would operate nonstop commercial flights between Miami and the VI.
Though early discussions suggested that BVI Airways partners would invest some $6 million in the venture, they never did, according to government. Instead, only the government invested, ultimately handing over $7.2 million even though not a single plane operated between the promised destinations.
The government-commissioned investigation suggested that “Mr. Hyman personally profited from the failed airline venture … to the tune of an undisclosed $10,000 director’s fee, $2,500 for each in-person meeting, and stock options,” according to Mr. Aziz’s filing.
Government also suspects that Mr. Hyman secretly received a $200,000 finder’s fee from the airline and may have been a director of a related company. This “improper activity,” government argued, incentivised Mr. Hyman to influence the government to invest in the airline venture.
Government also argued that Mr. Hyman attempted to “brow-beat” the former premier into accepting the deal.
“Mr. Hyman’s emails from 2014 to 2017 to the then-premier concerning the failed airline venture reveal an attorney who lost sight of his role as an advocate for his client’s interest,” Mr. Aziz’s application alleges. “Instead, they contain statements of rancor and upset directed to his client in a tone and content calculated to shame, browbeat, and push his client into investing ultimately $7,200,000 of public money in a venture fraught with risk and with parties that the most cursory of due diligence would have revealed red flags that, at a minimum, should have been disclosed to his client since they indicated that the parties were unsuitable for the proposed venture.”
As the BVI Airways deal was falling apart in 2017, government officials told the Beacon that they had conducted adequate due-diligence on the airline before entering the agreement, even though information found online showed that three of the BVIA’s executives previously worked with a New York-based airline called Baltia, which never operated a commercial flight in 27 years of existence despite allegedly raising millions from investors.
The attorney general’s filing, however, paints a different picture: It suggests that government relied heavily on Mr. Hyman to conduct due-diligence but that he failed in that responsibility.
One of the airline’s executives, Bruce Bradley, was Mr. Hyman’s longtime friend, and Mr. Hyman told the investigators that his “due diligence” in researching Mr. Bradley’s background consisted of “asking around,” government alleged. When negotiations began, it was Mr. Hyman who set out financial projections of the proposed project and not Mr. Bradley, according to Mr. Kenney’s declaration.
“I believe that this fact is an early indication as to whose interests Mr. Hyman was representing,” Mr. Kenney wrote.
Though the government raised concerns over certain is- sues, like a proposed memorandum of understanding that granted the company a revenue guarantee, Mr. Hyman championed his friend and the project.
“I know [Mr. Bradley] to be a highly successful, well regarded businessman who loves the BVI and was prepared to move for- ward with a badly needed project for the territory,” Mr.Hyman allegedly wrote in a December 2014 email to Dr. Smith.
At the time, Mr. Hyman — whose clients include Fortune 500 corporations and other foreign governments — was a trusted legal advisor to the government.
During most of his three decades of rendering legal services to the VI, he was paid $100,000 annually, according to the application.
However, Mr. Kenney’s investigation found that Mr. Hyman “did very little in the way of professional work for the [government], particularly during the period from 2010 to 2017,” outside of the BVI Airways deal and another matter relating to the Barack Obama administration’s policy toward offshore financial centres, according to the filing.
As the BVI Airways project moved along, Mr. Hyman’s tone continued to demonstrate favour towards Mr. Bradley, according to government.
“Frankly, I am embarrassed that this matter is not moving along in a businesslike manner,” Mr. Hyman allegedly admonished the former premier in the December 2014 email. “Mr. Bradley’s calls and e-mails go unanswered. Is this the way we treat prominent business people who offer proposals that will surely revive and enhance the BVI tourist industry?”
And though it was suggested in 2014 that BVI Airways would invest $6 million in the venture, Mr. Kenney described this proposal as the “bait” in an apparent “bait-and-switch” scheme.
“Mr. Bradley and the operator parties did not invest a cent of their own money in the BVI airline project,” he wrote, adding, “The operator parties used Mr. Hyman to set the ‘bait.’”
Even a preliminary agreement signed in Oct. 12, 2015 did not include any mention of the promised investment, Mr. Kenney stated.
After Mr. Hyman’s retainer arrangement with government was terminated in mid-2017, he allegedly wrote Dr. Smith placating emails.
In August 2017, he wrote Dr. Smith to say that he “was heart-broken” by his termination and that he had felt that he “could best serve the goal” of contributing to high-end tourism “as an honest mediator between” government and BVI Airways.
“What went wrong?” he wrote. “As with many business deals, it came down to money.”
He explained that BVI Airways executives had been working to raise private funds for the airline when they learned that the government was “negotiating with the Chinese” to expand the runway within five years. At that point, he said, potential investors pulled out because of the competition they feared the expansion would bring.
When BVI Airways turned to the government for further investment, government refused to provide more money, the email said.
That’s when the whole project began to fall apart, Mr. Hyman claimed.
His explanation echoes an excuse made by BVI Airways executives when they announced plans to lay off their staff in July 2017. At the time, they complained that they had run into trouble raising private capital because of the government’s “ill-timed” December 2016 announcement that a preferred bidder had been selected to expand the airport runway.
However, the government’s plan to expand the runway — which has since been put on hold — had been in the works since at least 2012, and the government had provided several public updates on the process before December 2016. In fact, the “preferred bidder” announced in 2016 — the Chinese Communications Construction Corporation — was among five entities that were shortlisted after a request for expressions of interest in 2012.
As elections loomed earlier this year, Dr. Smith issued a statement on the airline after months of silence. BVI Airways contributed a “considerable cost and effort” and the government originally had “good reason to believe that [they] were on the right path,” Dr. Smith said without providing a breakdown of the “cost” or explaining the source of any money that did not come from taxpayers.
But soon after he agreed to the deal, he said, BVI Airways submitted a complaint to the government about the plan to expand the airport runway, claiming that it would bring competitors to the territory and that potential investors would no longer be interested.
Though Dr. Smith assured the public that “nobody got rich off this project” and that “the money was spent paying salaries to pilots, flight attendants and ground crews,” he raised a red flag.
“There is … one great unanswered question about this whole saga, which is why BVI Airways began this project when they had to know that we intended to expand the runway, which would eventually mean competition from larger carriers,” he wrote. “In all honesty, I cannot answer that question.”
Also earlier this year, current Premier Andrew Fahie, who took office in February, claimed that information on the BVI Airways deal had gone “missing” or was “deleted.” He said he would launch an internal audit to clarify the situation after being “stonewalled at every attempt.”
He added that the previous administration had paid a company $200,000 on the eve of the election to search for the missing funds, but that so far it had come up with nothing.
Dr. Smith disputed this claim in a Facebook post, stating that the firm was selected in August, “long before an election date was even considered.” He was apparently referring to Mr. Kenney’s firm.
Neither Dr. Smith nor Mr. Fahie responded to requests for comment for this article.
The government’s application last month also suggested that Mr. Hyman may have withheld important information from the investigators.
“In June 2019, the BVIG’s current attorneys requested the BVIG’s client file from Mr. Hyman,” the document states. “Despite having had the BVIG as a client for 30 years, Mr. Hyman responded that there was no client file, nor was any form of written communications ever created because all his meetings were in person or by telephone.”
This claim, however, is “easily refuted” by emails and other documents between government officials and Mr. Hyman regarding the airline venture and other projects, the application noted.
At other times, government claimed, Mr. Hyman apparently provided investigators with misleading or inaccurate information. Asked about the remuneration he had received as director of the airline, for instance, he allegedly stated that “he believed that he was paid about $500,” even though government obtained an email suggesting that BVI Airways’ standard director compensation included a payment of $10,000, $2,500 per in-person meeting, and stock options.
“Since Mr. Hyman appears to be prone to making material misstatements, without passing judgment as to whether they are intentional or the product of a faulty memory, it is unfortunately clear that his testimony, even under oath, cannot be solely relied upon as should ordinarily be expected of a member of the District of Columbia Bar,” the application states before asking for the DC court’s help in obtaining “direct subpoena access to objective banking, tax, and other similar records in order to reveal the full scope of facts regarding undisclosed payments.”