SHERMAN, Texas — The president of a Fort Worth bank testified on Tuesday that he contacted federal authorities after being approached about his bank investing in an airplane deal that had all the hallmarks of a “money laundering operation.”
“Something odd was happening here,” Casey Sullivan, the president of Texas Exchange Bank testified. “…This particular escrow agreement was unlike any I had ever seen.”
Sullivan’s testimony came during day five of the trial of Debra Lynn Mercer-Erwin, the owner of an Oklahoma City aircraft title company. She is on trial in federal court in Sherman.
Mercer-Erwin and her alleged accomplice, Federico Machado, are accused in what prosecutors have described as an alleged Ponzi scheme involving the sale of aircraft that either did not exist or could not actually be sold.
Prosecutors and investigators have said that a series of stories WFAA first aired in 2019 spurred a federal investigation that resulted in the indictments of Mercer-Erwin, Machado and others.
Sullivan testified he was approached by a broker about investing in one of the plane deals. He said he was told the deal involved putting in a fully refundable deposit into an escrow account at very high rate of return.
Sullivan testified that he had never heard of a “fully refundable deposit.”
“My impression was that it was a transaction that was too good to be true,” he testified.
Sullivan, who has experience in aircraft financing, said he’d never heard of a plane deal being structured that way.
Sullivan testified he spoke to the CEO of the company that was looking to make the investment, and the CEO provided him copies of documents related to the transaction.
Those documents showed that Machado planned to buy a plane for $25 million.
As earnest money, the investor would deposit $5 million into an escrow account with Wright Brothers Aircraft Title escrow account, operated by Mercer-Erwin.
In return, the investor would get a $400,000 upfront fee. Then at the end of four months, the entire deposit would be returned to the investor. If the deal didn’t close, then Machado would lose the fee that he had paid to the investor.
“The returns seemed very outsized,” Sullivan testified.
He also said $5 million seemed like an astronomically high amount for earnest money on that type of deal.
Sullivan also testified that he didn’t know of any seller who would engage in a transaction with a buyer who didn’t have the funds to even make a deposit.
Sullivan said the investor had told him that Machado planned to buy the plane so it could be converted into an aircraft to transport cargo. Then Machado would turn around and sell the plane.
He said, however, when he spoke to Machado, the details changed. Machado told him that the plane wasn’t going to be converted for cargo use, and he was merely representing other brokers.
“Stories didn’t match,” Sullivan testified.
As he reviewed the paperwork, he said he ran the serial number for the airframe but was unable to find one with that matched.
The investor, Sullivan said, told him there had been a mistake on the serial number, and he was provided an agreement with a different serial number.
“It’s a pretty big purchase,” Sullivan said. “You don’t make mistakes like that.”
Sullivan said he checked the new serial number and found that it had been deregistered in 2017. “It’s fictitious,” he said.
He also said the escrow agreement with Wright Brothers Aircraft Title, operated by Mercer-Erwin, didn’t make sense either.
He questioned the need to use an escrow company when the deposit simply could be put into a bank. “Banks do it all the time for free,” he said. “…or even pay for it.”
Sullivan said he offered to hold the funds in his bank, but that offer was rejected by the investor. And he offered a couple of other options to the investor, he said, and those suggestions also were rejected.
In the proposed escrow agreement, Sullivan said there was no listed fee.
Sullivan said he did online searches and checked Securities and Exchange Commission records and found information that troubled him about the investor’s company.
Sullivan said he ultimately made a Suspicious Activity Report to report potential criminal activity and began meeting with federal agents.
An audit of alleged Ponzi scheme transactions from 2016 to 2020 showed that escrow fees from $20,000 to more than $150,000 were paid for the airplane transactions.
The bank president’s testimony will resume Wednesday.
IRS Special Agent Sonia Hurtado also testified that more than $2 million dollars flowed out of the Wright Brothers trust account and into Mercer-Erwin’s personal checking account from 2016 to 2020.
Hurtado testified that based on the banking transactions, she believed the funds were derived from an alleged Ponzi scheme with Machado.
She testified that Mercer-Erwin wrote a personal check for $82,000 to buy a Range Rover in 2019. She also testified Mercer-Erwin bought a condo for $421,000, as well as made trips to Switzerland, Vegas and Orlando.
When Mercer-Erwin’s attorney, Joe E. White Jr., questioned Hurtado, he pointed out that those trips were for aircraft-related conferences that Mercer-Erwin attended.
White also made the point that there was no way to prove whether the funds taken out of the account were derived from the Machado-related plane deals or from regular escrow transactions.
White has also sought to portray some of the investors as being involved in nefarious criminal activity and questioned why jurors won’t be hearing from any of the investors.
A forensic account previously testified that Mercer-Erwin kept almost $5 million in escrow fees over four years. Another $75 million flowed to Machado, now a fugitive in Argentina.
Mercer-Erwin, who also owns a company called Aircraft Guaranty Corp., is accused of putting aircraft into the hands of narcotraffickers.
Under U.S. law, foreign nationals cannot get U.S. registration for their aircraft. However, the FAA allows foreign nationals to gain U.S. registration for their aircraft by transferring the title to a trust company.
Prosecutors alleged that Mercer-Erwin “looked the other way” and allowed narcotraffickers to put planes in trust with her company.
Mercer-Erwin’s attorney claimed she did nothing wrong and followed all laws and rules related to trust agreements.