Retribution

It was sweet music. On September 1, 2021, the Securities and Exchange Commission filed nine violations of federal anti-fraud law for illegally operating a boiler room that raised $70 million on behalf of erstwhile TTF Aerospace investor Elite Aerospace Group (SEC Charges Seven Individuals in Orange County-Based Offering Frauds). The indictments named Dustin Tillman, Zeeshawn Zia, Michael Owens and Dawson Davenport as conspirators in the case, all individuals who had campaigned heavily to purchase TTF (my company) and join the Elite Aerospace Group fold. The indictment included numerous misrepresentations to investors about the acquisition of TTF.

How did we get involved in all this? It’s fairly simple really, being another sad story of masterful liars spinning rosy yarns to people who needed a way out of their predicament. When redeemers stretch the truth to create a blue sky tale of rescue, and an internal leader lies, cheats and steals to create the need, there isn’t much chance of a rosy ending.

By all appearances Elite was a well-funded startup looking to add established pieces to the strategic pie they were baking. They wanted to preserve as much TTF customer goodwill and product value as possible, and according to them could immediately provide $1.9 million in funding with another $500,000 a month for a year. That was exactly what TTF needed to overcome the hole the current company president had dug myopically trying to qualify for Airbus business while ignoring our bread-and-butter, all-important after-market segment. His reckless optimism resulted in a lack of risk mitigation and an inexcusable laziness in pursuing our usual after-market opportunities. But the lies and the deceptions were the worst part.

Elite had toured TTF, seen the product, spoken to customers. We had toured Elite facilities in California and seen their capabilities. While it didn’t add up to $40+ million in business, they were talking as if they had a lot of cash laying around for investment and more coming in. So, in total it all made sense. They also met with our bank, who by this time was getting fed up with our president’s half-truths and outright lies. He was great at dividing and deflecting. The bank, though suspicious of Phil, still believed his assessments as to the qualifications and integrity of others, including our consultant. Still, we were able to meet with the bank’s board. They knew Airbus was also willing to finance some of our remaining project costs. Elite presented well. Everyone bought in. Between the bank, Airbus, and Elite, our plan of a three-legged stool suddenly looked like it had an excellent chance of working. We thought we had a way forward.

In late September, 2017 we attended an Elite investors conference. It was a glitzy affair and they gloated on stage about their impending purchase of TTF Aerospace. Our consultant had even invited another private investor along to show him how viable this was. Like everyone else in that room, he bought it, and there were a lot of smart people there.

It was a house destined to come crashing down. Elite never really had the money; it was a shell game. We signed a deal, they put up an initial $1.5 million but nothing ever came of the $500,000 a month funding. With the $1.5 mil they wanted a management agreement that allowed them to run TTF daily operations. I was skeptical of their experience and abilities, but since they were putting up the money it was hard to argue. They immediately came in and hacked our most experienced (read most expensive) managers and engineers and essentially cut manpower in every group by 20%. In three hours they slashed $1.3 million in payroll. It was a hatchet job with no rhyme or reason. They couldn’t replace that knowledge base but arrogantly thought it would be simple to insert some of their cheap labor and it would be fine.

Next came the double switch – instead of half a million in funding each month, they wanted us to sign an agreement to sponsor a ’90-day equity event,’ and investment pool – or really, a boiler room. This was where Owens and Davenport became aggressive, pressing us to sign an expensive commission and funding agreement to finance this investment ‘event’ they claimed would bring in millions to resurrect TTF. And time was of the essence; we had to start now to have a chance to keep TTF going. It sounded like a classic used car salesman tactic; you know, the deal is today. If you walk out the door the deal is gone.

I was upset about the misrepresentation, and was astounded at how poorly written the contract was. We had our attorneys completely re-write the thing, then we went to an SEC lawyer who, as we feared, threw up a couple of serious red flags. Some investigation into Owens and Davenport revealed they had been sanctioned by the SEC once before for something similar. The SEC lawyer told us to be very careful, so we essentially restructured the whole thing. It only took us about four weeks, but by the time we were done they were pissed at us; they weren’t getting what they wanted. There was a lot of yelling and without warning Elite terminated the management agreement in a 1am email while also trying to call their loan. There were plenty of secured creditors ahead of them though so we laughed and said, “Hah, get in line jackass!”

We were in a world of hurt. Our president had committed a felony violating federal labor law as well as numerous acts of malfeasance; Elite had pulled a double switch demanding we sign up for an investment fundraising pool and had never come through with monthly funding. And that was just the tip of a very huge iceberg.

Elite did TTF further irreparable damage by engaging in multiple incidents of tortious interference with all our customers and vendors. That included a meeting with Airbus in Toulouse where Tillman and Zia demanded $15 million to ‘fix’ TTF and deliver products to Airbus. The timeliness of this demand reflects its true audacity. Elite had already severed its management agreement with TTF and therefore had no legal standing to make any representations to Airbus. Airbus, of course, flatly refused and escorted these miscreants to the door. Later we had a call with Airbus where they disclosed their distain: “We do not deal with those kinds of people.”

There’s a book to be written and lessons to be learned. It might be called ‘Nightmares in Business,’ or ‘Slaughter on Acme Avenue.’ It’s a business horror story, one I certainly never dreamed I would one day be telling as my own. As it is, anything the SEC and the legal system might do to these guys isn’t enough. They’re crooks and they’re good at it. I don’t guess they’ll get any jail time, but they should. It would be great if they had to pay restitution, but I have to wonder if they’ll even have to do that. Everyone else pays while the real crooks get a slap on the wrist. And you said you wanted to go into business?

For more on this and TTF Aerospace, see our post “Revisiting Failure.”