Gaming the System
When EZJet was launched earlier this year, there was great speculation as to the source of the funding of the charter airline, which promised a regular run between Georgetown and New York. After all, Guyanese had been exposed to at least a dozen charter airlines in the last few decades – all of which collapsed ignominiously. These included even the privatised Guyana Airways that had involved some extremely respected executives from the local financial fraternity.
Many Guyanese lost their airfares when the airlines folded and they appreciated the need for ‘deep pockets’ to subsidise the high operating expenses during the off-peak months. As the new airline embarked on a frenetic expansion drive – to Toronto and Trinidad, with other destinations in the pipeline – the explanation offered by EZJet’s CEO, Sonny Ramdeo, that a mortgage on his house had underwritten the venture, grew increasingly threadbare.
Last week, the other shoe apparently fell, to explain the mystery of the ‘funding godfather”: a US Healthcare company (Promise Healthcare) where Ramdeo had a day job, accused the EZJet founder of embezzling US$5.4 million from the company and pumping it into his airline. Ramdeo in turn stepped down from his position at EZJet and countered that his bosses were themselves accused of a massive scam involving US$550 million and implied they were behind-the-scenes investors.
The top three executives at Promise Healthcare, Chairman, Peter R. Baronoff , CEO Howard Koslow, and Vice Chairman, Lawrence Leder, were also the principals of another outfit, “Success Healthcare”. They were basically running a hustle that exploited the US Government’s subsidy of healthcare for the poor in their Medicaid programme. These men had absolutely no background in medicine or healthcare operations.
Barnoff had served as Deputy Mayor of Boca Raton, Florida, and his resume on Promise’s website boasted of “specialized expertise in strategic planning, finance, business re-structuring, acquisition and expansion, business development, brand development, and marketing.” Koslow’s expertise was “strategic planning, corporate operations direction and oversight for multi-unit organization structures, finance, forecasting, acquisition and expansion, business re-structuring, and turnaround management.”
But Leder was the key: “As a supervisory auditor for the U.S. General Accounting Office, Leder was in charge of the nationwide audit of the newly created Medicare programme. Leaving the government, he served as Healthcare Manager and Reimbursement Specialist for Coopers & Lybrand’s New York office, where he focused on the valuation and collectability of medical receivables and provided counsel to banks and other asset-based lending institutions.”
He knew the government reimbursement system from the inside.
They marketed themselves as “rescuing health care clients in financial emergencies.” In a declining economy, they would buy out the receivables (outstanding bills to patients) of distressed hospitals in poor neighbourhoods for a fraction of their face value. The hospitals would receive a cash infusion, but soon enough they’d be in trouble again and Success/Promise would buy them out for a song.
The receivables were mostly Medicaid claims against the government since most of the patients were extremely poor. But the Promise executives didn’t stop at making huge profits on the receivables. They connived to sell those receivables to a former Chicago banker William Gunlicks.
His investment fund provided hundreds of millions of dollars to the Promise Executives to help finance their ventures. The SEC accused Gunlicks of making false claims to garner $550 million in investor funds.
Soon after, Gunlicks’ fund manager of a company formed with the two of the Promise Executives in Bermuda killed himself with an overdose of pills. Gunlicks, settled the SEC case but the Receiver—trying to recover the US$550 million – sued the Florida partners’ finance companies. The receiver accused them of fraudulently transferring hundreds of millions of dollars to purchase or prop up distressed hospitals they owned.
Investors, also, have sued the Florida partners for misrepresenting the nature of the receivables.
Is it possible that the Promise/Success partners invested in EZJet behind the scenes – and since they couldn’t leave a paper trail, might have feared they were being outmanoeuvred by Ramdeo?