Aviation Distributors’ Former CEO Indicted on 21 Federal Counts
The former chief executive of Aviation Distributors Inc., accused of masterminding an elaborate scheme to help his Lake Forest company obtain a loan and sell stock, has been indicted by a federal grand jury in Los Angeles, authorities said Wednesday.
The 21-count indictment, handed up Tuesday against Osamah S. Bakhit, includes charges of filing false registration statements and falsifying the company’s books and records.
If convicted, the 51-year-old Mission Viejo resident, who is the company’s largest shareholder, faces up to 290 years in prison and fines of up to $16.75 million. He declined to comment Wednesday.
Bakhit has a 55% stake in Aviation, a reseller of airplane parts, and continues to serve as a company consultant, said Randall Lee, a U.S. assistant attorney in Los Angeles.
Criminal complaints also were filed against the company and its director of quality control, James J. Goulet. Two weeks ago, the company said it would plead guilty to criminal charges and pay a $750,000 fine.
Goulet, 39, has agreed to plead guilty to securities fraud and falsifying company books, the U.S. attorney’s office said in a statement. As part of his plea, he will admit to carrying out fraudulent practices at the behest of Bakhit, the statement said.
He faces up to 15 years in prison and fines of up to $1.25 million. Goulet declined to comment.
In a related matter, the Securities and Exchange Commission filed a lawsuit accusing the company, Bakhit and Goulet of securities violations.
The company and Goulet have agreed to settle the SEC allegations, promising not to violate securities laws in the future, the agency said. Both admitted no wrongdoing in the SEC case.
Bakhit’s attorney, James R. Asperger, said in a statement that he would vigorously defend Bakhit against the charges. The SEC seeks to bar Bakhit from serving as an officer or director of any public company.
Authorities contend that the company, under Bakhit’s direction, illegally inflated its financial performance by prematurely recording sales and, in some cases, creating invoices for transactions that never took place.
In late 1996, for example, Aviation recorded a fictitious sale worth $225,000 to Hani Trading, a Jordanian company run by Bakhit’s brother, the SEC alleges.
Another time, Bakhit ordered an Aviation employee to generate false invoices to make the company appear healthier financially than it actually was before a private placement, the agency said.
The alleged financial shenanigans helped Aviation obtain critical loans and made the company more attractive to investors when it issued shares to the public in March 1997, said Lee, the U.S. assistant attorney.
“It would have been far more difficult for the company to go public had its true financial performance been disclosed,” he said. “Even after the IPO, Bakhit continued to engage in practices to improve the company’s stock price and the value of his own holdings.”
Aviation overstated its financial performance for at least two years before its initial stock offering and for six months afterward, Lee said. In its fiscal 1996, for example, Aviation inflated its revenue by nearly $800,000 to $24.9 million and reported a profit of about $315,000 when it had actually lost $1.6 million, Lee said.
The company’s auditor, Arthur Andersen LLP, resigned in August 1997 and withdrew its approval of Aviation’s financial reports for three years. Nasdaq then delisted the company’s stock.
In April 1998, Aviation and several defendants agreed to settle shareholder lawsuits over alleged securities violations, setting up a pool of $740,000 in cash and 210,000 shares of stock to be divided among shareholders. The company issued 80,000 shares, while Bakhit, the founder, agreed to contribute 130,000.
Aviation’s stock closed Wednesday at $2.31, down 6 cents a share in over-the-counter trading. The initial offering was priced at $5 per share.
Aviation and Goulet are scheduled to be arraigned Nov. 20 in U.S. District Court in Santa Ana. Bakhit is expected to be arraigned Dec. 11.
