(March 29) Scot Spencer, the controversial aircraft industry executive who was entrusted with hundreds of millions of dollars by local officials to oversee what has so far proven to be an unsuccessful effort to transform former Norton Air Force Base into an international airport, was arrested earlier this week and charged with engaging in a conspiracy to steal $1.75 million in public funds, a gambit which ultimately netted him $1.03 million, investigators and prosecutors say.
The money prosecutors allege Spencer fraudulently obtained from the San Bernardino International Airport Authority is less than half of one percent of the money a joint powers authority set up to establish and operate the airport expended in the airport development effort. The expenditure of much of that money was done under Spencer’s direction in his capacity as the contract developer of the facility, which officials had hoped would by now attract multiple airlines to become a significant transportation hub.
But Spencer’s own interests at the airport, including several aviation service companies he owns, co-owns, owned or co-owned, in many instances conflicted with the airport authority’s imperative of attracting to the aerodrome aviation related concerns. On more than one occasion Spencer used his status as the airport developer and his access to the authority administration and board to personally profit to the detriment of the airport’s operations and the taxpayers who were underwriting them.
His arrest and the charges filed against him are an outgrowth of a scathing report by the 2010-2011 San Bernardino County Grand Jury and evidence gathered during an FBI raid on the airport, the authority’s headquarters and several offices and hangars where Spencer’s companies were located, along with his Riverside home, on September 21, 2011.
The criminal complaint filed against Spencer by the San Bernardino County District Attorney’s Office alleges Spencer conspired with Felice Luciano to effectuate a fraudulent $1.75 million claim by SBD Aircraft Services, one of Spencer’s companies, against the San Bernardino International Airport Authority in 2008 based on the falsified representation of the cancellation of an aircraft lease by the Democratic National Committee. Prosecutors, based upon an affidavit from the Democratic National Committee’s legal counsel obtained by district attorney’s investigator Schyler Beaty, maintain no such lease ever existed and that Spencer phonied up a fax to the Democratic National Committee to give credence to the claim there was such a lease.
The criminal complaint alleges that on March 26, 2010, Spencer and Luciano met at New York City’s Blue Water Grill, where Luciano allegedly signed an apparently backdated document purporting that SBD Airport Services would lease an aircraft to a company called Unique Aviation Properties, a company co-owned by Luciano, to provide the aircraft to the Democratic National Committee by August 23, 2008. At Spencer’s behest, according to prosecutors, Luciano signed the document on behalf of Unique Aviation and Spencer signed for SBD Aircraft Services. Prosecutors maintain that three days later, on March 29, 2010, Spencer produced a copy of the fraudulent lease agreement in response to a court order.
Spencer is charged with two counts of conspiracy, as is Luciano. Spencer is charged with two counts of perjury and one count of preparing false documentary evidence. Spencer was arrested on March 24 in Boca Raton, Florida. He waived extradition and was brought back to San Bernardino on March 28. There was no record of Luciano, whose domicile is in Tempe, Arizona, being arrested, although there are indications he has been cooperating with the prosecution.
The background behind the alleged fraud would indicate that more than just $1.75 million in public funds were lost as a result of the alleged fraud Spencer perpetrated.
Spencer’s influence over operations at the airport, where several companies he owns were housed, was far reaching. In this way, Spencer’s pursuit of his own agenda conflicted with the corporate aims of other companies functioning at the airport, resulting in those companies departing.
One such company was Aeros Aeronautical Systems Corp., a blimp builder which did work on dirigibles and other lighter-than-air craft in Hangar 695, which it had leased at the airport.
In 2008, business was booming for Aeros, and the company was making its lease payments to the airport authority on time and in full. But that same year, Spencer would claim that two of his companies, SBD Aircraft Services and Norton Aviation Maintenance Services, entered into a subcontract with Luciano’s Unique Aviation, which, it was represented, had orders from the Democratic National Committee for the renovation and refurbishing of a then-35-year-old Boeing 727-227 for use in the Barack Obama presidential campaign. Spencer claimed he needed the hangar space Aeros was using to have SBD and Norton Aviation do the work. Despite the consideration that Aeros was a tenant paying top dollar for the space it was using and that it had secured in June 2008 two successive short term leases with 30-day termination notices to undertake tests on a dirigible, Spencer used his leverage with the airport authority to have the late Timothy Sabo, the legal counsel for the San Bernardino International Airport Authority (SBIAA), author a letter which then-airport authority general manager Don Rogers signed that essentially evicted Aeros.
In July 2008, before Aeros vacated the hangar, Spencer and the airport authority signed a lease for Hangar 695 at a rate less than half of what Aeros was paying for the space and despite the consideration that Aeros had yet to vacate it. When Aeros did not leave quickly enough to satisfy Spencer, who said he was prevented from completing $750,000 worth of repairs on the 727 to be used by the Democrats, he threatened SBIAA with legal action. Before the incident was over, Aeros, which had offered the promise of remaining as a longtime paying tenant, left in a huff, never to return. Spencer lodged a $1.75 million claim against SBIAA, which was eventually settled for $1.03 million, including the forgiving of a $155,000 balance on a previous loan, the extension of another $550,000 loan at 5 percent interest, and an ongoing $315,000 hangar rental subsidy. It is now alleged that the Democratic National Committee had not commissioned the 1973 Boeing 727-227 from Unique Aviation and had no contract with Spencer or any of his companies.
Also in 2008, Spencer forced the exodus of another paying tenant, Virginia-based BaySys West, from San Bernardino International Airport. BaySys West had established an aircraft maintenance operation in San Bernardino employing 300, which Spencer apparently felt was in competition with Norton Aircraft Maintenance Systems, another company he owned. BaySys left in December 2008 under pressure from Spencer.
Spencer, who has long enjoyed extensive contacts throughout the aviation industry and was leasing two hangars at the airport in 2006, was hired by SBIAA in 2007 under a no-bid arrangement and entrusted with converting the former Norton Air Force Base into a true international airport. Yet there had been warning signs about Spencer’s reliability before he was selected to serve as contract developer at the airport.
In 1991, Spencer and financier Jeffrey Chodorow sought to utilize the remaining assets from Braniff International Airways to create Dallas-based Braniff International Airlines, Inc. Braniff Airways, which had been in operation since 1928, had faltered under its corporate successor, Braniff, Inc., which was created after the former company’s 1982 bankruptcy. Spencer’s effort was unsuccessful and Spencer and Chodorow were both convicted of fraud for absconding with $14 million of the company’s funds, which they had partially hidden by making payments from Braniff to a shell company they created. Spencer served a four-year prison term from 1995 until 1999 as a result of that conviction.
After paying his debt to society, Spencer took up where he had left off, becoming involved in the aircraft industry largely on the strength of his contacts with manufacturers, airlines, mechanics and maintenance companies.
In 2003 a charter airline Spencer owned set up shop at the airport and within two years, he was leasing from the San Bernardino International Airport Authority the lion’s share of property at the airport, where several aircraft servicing companies he was an owner or investor in were based. In 2007, without any competitive bidding, Spencer was chosen by the Airport Authority to serve as contract developer of the airport. He was given a contract to oversee what was supposed to be a $38 million renovation of the airport’s passenger terminal and a $7 million development of its concourse. Spencer undertook that assignment amid confident predictions that upon completion of those projects, the airport would attract at least one and perhaps as many as a half dozen commercial passenger carriers. In carrying out that project, Spencer used two corporations he owned, Norton Development Company, LLC and SBD Properties, LLC. The cost of the passenger terminal and the concourse escalated to $142 million and the airport has yet to host any commercial airlines, although corporate jets and other private pilots did land at the Million Air corporate aviation facility, for which Spencer was the franchisee, beginning in 2010.
The cost overruns for the terminal project, the failure of San Bernardino Airport to attract commercial airlines and Spencer’s relationship with former airport authority executive director Don Rogers, as well as T. Milford Harrison, another former airport authority executive director with whom Spencer has jointly formed at least three aviation companies, have raised eyebrows and brought SBIAA under increasingly critical scrutiny.
On June 30, 2011 the San Bernardino County 2010-11 Grand Jury delivered a report that questioned several elements of Spencer’s performance and that of Rogers, calling into question what was characterized as lax oversight of the airport’s operations and favorable treatment accorded Spencer with regard to leasing arrangements. That report referenced the leasing debacle with Aeros and further noted that an inherent conflict of interest pervaded the contractual arrangement Spencer had with the authority in that Spencer’s commission on the project through Norton Development Company and SBD Properties increased as expenditures on the passenger and concourse construction mounted.
Immediately upon the announcement of Spencer’s arrest, speculation about charges against others began. Foremost among those believed to be at risk of being dragged into the criminal case is Harrison, one of Spencer’s closest business associates. Harrison’s business office was subject to the search warrant served by the FBI in September 2011. Rogers, who with the now-deceased Sabo enabled Spencer to evict Aeros on specious legal grounds, has also been mentioned as a possible co-conspirator. The district attorney’s office, however, stopped short of suggesting that further arrests are contemplated, though one investigator said that the prosecution will consider forging a plea arrangement with Spencer in which his cooperation with investigators would be a central element, potentially leading to the doorsteps of other airport officials.
The political fallout from the arrest could be significant. Both San Bernardino Mayor Patrick Morris and Fifth District Supervisor Josie Gonzales were actively involved, as board members of the airport authority, in hiring Spencer as contract developer in 2007. Spencer returned the favor with generous donations to their respective political campaigns and he allowed both to use the opulent and barely used terminal for fundraisers. Both Gonzales and Morris were among the last of the authority’s board members, which include representatives from the cities of Highland, Colton and Loma Linda as well as San Bernardino and the county, to continue to support keeping Spencer in place.
Speaking for both herself and Morris, Gonzales put out a prepared statement that said she now recognized that “the unscrupulous business practices of Scot Spencer have tainted much of the good work done at the airport.” She insisted that “From the moment the commission first learned of the investigation surrounding Mr. Spencer, the airport authority has done everything legally possible to distance itself from Mr. Spencer. We have terminated contracts with Spencer’s companies, hired new administrative leadership, and pursued civil restitution for any outstanding debt owed by Mr. Spencer to the airport. The airport authority has and will continue to cooperate with all law enforcement agencies. I applaud the district attorney’s commitment to seek financial restitution as part of his prosecution. He has my full cooperation and the county will ensure he has the resources needed to see this criminal case to its conclusion.”
Spencer’s presence at San Bernardino International Airport was supposed to have been terminated in October, after Federal Bankruptcy Judge Deborah Saltzman dismissed bankruptcy filings by two of Spencer’s firms through which he was seeking to extend his tenancy there. Nevertheless, he has maintained his de facto presence at the airport by means of a shadow company he created, Pulsar Aviation Services, Inc. While the company is ostensibly operated by David Reed, Ted Reed and Tim Reed, it is actually owned by Spencer and Harrison, and uses the same address, location, tooling and aircraft equipment in its operations that was formerly utilized by SBAM Technics, Norton Aircraft Maintenance Services and Southern California Precision Aircraft, all of which were once or still are owned or co-owned by Spencer.