When charter-air servicer Direct Air suddenly canceled service and filed for bankruptcy earlier this month, it left many customers stranded and frustrated. But there did seem to be some good news—customers would be able to get unused ticket refunds because the Department of Transportation required Direct Air to hold customer payments in escrow until it hands the money to the actual airplane operator. (Direct Air is a charter service that doesn’t actually own any airplanes).
But now, lawyers are testifying that the money isn’t in the escrow account, leaving both customers and credit-card companies exposed.
The Worcester Telegram reported earlier week that a lawyer for Direct Air, Steven Fox, said during a hearing that millions of dollars are missing from the escrow account. And a lawyer for the bank where the escrow account is held confirmed that there’s only about $1 million in the account.
Fox told the judge that “irregularities” had been uncovered in the handling of the escrow account. “It is our belief that the escrow account was invaded. It may have been invaded in an unlawful manner,” he said, adding that customers are owed at least $10 million and maybe as much as $30 million according to the newspaper.
Fox didn’t return repeated requests for comment.
The Department of Transportation couldn’t confirm Thursday that there was any money missing, but spokesman Bill Mosely said the department is investigating.
Customers who’d purchased their tickets by credit card (99% of customers, according to court documents) were directed to seek reimbursements from their credit-card companies. But one credit-card processor said it’s obligated to refund the money and doesn’t have the cash to do so without the escrow account funds.
JetPay, Direct Air’s Visa/MasterCard processor, said its exposure could be as high as $20 million, and that “without reimbursement from the escrow account which JetPay funded, JetPay may run out of cash and be out of business in a matter of weeks.”
JetPay filed a motion last week stating that they haven’t been getting reimbursed from the escrow account and have had to pay the reimbursements out of pocket. The situation is causing a cash shortfall for JetPay, it said, and asked the judge to require it be reimbursed.
A hearing is scheduled for April 11.