11-22-07: Windjammer - Looking Beyond the Horizon
In a follow up to the Windjammer articles we have been posting this week, I have been in contact with two people who were directly involved in private meetings with the trust and the Burkes to sell Windjammer Cruises as recently as July and again in October. Both people want to retain their anonymity, but were more than willing to tell me everything they know about Windjammer.
The negotiations I heard about very likely could have saved the cruise line and ships, but unfortunately, the deals were never completed. Why? That is the part of the story I learned, but may never fully understand.
How it Started
A while back, Captain Burke had set up a trust to hold Windjammer. On the board were a Trustee named David Harris and a Protector named Steven Pallister. There was also an accountant and a "businessman." All of these people lived in the U.K. though the trust was in a protected offshore account set up by a Miami attorney named Denis Kleinfeld. Kleinfeld was on retainer to represent the Captain in any negotiations to sell Windjammer. Word is that the Captain's daughter, Susan Burke, had Pallister wrapped around her little finger. Basically, he would do whatever she wanted even when it didn't make any sense.
My first contact, which I will call "Goodfriend," initially got involved with Windjammer last summer because he was a distant acquaintance to the husband of Susan Burke. Based in Miami, his professional focus is cruise and travel industry promotion and management. The Burkes knew their company was in trouble, but they didn't know how to fix it. They cajoled Goodfriend to help them figure it out.
Last May 2007, the Burkes persuaded Goodfriend to join the board of directors of the trust set up by the Captain. They wanted someone with his cruise industry background on the team. Goodfriend agreed, and soon Pallister and Harris discharged the Captain's own attorney, Kleinfeld, from the board.
When Goodfriend took a look at the company operations, he went back to the Burkes and urged them to distance themselves from the company immediately. His concern was the way cruises had been sold in the past and were continuing to be sold even though the ships were rapidly becoming obsolete. Goodfriend is not a lawyer, mind you, but he does know a fair amount as a lay person about the travel industry.
The Burkes did not want to hear what Goodfriend had to say. Playing down his legal concerns, they urged him to help them find a solution to their financial problems. Goodfriend, on the horns of a dilemma, happily found what he thought was not only a workable solution, but also an ethical one that would resolve any potential legal entanglements for the Burkes and their faithful customers.
Goodfriend went to see "what was out there" and he eventually formed and joined a coalition of potential buyers willing to begin due diligence and negotiate with the Burkes to buy the cruise line.
This is where Sanddollar enters the picture. He was contacted and joined the coalition to buy Windjammer.
The first meetings were in July 2007. Meeting with the coalition of buyers were the representatives of the trust (Harris, the trustee and Steven Pallister, the protector) and Susan and Polly Burke. Upon meeting the British board members of the trust, Sanddollar's first impression was the Brits didn't know the first thing about what they were doing, nor did they seem to care. He describes them as "inept individuals who obviously knew nothing about the cruise business."
When it comes to Susan and Polly Burke, he merely says they were impossible to deal with. "Their books and records for the company were abysmal, there were no clear records for anything in the company." However, in the first round of meetings in July, Windjammer still had four ships sailing and a nice order book for future cruises. The money for those future cruises, known as "pre-paid cruise revenue" was already in an account which by law is to remain untouched until the cruise line has given the passenger the cruise he/she paid for.
Sanddollar explains "pre-paid cruise revenue" is money that should sit on the "liability side until the cruise is completed." In other words, it cannot be touched until the passenger has sailed on the cruise. Most cruise lines have to post a Federal Maritime Commission (FMC) bond, depending on a percentage of their sales, to guarantee to the government that the money will be there in case the cruise is not able to sail.
According to Sanddollar, Windjammer had already accessed those funds and was using them for company operating expenses. Sanddollar believes the account had significant money in it when the meetings were taking place, but according to Goodfriend, the company was already "running on fumes."
Sanddollar estimates Windjammer's average burn rate for company operating expenses alone was about $40,000/week. Both agree that by October the money that was coming into the "pre-paid cruise fund" was going out as soon as it came in. There was no buffer at all.
One of my sources claims to have been in the office one day when a group called up and agreed to send an $18,000 deposit to the company that day. The money arrived and it was spent before sundown. "And those cruises never came off" he adds.
The Solid Offer to Buy Windjammer
On July 5th the coalition of buyers made an offer to the Captain, the trust and the board to buy 100% of Windjammer; meaning all of the shares, affiliated operating companies, their tangible assets (the ships and property), plus good will and other intangible assets such as the name Windjammer. The offer was to give the Burkes $3,000,000 in cash, plus they would assume the immediate operating liabilities which Sanddollar estimated to be $2,600,000. In addition, there were trade payables, and prepaid cruise deposit liabilities that altogether added up to another $2,600,000.
Naturally, the buyers could not ignore the long-term commitments of Sail 5, Sail 10 and laMer they would have to address eventually. Altogether, he estimated those to be total liabilities in the neighborhood of $4,000,000 making it an $11,200,000 deal that would have allowed the Burkes to simply walk away Scot-free with money in their pockets.
(Note: my financial figures here are best recollection estimates by my sources. There was some discrepancy).
As difficult as it was to sort out all the details, on July 5th, the trust and the buyers believed they had reached an agreement. Papers for the deal were signed and initialed by David Harris. But Goodfriend says something went wrong with Susan Burke at this point. Let's just say he describes her actions as " [a scatological reference to large primates] ".
According to Sanddollar, "Most of the problems that eventually occurred were caused by the Burke daughters." Just before the finalization, the buyers heard about an old friend of the family for the first time, Jerry Cedar. They heard the Burkes had told him the details of the deal and were asking him to beat it. When confronted with this, the Burkes said, "no, no, we still have a deal, please come to Miami again to present the details to our family."
Moving negotiations to Miami, the buyers presented their offer to the Burke family directly and engaged in a little additional bargaining. Immediately after talking to the Burkes, Goodfriend says, "that's when Polly went to Uncle Jerry." Both sources say the Burkes took the deal the coalition had just spent months hammering out to Jerry Cedar and attempted to finalize the deal with him, using literally the same documents.
Goodfriend says the Burke's ploy was not successful. Cedar did not sign anything because "Pitting the Burkes against Cedar is like two stingrays trying to get the other first."
As far as the original offer was concerned, Susan Burke wanted to retain a minority interest which was "out of the question" according to Sanddollar. "We wanted nothing to do with those people," he states. Eventually a compromise for back-end equity for the Burkes if the company was ever sold again was agreed to, but the sticking point that broke the deal was "how much."
"For the Burkes, nothing was ever enough," says Sanddollar, and Goodfriend agrees. "The Burkes, especially Susan, never really wanted to sell Windjammer. They wanted a deal where they could keep the company. But what they just didn't understand was that no one was willing to put up with them."
Another mystery cleared up; We now know Windjammer was not willing to give up the company for the mere $373,000 Jerry Cedar gave them. That was just seed for a deal more likely in the millions of dollars. Secondly, there is a public record of a mortgage for Polly Burke's house signed over to Jerry Cedar for that money. His lawsuit is for the breakdown of the bigger negotiation, but as far as his $373,000 is concerned, he is covered.
NOT the End of the Story
So, while all of the deals the Burkes tried to reach eventually fell apart. Goodfriend says, "From July to October the Burkes ruined Windjammer, they simply lost it." Sanddollar confirms, "Once the ships stopped sailing and sales trickled to nothing the company had no value."
But the Burkes were still trying to run Windjammer, and still have millions of dollars in liability, especially in the time-share sales, plus Sail 5 and Sail 10.
The Burkes reached out to the coalition again in October. By now ships had been seized, crew payrolls were in arrears and vendors were starting to circle like sharks. Michael D Burke had seized control of the Trinidad shipyard, one of the few tangible assets the company has, so MDB and the rest of the Burke family are currently suing one another. All of the pre-paid cruise receipts have long been depleted.
Another deal was offered to the Burkes. The coalition would take Windjammer, assets and liabilities, and the Burkes could walk away Scot-free. Sanddollar says, "If the original deal was worth $11,000,000 then this deal was worth about $4,000,000 to the Burkes." In other words, that is where he figured their personal exposure to liability as of October 12, 2007.
History repeats itself. Representatives of the trust signed off on this deal, and even the Burkes signed the deal. But they reneged within 24 hours. Negotiations continued, but "every time we thought the deal was done the Burkes changed it," says Sanddollar. "They chose to walk away from what was likely their last chance to expunge themselves of all their liabilities."
Sanddollar adds that a big part of the problem was the labyrinth of holding companies the Burkes have created for the company. It was meant to be an impregnable shell for outsiders, but even the Burkes had problems finding true title ownership of their own vessels in order to complete the deal. "Pallister, the company protector, didn't even have any solid legal information about Windjammer. His only source was Susan Burke whom I believe is the crux of all the lies in the company. She manipulates, and doesn't care what she says to anyone."
Is This the End?
"I hear the vendors are currently trying to put the company in involuntary bankruptcy" says Sanddollar, "but it will be hard to pierce the off-shore trust. They (Burkes) might walk away with nothing when they could have had something, but they might still walk away Scot-free."
Goodfriend estimates "the Legacy is worth $4 - 6,000,000, though it would have fetched $12,000,000 in operating condition with active cruise sales. The Trinidad shipyard has value, but the company has essentially lost it to MD Burke." The timeshares liabilities have been settled down to $3 - 4,000,000 by giving cruises on Legacy.
Sanddollar says, "The Discoverer is just a hull - no work was ever done to it. It is still sitting in Trinidad waiting for attention." Those pretty brochure etchings of the plans to transform the Discoverer into the laMer timeshare ship represent the pinnacle of work that was completed on the project. "Still, at one point a buyer offered $1.5 million for the Discoverer and the Amazing Grace as hulls, but the Burkes blew the deal because they couldn't agree - they couldn't even present clear titles."
But the biggest concerns going forward are not how the likely eventual bankruptcy sale auction will shake out. As Sanddollar says, "at this point no one wants to deal with them. There is nothing left at the end of the day, even for the good people who were their customers. The Burkes have robbed this thing and picked it clean."
He continues, "the real problem is that in actuality the Burkes, specifically Susan, has committed both civil and criminal actions."
Goodfriend is even harsher. "If they (the Burkes) don't end up in jail they will be living under bridges, simply because it is so expensive to stay out of jail these days."
I asked Goodfriend what he thought the reasoning was behind the action of the Burkes. Why they didn't sell when they could. Were they knowingly committing fraud or are they just naive?
Goodfriend, "The truth is, you will never see the logic in the Burke's actions. The logic just isn't there. They could have had something, but now they have nothing. If someone were to tell me their only goal was just to make sure no else ever got Windjammer I would believe it."
I could go on with characterizations about spoiled kids, family feuds, etc., but the bottom line appears to be that the Burkes thought they could get away with anything because they had a long lifetime of successfully manipulating people.
"These are not people who think logically about business or morality. They feel privileged. They grew up in high society Miami and had customers who treated them like a royal family. They just didn't believe they are mortal like the rest of us," says Goodfriend.
Other Mysteries - M D Burke
My sources for this article were not affiliated with Windjammer in any way when the time-share sales were being done, but they did look into those sales while investigating the company. If Michael D Burke was ever directly involved in the Texas company that sold timeshares for Windjammer he hid it very well. Only one of my sources from the previous article will place him there.
As for his transferring Windjammer money to his personal accounts, one transfer for $450,000 has been written up in articles already, "But the amount he took personally over the years is really much, much higher," says Sanddollar.
Many past passengers on the Flotilla Message Board have told me the timeshare sales were extremely high pressure. Goodfriend says there was a California call center, "boiler room" was how he put it, which split the profits for sales with the Texas corporations on a 50/50 basis. That is a hefty commission.
It appears that Cruiseshares300 was not the primary company selling the Windjammer timeshares, though they probably assisted in setting a company up.
As for any Texas corporations still affiliated with Windjammer for timeshare sales today, they are all closed down- non-existent, and have been for years despite continued sales of the time shares. And that is like selling a 10-year plan for health insurance and then closing down the company, but not telling the customers.
Meanwhile, more food for thought from my sources:
- There are rumors that people are still receiving cruise documents for future cruises on ships that are currently not certified to sail, even on ships that are under arrest. Without a security bond to assure the money for those cruises is safe, this is selling something that does not exist. All the cruises for Legacy that have been sold in the last few months were fraudulent if they knew the ship would not sail.
- The credit card companies will go after Windjammer, and they should not invoke the 60-day limit to file a claim once it is established the sales were fraudulent, there is no time limit on filing a claim when fraud is involved.
No - this is not the end of the story by any means - the end is a long way off. And most sadly, it isn't even any kind of closure for the people with a vested interest in Windjammer. As for an apology or mea culpa from the Burkes for any of this, I am not holding my breath.
I would like to thank all of my sources of information for this series of articles that eventually ran almost 20,000 words. The consistent message from each of them was feeling bewildered and used up by what they had been through, and in the end not trusting the Burkes one iota.
As for me, I am only repeating what I have heard. I had brief encounters with the Burkes, and I am often amazed at how well my favorite quote from Ralph Waldo Emerson applies to my life, "The more he proclaimed his innocence the faster we counted our spoons." In other words, it is often the people who most ardently claim to be taking the moral high road that end up screwing people.
You wrote this article as much I did. I can say I honestly don't know of a term for the style of journalism we used to write this article -I started writing a sketch of the story and you readers helped me finish it. Obviously, it could only have been done on the Internet, so I have invented a catchy phrase for it: webilistic journalism.
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