I-Team: Who Can You Trust? - 8 News NOW

Investigative Reporter Jonathan Humbert and Photojournalist Alex Brauer

I-Team: Who Can You Trust?

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One local non-profit clinic is being run by a three time felon, ready and willing to take your donations. One local non-profit clinic is being run by a three time felon, ready and willing to take your donations.
Barry Michaels has three felonies on his record. Barry Michaels has three felonies on his record.

It's been called a gaping loophole in federal, state, county and city law. A doctor's office or urgent care type facility can operate free and clear as long as a reputable doctor actually performs the care.

But the person pulling the strings and running the business could be anybody with any type of criminal background with no accountability from anyone.

One local non-profit clinic is being run by a three time felon, ready and willing to take your donations. That same felon wants to jump start a new airline, but a similar plan nearly 20 years ago sent him to prison.

Trust is earned, but for Barry Michaels, trust has been given and taken away. "This is the first time I've came up with an idea which nobody has anything negative towards, can't find any fault with it," he said.

It is Michaels' hope and goal to create a new standard of medical care -- a modified urgent care facility called Minicare. "I like to think that of myself as somebody that can take an idea and put it into play," he said.

The Case File: Read the evidence against Barry Michaels

It's a simple pitch and it sounds so good -- $22 office visits, no insurance needed. Meet with Doctor Maxine Ingham and others and you are on your way.

Michaels promotes the clinic on a weekly radio infomercial on KNUU 970 AM.

The only problem is Michaels has no county business license for his office and no medical license from the City of Las Vegas for the clinic. Both agencies say no one has even applied to get a license.

One other nagging issue: Michaels has three felonies on his record, all for fraud. "You're taking a good thing and turning it into a bad thing," he said.

The first was for felony mail fraud in Arizona in 1982. In the 1990's, Michaels issued illegal stock and spent hundreds of thousands of dollars of investor money on himself in his first attempt at Family Airlines. He spent 15 months in federal prison for that plan. Now, he's asking for your money again. "With grants and donations, we could expand and pay the administrative portion," he said.

He prefers the title Dr. Michaels, calling himself a Doctor of Chiropractic -- a DC. "I am a DC," he said.

That's not entirely accurate. Yes, Michaels was a doctor, but he has no Nevada license and he surrendered his California license based on two of the fraud convictions. California feels he has "failed to provide sufficient evidence that he is rehabilitated."

With no license in the state, or anywhere else, just calling himself a DC on his websites and in an interview may be a crime in Nevada.

Cindy Wade, the head of state Chiropractic Board, says someone calling themselves a chiropractor without a license is a category D felony. Michaels says he isn't practicing at Minicare, only running the business, but to Wade, the law is clear. "Using the terminology DC, which means Doctor of Chiropractic, that would be holding oneself out as a chiropractor," she said.

Even with a history of taking people's money and a potential for more trouble, there is no state law barring Michaels from operating Minicare. "We do not inspect medical practices," said Louis Ling with the Nevada Board of Medical Examiners.

Since Minicare is more clinic than surgery center, by law, the board cannot investigate Michaels' background. "That simply is not a power that's been given to us by the legislature," he said.

It's the same situation for the Internal Revenue Service. Even with Michaels' history, Minicare was still granted tax exempt non-profit status. No comment from the IRS on why that happened.

The city and county are aware that Michaels is operating without licenses. Michaels still needs city fire and zoning permits to open the clinic. He says he plans to open Minicare on June 1, 2009, but it's unclear if that will actually happen.

In its denial of Michaels' DC reinstatement, the California Board of Medical Examiners wrote "the mere expression of remorse does not demonstrate rehabilitation."

Family Airlines Flies Again

If the name Family Airlines rings a bell, you might be one of the 300 employees of the now defunct fleet. Michaels started his dream nearly 20 years ago -- an airline with cheap fares. Instead, that dream led him to prison and lead investors to financial ruin.

Michaels' plan for Family Airlines began in southern California in 1992. His office was in Encino, but the main draw was L.A.  Big ideas for a big city with ritzy investors and prominent planes for pilots like Stillman Sprague. "Get in on something new that could turn into something big," he said.

It was not just a new airline, but a irresistible premise: "You'll be able to fly from Los Angeles to Las Vegas for $19," said Michaels.

Sprague, who now lives in Monterey, California, thought it couldn't miss. "Everyone wants to get in on the beginning of one of these things," he said.

At the time Family Airlines was beginning to gain ground, Pan Am laid off pilots in big numbers. Michaels used a small collection of those pilots to recruit their buddies to join up. The offices would be based in Las Vegas. "We were going to be not just pilots, but part owners," said Sprague.

The wings came with a cost -- a minimum $50,000 investment. Michaels took in nearly $5 million in stock offerings for Family Airlines. For desperate pilots, no price was too high.

While most of the 100 investors went along, Michaels answered fewer questions and started making excuses. Sprague was not getting answers. "It didn't take long before you start to get a little uneasy about it," said Sprague.

So he looked into Michaels' background and found page after page of lawsuits, botched payments, and that felony conviction out of Arizona.

The dream was falling apart.

Sprague then learned it was much worse. Michaels had spent hundreds of thousands of dollars from investors on himself.

The I-Team traveled to a little-known remote warehouse to find the proof. It is the only place you can find the real history of Family Airlines: the Federal Records Archive outside of Riverside, California. The archive holds 839,000 boxes of records and evidence.

Other People's Money

Michaels used investor money on himself and his wife:

  • $50,000 for a downpayment on his home.
  • $1,500 for credit card debts.
  • $7,000 for a country club membership.
  • $5,655 for a Washington Post editorial.
  • $13,884 on Mercedes Benz leases.

With other expenses, it all totaled more than $363,000. It was money from pilots like Stillman Sprague. In the end, nothing was left.

Catching up with Sprague now 17 years after the discovery, he is still seething. "Shocked to disappointed to outraged," he said.

Sprague and others launched a campaign to oust Michaels. The Securities and Exchange Commission and Federal investigators weren't far behind. "He may not know anything about running an airline, but he sure knows how to spend people's money," said Sprague.

In 1996, the SEC slapped a permanent injunction on Michaels, barring him from dealing with stock the same way. Michaels then plead guilty to two felonies: tax and securities fraud. It cost him a 15 month stay at the Nellis Federal Prison.

Family Airlines was no more -- lost for 17 years.

But for Barry Michaels, what's old is new again. "Obviously it didn't teach him much of a lesson because, he's back," said Sprague.

From YouTube ads, to Craigslist, to the web, Family Airlines is trying to take off once more. "I like to call it the new generation of airlines," said Michaels.

"Now we're at the point where we have to raise money. You can't buy airplanes without money," he said.

Michaels presses forward with a stock offering even though the SEC barred him from offering unregistered stock. "Well, we're in that stage right now, actually," he said. In Department of Transportation documents, Michaels has already granted himself two million shares.

Michaels makes no bones about what happened the first time. When pressed, he admits he plead guilty. "Everything is out there in front. I haven't hidden anything," he said.

But Michaels' U.S. Department of Transportation application for Family Airlines is stalled -- the DOT doesn't trust him. They learned about Michaels' criminal history and ongoing legal problems in 1993 and denied him then. Now with two more felonies on his record, the department "would not be able to recommend" the application "as long as Mr. Michaels continues to be involved."

He promises he can keep clean this time. With three felonies and more than two decades of trouble, Michaels believes people can trust him. "Why? Because I think people change for one thing," he said.

"He's got every opportunity to pick up the phone and call some of the people whose lives he's ruined and say ‘I'm really sorry,'" said Sprague. "Maybe he has reformed. Maybe this is all legitimate and maybe it'll be a great airline... I won't be flying on it."

Michaels never paid back the $50,000 to Sprague. It took Stillman four years to pay off that debt.

Michaels is operating his airline office without a business license, along with his unlicensed non-profit medical care clinic, both out of the same building with some of the same staff.

It's not clear how many investors Michaels has convinced this time around, he did not elaborate. But it must be tough to ask for that trust again. The DOT has zero interest in helping Family Airlines along because of Michaels' history.

The airline says Michaels' interest will be heavily diluted because of stock, something the SEC does not want him to do.

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