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Sunday, April 30, 2017

THE COST OF CORRUPTION: The Story Of Steven Ingersoll's Traverse City State Bank Line Of Credit...Told In His Own Words!

PART 1: IN HIS OWN WORDS! 

Q. Do you have anything from Traverse State Bank saying they were willing to have that line of credit be used on this project? [NOTE: Bay City Academy]

A. Yes, yes, and I – 

Q. Is there -- I'd like to see that document. 

A. Well, I'm about to explain it. We--

Q. Is there a document? 

A. There are several. They're emails, I mean, back and forth between Dan Stahl, the officer there. I intended to pay that line of credit down with tax credit monies on the Bay City project. He knew I was using that money temporarily for that purpose, and he was aware that I was going to pay that back when I -- when the tax credits came in. 

Q. Do you have copies of those? 

A. I do. 

Q. Would those be business records of Smart Schools Management? 

A. Well, they're emails. They're not – 

Q. Yeah, but they document authority for transactions, correct? 

A. Not exactly, no. They're -- they're emails about what's your plan to repay this, and – 

Q. But you relied on that as the basis of your authority to use money from the line -- what you say is the line of credit account? 

A. No, I didn't. This was after the fact. I just did it. I took -- I didn't ask the bank, hey, can I use this line of credit for Bay City. I didn't do that. I just did it. And then afterwards I said, hey, I'm going to -- you know, when he's saying when are you going to pay that line of credit and with what, I told him the tax credits that are coming on this project. 

This direct quote demonstrates that Dr. Ingersoll testified that he took the money without TCSB’s explicit permission but then explained to the bank, in e-mails, how the line of credit was going to be repaid. Moreover, Dr. Ingersoll believed (and continues to believe) that he was authorized to do so based on the TCSB loan documents. (Defense Supplemental Briefing; July 5, 2016)

BACKGROUND 

I have to give it up to defense attorney Jan Geht: it appears he's got a point. And documents filed during Steven Ingersoll sentencing hearing in 2016 back up that contention—with one exception.

Let's go back in time to December 8, 2015, when Steven Ingersoll explained the birth of his Smart Schools Management, Inc. Traverse City State Bank line of credit from a witness stand in federal court:

THE COURT: Mr. Geht, if we could identify who the lender was on the 450,000 and from the witness his understanding of the current status of the loan from the lender to SSM. 

THE WITNESS: The lender is SSM. 

BY MR. GEHT: 

Q. No, no, I'm sorry. I believe the Court's question was originally you said the money was borrowed from Traverse City State Bank, correct? 

A. Oh, oh -- not this -- not this was -- this was not. 

Q. Okay. So – 

A. Oh, yes, yes, I'm sorry, yes, that's correct. 

Q. And the question is what happened to that loan from Traverse City State Bank? 

A. It -- it has been paid back. 

Q. By whom? 

A. By -- well, I no longer own -- owe it. It has been zeroed out. When I left the Academy, it was zeroed out on my – from my company's standpoint. 

Using a hefty dash of “screw-you” brio, Steven Ingersoll deftly wrapped up his testimony with a snide reference to off-loading in March 2014 his Traverse City State Bank line of credit debt (estimated at roughly $925,000) to his business partner, Full Spectrum Management, LLC's Mark Noss.

During illuminating testimony over two days (December 8-9, 2015), Ingersoll revealed it all started with a June 8, 2007 promissory note, an illegal agreement signed by Ingersoll on behalf of Smart Schools Management and signed on behalf of the GTA by its current board president (and former treasurer) Lesley Werth—whose feigned ignorance of the scheme's illicit inception was reflected in the hastily-crafted statement released publicly by the GTA board on April 28, 2017.  
2007: BONDS & BON-BONS 

The sentencing hearing testimony punched gaping holes in the lubricious paean to Ingersoll's pseudo-sainthood, 2014's “History of Grand Traverse Academy”. 

The document helped spawn the “philanthropist or thief” Ingersoll meme, with Team Philanthropist captain Mark Noss telling Interlochen Public Radio (likely with a straight face): 

“There were times when the resources were just not there. So Smart Schools basically pledged or rebated that money back, saying ‘at some point in time we will repay what we’re calling a prepaid expense.’” 

This excerpt, taken directly from the History document, portrays Ingersoll as a philanthropist, one willing to dig into his own deep, deep pockets to save the day: 

“In 2007, after two years of work, Dr. Ingersoll arranged for an advanced refunding of the 2002 building finance agreement. This resulted in a vast improvement of the Academy’s debt structure dropping interest rates from 9.5% to 4%. This allowed the high school, early childhood wing and second gymnasium to be built. The new bond structure required GTA to carry a minimum fund balance of approximately $650,000. At the time the fund balance was $184,000. SSM and Dr. Ingersoll deposited $494,000 into GTA’s account to bring the Academy’s fund balance into bond covenant compliance. 

Approximately one year later, when State educational funding collapsed in response to the country’s financial crisis, SSM deposited an additional $474,000 into GTA’s account. Dr. Ingersoll and SSM borrowed the funds to be used to meet the school’s needs.” 

After discussing early financing for the construction of the Grand Traverse Academy, under direct examination by his attorney, Jan Geht, Ingersoll reveals he covered his end on that $474,000 transaction: 

A. So I immediately began searching for a better deal and finally in 19 -- or in 2007 we were able to achieve through AG Edwards a bond offering that brought our interest rate down to just south of 4 percent. And at the time it was the second best pricing of any charter school in the nation, and that helped us substantially. We had grown from the inception rather steeply. Traverse City State Bank had funded additional construction projects, and ultimately we achieved the bond deal in 2007, and at that time, just before the bond deal was closing, it was the morning of a big conference call with the investment houses that were buying the bonds, I suffered a heart attack, and the bond deal closed while I was in the hospital. 

And they actually had to come and, you know, certify that I was alive as part of the bond disclosure; but, anyway, I recuperated for a couple of months and then I started -- when I was feeling better I started reading the bond document and I realized that there was -- and I hadn't realized this before, that there was a debt service -- 

THE COURT: Covenant. 

A. -- covenant and it defined the level of fund balance that the Academy had. There was a formula that determined what that was, and the Academy did not have that level of fund balance, and so that was May of 2007. The covenant came into place July 1 of 2007. I had two months and needed a half million dollars -- well, about $400,000. So I went to Traverse City State Bank and personally borrowed a half million dollars and wrote a check to Grand Traverse Academy for $474,000, and at the same time we entered into a promissory note coming from the Academy to Smart Schools -- Smart Schools did -- I say I did this, Smart Schools did this; sole owner of Smart Schools. 

Ingersoll borrowed a half million dollars in the form of a line of credit from Traverse City State Bank, used it to satisfy the bond covenant, then promptly entered into a loan agreement with the Grand Traverse Academy. 

Later, Ingersoll's attorney questions him about his understanding of the Grand Traverse Academy's ability to borrow. 

BY MR. GEHT: 
Q. Dr. Ingersoll, what is the source of the prohibition that you're referring to on the school's ability to borrow? Is it within the loan document, bond documents, or is it an independent Michigan State law? 

A. It's a state guideline. This has nothing -- this discussion has nothing to do -- and I misspoke about five times in my discussion of the bond parameters. I kept saying debt service covenant. There is a debt service reserve fund that was part of the bond offering, and that's about a million one; so, in other words, when we borrowed -- we borrowed 9.6 to take out the 5.6 and build a new wing in the 2007 bond deal -- well, I'm misspeaking again. The 9.6 was actually -- 

Q. Take your time. 

A. The 9.6 was actually an advance refunding of the 5.6 obligation. So that's actually in the background continuing to be serviced by the proceeds of the new bond deal that was 2007. That was actually a $17 million bond deal, and it financed the construction -- the build out of the rest of the Academy, which is now 104,000 square foot facility. 

Ingersoll's testimony continued the next day, December 9, 2015, under cross-examination by Assistant United States Attorney Janet Parker: 

Q. You recall the promissory note? 

A. Of course. 

Q. Okay. Who were the parties to that, GTA and who? 

A. Smart Schools Management, I believe. I guess, I'd have to look at that again. I think it is Smart Schools Management though. 

Q. Okay. We can do that, I'm sorry. Can you read that? 

A. Yep, Smart Schools Management is correct. 

Q. And the date of this was June 8th, 2007? 

A. Yes. 

Q. And who signed on behalf of Smart Schools Management? 

A. That looks like Lesley Werth, who was the president apparently at that time. 

Q. Was the president of what, I'm sorry? 

A. President of the GTA board, Lesley Werth. That's her signature. 

Q. Who signed on behalf of Smart Schools Management? 

A. I did. 

Q. And you said in your testimony, if I understood you correctly, that you found out that this was an illegal agreement? 

A. Well, I wouldn't say it was -- I don't know if it was illegal. It wasn't -- it didn't -- we did not go through the protocols that I later understood to be appropriate and so I didn't know at the time that there was a mechanism that was required to precede the academy receiving a loan such as this. 

 Q. Well, so basically you're saying that you and -- you induced the Academy to enter into an agreement that was not proper without checking to see if what you were doing was correct? 

A. I don't think I would characterize it as such. 

Q. Well, you knew it was not proper? 

A. I did not know it was not proper. 

Q. Okay. You didn't bother to find out it was not proper, did you? 

A. I wasn't aware of it at the time. 

Q. All right. And you didn't consult with any to find out if it was proper or not? 

A. Well, I did -- that's correct. 

Q. All right. 

THE COURT: Do you mean with the bank or do you mean -- 

MS. PARKER: No, not at all. 

THE COURT: -- an attorney? Do you mean with the state? 

BY MS. PARKER: 
Q. With your attorney, someone from the state? 

A. Well, I didn't -- I didn't consult with anyone from the state. I did discuss it with the bank. 

Q. All right. But the bank isn't knowledgeable on the legal restraints necessarily that apply to the interactions between the school and its public funds and the management company that you controlled? 

A. They were not aware of that, I assume. They didn't say anything about it. I was not aware of it either at the time. 

Q. All right. 

THE COURT: But I got a little bit lost there, because these aren't public funds. These are private funds that are being borrowed in order to augment public funds if I understand. 

MS. PARKER: I think, Your Honor, the witness has acknowledged that in hindsight the agreement was improper, and I guess I would like to go into maybe exploring that, and I think that might address your concern a bit. 

THE COURT: Okay. 

BY MS. PARKER: Q. Why is it today that you recognize that agreement was improper? 

A. I don't know. I'm not refreshed on that. I do recall that shortly thereafter I looked into that. I can't remember exactly what precipitated the awareness that there was a need to preclude -- to do a precluding something or other. I don't even know what that is at this moment. It is not the process -- it's not the same process as other types of borrowing I knew that -- I can tell you that much. I really don't know what the particular authorization is. 

Q. Do you understand that the issue related to the fact that the promissory note was being made by the school to you as management company? 

THE COURT: I thought -- 

THE WITNESS: It's the other way around, yeah. 

THE COURT: My understanding is that they were both obligors on the note. Did I misread that? 

THE WITNESS: I was the guarantor. Smart Schools Management was the lender. Grand Traverse Academy was the borrower. 

BY MS. PARKER: 
Q. Exactly. Right. But do you understand now that part of the problem was that Grand Traverse Academy could not borrow from you in that fashion? 

A. Yes, I do, I do. 

Q. That's where I'm going, Judge. 

A. I came to that understanding afterward, yes. 

Q. All right. But in entering into that agreement apparently, as far as you know, neither you nor the Grand Traverse Academy board consulted attorneys to find out about that? 

A. I believe that's true. 

Q. And so did you deduct on your taxes the investment that you made with regards to that loan? 

A. I don't believe so. 

Q. You don't believe so or you don't know. 

A. I guess I'd have to say I don't know, but I don't think I did. 

On Monday, in Part 2, Geht takes Ingersoll through the history of his Traverse City State Bank line of credit.