Two notable events happened on Thursday, January 8 — Chastity Pratt Dawsey's stunning story about Steven Ingersoll's federal fraud trial was published by former newspaper publisher Phil Power's Bridge Magazine and US District Judge Thomas L. Ludington issued a significant order in the upcoming case.
With the trial set to begin on February 10, Ludington has scheduled the final pretrial conference for January 16. In addition, Thursday's order instructed both parties to revise their respective trial memoranda (proposed jury instructions and theories of the case) based on Ludington's review of the parties' draft proposals. Revisions are due by January 15.
While Ludington's order is expansive, this post focuses on the bank fraud and tax evasion charges.
BANK FRAUD: HUSTLE & "FLOW"
In its introduction to Count 1 of its proposed jury instructions, the government explains the “factual predicate” for the charge as follows:
Count 1 states that Steven J. Ingersoll and Roy C. Bradley, Sr., worked together to convince Chemical Bank to approve a construction line of credit loan.
Steven J. Ingersoll, Roy C. Bradley, Sr., Gayle R. Ingersoll, Deborah M. Ingersoll, and Tammy S. Bradley then engaged in a series of transactions that diverted part of the Chemical Bank construction loan proceeds away from the construction project and to a joint, personal bank account in the name of Steven Ingersoll and Deborah Ingersoll at Fifth-Third Bank.
Ludington emphasized that the government needs to prove that all of the defendants conspired to commit the crime of bank fraud—“bank fraud” defined, in part, as “to act with an intent to deceive or cheat for the purpose of either causing a financial loss to another or bringing about a financial gain to oneself.”
Moreover, bank fraud requires a “material misrepresentation”; that is, a misrepresentation that “has a natural tendency to influence or is capable of influencing the decision of a person of ordinary prudence and comprehension.”
The government’s submitted theory of the case did not suggest any such fraud of misrepresentation on Chemical Bank. The government explained in its theory of the case only that Chemical Bank believed that the loan was “supposed to be used to convert a church building in Bay City, Michigan, into a school building.”
In the defense draft, Steven Ingersoll, by contrast, agreed that not all of the loan funds disbursed by Chemical Bank were paid directly to contractors or material providers for the construction project.
He agreed that “during the course of the project, money flowed as described by the government.” And he suggested that sometimes he would “use his own cash or that of Madison Arts LLC to pay construction expenses” and that the loan disbursements simply repaid his advances and that “there was nothing illegal with any of it.”
Ingersoll emphasized that Chemical Bank “contemplated $1.8 million being invested in the church conversion” and it was in addition to Steven Ingersoll’s investment of some $400,000 for a total project cost of $2.2 million.
Most importantly, he emphasized that there was nothing illegal about his advancing funds for the project and then getting repaid. He contends, without qualification, that he was “legally entitled to use the money as he did under the terms of the loan agreement.”
Ludington directed the government to address in its trial memorandum the following:
(1) whether the loan agreements permitted loan proceeds being used for other purposes so long as the construction project was being funded; and
(2) if the government is not relying solely on the loan agreements but on some other material misrepresentation, the government should identify the fraudulent conduct.
TAX EVASION: ONLY THE LITTLE PEOPLE PAY TAXES...BUT IT WAS REALLY A LOAN!
In Counts 6 and 7, the Government alleges that Steven Ingersoll attempted to evade and defeat the payment of income taxes in 2009 and 2010. The transactions at issue involve advances made from Grand Traverse Academy funds to Steven Ingersoll from his solely-owned corporations, Smart Schools Management and Smart Schools Incorporated.
Steven Ingersoll asserts that his receipt of these advances should be characterized as “loans”, which are non-taxable income.
In contrast, the government previously represented that the payments could not have been loans under Michigan state law, which prohibits charter school funds from being loaned to third parties. However, the government did not allude to this argument in either its proposed jury instructions or in its theory of the case.
In its trial memorandum, Ludington ordered the government to address:
(1) the allegation that Michigan state law prohibits Smart Schools Management and Smart Schools Incorporated from making loans to Steven Ingersoll; and
(2) how this Michigan state law affects the draft jury instructions and the counts charged in the Superseding Indictment, if at all.
In its “bill of Particulars”, the government focused on the “unreported distributions to Steven Ingersoll from SSM and SSI.” The Bill of Particulars identified $894,500.00 in distributions received by Steven Ingersoll from Smart Schools Management and Smart Schools Inc. in 2009 and $2,180,113.98 in distributions in 2010.
In addition, in this exchange quoted in a December 3 court order, the government contended that Steven Ingersoll could not receive a loan from SSM or SSI as a matter of law:
AUSA: There are far more funds that we can show as alleged in the bill of particulars than what shows upon the Ingersoll tax return.
The Court: Well, but if they were loans—
AUSA: Well, the problem is, that’s a legal impossibility. They’re not loans.
The Court: Well, only because of state law.
AUSA: Well, that is a significant and I think sufficient impediment to construing them as loans. Plus, there are no loan documents. There’s nothing saying that the board of the school authorized GTA, the school, to make a loan to SSM and then to SSI and then to Steven Ingersoll.
As part of its argument that the distributions cannot be characterized as loans, the government claimed that the distributions from SSM to Steven Ingersoll consisted of “embezzled funds”:
The Court: What does the Government consider [the distributions] to be?
AUSA: Embezzled funds.
The Court: And, therefore, taxable income to him?
The AUSA provided a further analogy:
If he (Ingersoll) goes and robs a bank, and I go, can I borrow that money from you, it’s still proceeds of the bank robbery. It’s still an illegal act, and I don’t know any way that you can just put the label “loan” on it and make it into an innocent transaction when it’s a transaction that is—or a series of transactions that are conducted without authority using state funds.
In the December 3 order, Ingersoll's defense counsel framed the trial issue as follows:
“I have to keep coming back to, we’re asking for time to develop a fact pattern. We’re not arguing the merits of whether or not we win as a matter of law. For now all we’re saying is, and this comes loud and clear, this was about the Grand Traverse Academy and Smart Schools Management, and what — but the mechanics of it now affect Dr. Ingersoll, and those mechanics are quite important, and those mechanics do go to what happens in ’11 and ’12.”
MICHIGAN LAW: PUBLIC SCHOOL ACADEMIES ARE "POLITICAL SUBDIVISIONS OF THE STATE", AND ARE EXPRESSLY PROHIBITED FROM MAKING PRIVATE LOANS WITH THEIR PUBLIC FUNDS
Based on constitutional provisions established in 1963, under Michigan law the Grand Traverse Academy is prohibited from making loans to any private entity.
Michigan statutes that address questionable expenditures of local government provide restrictive authority for what the law calls “political subdivisions of the state”. Political subdivisions include counties, cities, towns, villages, and special districts such as school districts, water districts, park districts, and airport districts.
Under the law, no political subdivisions of the state have the power to loan their respective credit for any private purpose or, except as provided by law, for any public purpose (Michigan Constitution of 1963, Article 7).
Puts a stake in the heart of that “loan” defense theory, eh?
BRIDGE MAGAZINE STORY: STUNNING QUOTES REVEAL CONTEMPT FOR MICHIGAN TAXPAYERS
In her Bridge Magazine article, reporter Chastity Pratt Dawsey spoke with various players in the Grand Traverse Academy missing millions story, including Steven Ingersoll's attorney Jan Geht, Academy Board president Brad Habermehl, Ingersoll business partner and current Academy management company head Mark Noss, and professional charter school apologist Dan Quisenberry.
Beginning with Geht, I'll take a look at their comments — from the sublime to the ridiculous...and back to the ridiculous!
My comments follow each excerpt...but you've already guessed that!
No charter school law in the country gives charter schools taxing powers to seek funding, so that situation is not unique to Michigan.
In addition, the Grand Traverse Academy owns all its buildings. Geht’s implication that Smart Schools Management acquired the Academy facilities and took the risk is just not true.
In the very beginning, a Tennessee developer, Floyd Schecter, did take on risk and develop the original Academy building. However, Schechter was independent of Ingersoll and Smart Schools Management, Inc. Floyd Schechter ultimately went bankrupt and didn't complete the building. The Academy opened with a temporary certificate of occupancy in a building wrapped in Tyvek sheeting.
The Grand Traverse Academy eventually wrangled title to the property after the developer's bankruptcy proceedings.
Geht's “the school would not have had a building” claim is wildly overstated…and completely crazy! Neither Smart Schools Management or Ingersoll took on any debt directly on behalf of the Academy.
Geht’s statements also omit two substantial bond issues: 2002 ($9.1 million) and 2007 ($16.2 million), which were issued to finance the acquisition of the Academy building and its subsequent expansion.
(The bond documents indicate that Smart Schools Management and/or Ingersoll were legally required to subordinate management fees to Academy debt payments.)
Mark Noss' professional and personal ties to Ingersoll are almost too numerous to mention here, but they include the Excel Institute and a check of official United States Copyright Office records reveals that Mark Noss and Steven Ingersoll are both named as copyright holders for the 1993 text titled “Integrated vision therapy” — which partly serves (along with William Glasser's “choice theory”) as the basis for the Grand Traverse Academy's curriculum.
In addition, just days after Noss assumed the management mantle of the Grand Traverse Academy from Steven Ingersoll's Smart Schools Management, Inc., Brian Lynch, Noss' son-in-law, was named the Bay City Academy's new Superintendent and President of Instructional Services. Steven Ingersoll currently owns and operates the Bay City-based charter school.
Brad Habermehl's comments really need their own post, but I'll try to keep it short.
Philanthropy? That's an Ivy League term for stamp collecting, right?
Personally, I might have substituted “pyramid scheme” instead of Ponzi scheme to describe the giant sucking sound that resulted in the loss of an estimated $3.5 million dollars.
But who can solve the riddle of the pyramids?
And, if Ingersoll wasn't trying to get rich by scamming the school, just what was he trying to get?
It's disappointing that this pack of schoolyard crybabies backed away from aggressively pursuing the millions Steven Ingersoll declined to return to the Grand Traverse Academy.
After all, why throw the baby out of “his” school...and then let him keep all that crisp, green lettuce?
As a man who describes himself as a “veteran communicator with more than 20 years experience in governmental affairs, policy development and business management”, Dan Quisenberry (President, Michigan Association of Public School Academies) has clearly mastered Gibberish as a second language.
And as one who's walked in his corporate shoes (metaphorically speaking, of course), I give him mad props for defending his organization.
But he had me at “from what I understand”, revealing that his level of understanding wouldn't jar even the most sensitive Richter scale.
I do love the last few words, though: he could be innocent.
I want Dan Quisenberry on my side if I'm ever busted!