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Thursday, February 26, 2015

"BEFORE THE MEDIA GETS AHOLD OF THIS!": Steven Ingersoll Federal Fraud Trial Coverage; Motion Recap

Here's Part 2 of my first-hand report on Tuesday's session of Steven Ingersoll's federal fraud trial: IS MAKING LESS THAN MINIMUM WAGE REALLY A GOOD DEAL WHEN YOUR BOSS MAKES MILLIONS?

You can read Part 1 of Tuesday's coverage (Roy and Tammy Bradley Made How Much?) at this link.

A comprehensive report on the February 6 motion hearing follows the recap.



$250 DOLLARS CASH FOR A 60 HOUR WORK WEEK—& A CROWBAR UPSIDE THE HEAD: A FORMER BAY CITY ACADEMY LABORER TESTIFIES

The prosecution called Matthew Scherret, a former Bay City resident who'd provided "unskilled labor" during the renovation of the Bay City Academy.

Scherret, speaking confidently from the witness stand, provided details of his employment with Roy Bradley's off-the-books construction crew. Scherret stated that although Roy Bradley was his "boss", Tammy Bradley was responsible for paying the crew members once a week in cash. In addition, Scherret revealed that Gayle Ingersoll assisted Bradley's crew, rounding up equipment and "getting us what we needed."

Admitting that he had not received a W-2 or a Form 990, Scherret revealed he had been paid $250.00 in cash for a 6-day work week that often stretched to 60 hours. When asked by the prosection, Scherret stated that he never received any overtime pay during the time he worked on construction projects for Roy Bradley.

Cross-examined by Martin E. Crandall, Steven Ingersoll's defense attorney, Scherret said that he'd been living in a Bay City homeless shelter near the Bay City Academy construction site and was referred to Roy Bradley for possible employment by another shelter resident working on the renovation.

Crandall asked Scherret about his earlier grand jury testimony, and his interactions with EPA investigators.

Pushing the "government overreach" defense theory, Crandall asked Scherret about the last time he'd encountered the EPA investigators near his residence in Caseville. Scherret admitted that one of the two agents, who'd encountered him crossing the street back to his home from a convenience store, called out "Hey Matt! Remember us?"

When Crandall asked Scherret if he knew at the time that his conversation with the agents was "secretly being recorded", Scherret said no.

Cross examined by Gayle Ingersoll's defense attorney, Scherret indicated he'd worked for Bradley's crew for over a year, but denied any familiarity with "geothermal heating".

Roy Bradley's defense attorney, Mark Satawa, continued the defense cross examination and struck a discordant note, referring to Scherret's less-than-minimum-wage, cash-off-the-books employment as "a good deal". Although Scherret had later been provided with a place to live, it was unclear if he paid rent.

Satawa lead Scherret through an examination of the circumstances leading up to Scherret's firing: a physical altercation with a co-worker he identified as "Rudy". (Court records indicate Scherret's co-worker was Rodolfo "Rudy" Rodriguez.)

Contemporaneous news reports indicate that on the morning of April 22, 2011, Bay City Police officers were dispatched to the Bay City Academy construction site at 400 N. Madison Avenue, in reference to an assault. Police found Scherret bleeding from his lip. Although Scherret was initially uncooperative with Bay City Police officers, he ended up telling them Rodriguez had just struck him in the face with a crowbar. 

Scherret stated in court that a Bay City police officer "patted him down" at the scene and found that he had "an ounce" on his person.

When asked by Satawa to explain, Scherret stated he had an "ounce of marijuana" in his pocket.

Scherret opted not to go to the hospital, and was fired shortly after by Roy Bradley for possessing marijuana. Scherret denied having any "bias" against Bradley for terminating his employment when asked by Satawa.

NOTE: Although Rodriguez was charged with assault with a dangerous weapon, a four-year felony, he plead guilty to a misdemeanor count of aggravated assault in September 2011. In exchange, prosecutors dismissed a felony count of assault with a dangerous weapon and sentenced Rodriguez to a year of probation and ordered him to participate in a 12-week anger management course and submit to drug testing. 

The judge also sentenced Rodriguez to two days in jail, with credit for time served, and ordered him to pay $980 in fines and restitution.

Rodriguez is currently serving time in federal prison for make false statements to the grand jury investigating the Bay City Academy asbestos mishandling case.


THE BAY CITY ACADEMY $1.8 MILLION DOLLAR CHEMICAL BANK LOAN: STEVEN INGERSOLL TO PAY OFF LOAN USING "RENTAL INCOME" PAID TO HIS MANAGEMENT COMPANY...BY A SCHOOL HE OWNED...THAT WAS SUPPORTED BY TAXPAYERS! 

Randall Keinbaum, an Assistant Vice President and commercial lender at Chemical Bank, took the stand to authenticate evidence and testify about Steven Ingersoll's Bay City Academy construction renovation loan.

Keinbaum said the $1,802,000 loan included two distinct phases: a twelve-month construction loan (interest only) that would convert to a post-construction mortgage with payments including principal and interest.

When asked by the prosecutor about the United States Department of Agriculture's involvement, Keinbaum stated that the bank required a guarantee from the USDA to enter into the loan agreement with Steven Ingersoll due to agreement's "unique collateral".

Keinbaum explained that a property like Ingersoll's converted church carried more risk than a "square-box office building" if the bank ever foreclosed on the property and attempted to sell it to recoup its investment. Citing the "limited pool of interested people" who might purchase the Madison Avenue property, Chemical Bank required a USDA guarantee to make the loan to Ingersoll.

Walking the prosecutor through the loan-related documents entered into evidence, Keinbaum revealed that the "loan application" included a construction contract between Roy Bradley's Lasting Impressions and Steven Ingersoll's Front Porch Renaissance Group.

Keinbaum stated that, according to the loan documents, "rental income from the management company running the school" would fund the mortgage payments.

Smart Schools Management (owned by Steven Ingersoll) would pay rent to the Bay City Academy (owned by Steven Ingersoll), which would use the revenue to pay the Chemical Bank mortgage loan.

A lease agreement between the "Bay City Academy Steering Committee" and "Front Porch Renaissance Group" accompanied the loan application.  The lease agreement was signed by current Bay City Academy board member Craig Johnston, and Steven Ingersoll. 

References to "Front Porch Renaissance Group" were later replaced in loan documents by "Madison Arts LLC", another entity controlled by Steven Ingersoll.

Direct examination of Keinbaum by the government wrapped up with a brief review of the loan's restrictions, including "no distributions without prior bank approval" and "no outside borrowing or assumptions of liabilities or obligations of others" before Tuesday's session was adjourned.

PEREMPTORY CHALLENGES AND MOTIONS IN LINIME: MOTION COMMOTION

On February 6, Judge Ludington conducted a hearing on the parties’ motions in limine. Each pending motion in limine was addressed at the hearing:
 

-Gayle Ingersoll: motion for additional peremptory challenges
The prosecution is entitled to seven peremptory challenges and defendants are entitled to divide eleven peremptory challenges. Because there has been "some pretrial publicity" about this case and its subject matter, Gayle Ingersoll requested additional peremptory challenges to "ensure a more impartial jury". Judge Ludington determined that the character of the pretrial publicity
did not warrant additional peremptory challenges, and denied Gayle Ingersoll’s motion for additional peremptory challenges on the record.



-Government motion regarding an “accounting advice” defense
Seeking to foreclose the defendants’ assertion that their accountants—rather than defendants themselves—were responsible for the alleged tax evasion, the government presented its motion regarding an “accounting advice” defense. Ludington concluded that the availability of the accounting advice defense would "depend on the proofs adduced at trial". All parties agreed that to merit an accounting advice jury instruction, the defendants would have to make a showing of "full disclosure and good faith reliance".


-Government motion regarding Smart Schools model
During the hearing, the government argued that the efficacy of
the curriculum—that is, the successes of the Smart Schools model—was irrelevant to the charges in the indictment. Defense counsel for Steven Ingersoll claimed that the information may be "relevant to his state of mind but that the issue of relevancy should be determined during the trial". Ludington agreed, noting that a relevancy determination would depend on the factual situation presented at trial. 


-Government motion regarding geothermal heating
The government argued that mechanics or advantages of geothermal were irrelevant to the charges in the indictment, especially because geothermal heating was not actually used by Bay City Academy. Ludington noted that "the relevancy of geothermal heating would depend on the facts adduced at trial." Ludington noted that it was unlikely that the mechanics of and the science behind geothermal heating would be relevant. 

However plans to use geothermal heating would be relevant in, for example, explaining Gayle Ingersoll’s motivation in creating Mid Michigan Geothermal and funding a bank account.

-Steven Ingersoll's motions
Michigan law restricts the use of school-aid funding for the operation of schools. The State of Michigan provided the Grand Traverse Academy with school-aid funds through Lake Superior State University. The GTA then provided the funds to Smart Schools Management to operate and manage the public school academy.

The government alleges that Steven Ingersoll took fat stacks of school-aid funds and used the money for his own purposes, including funding the start-up of his Bay City Academy.

But Ingersoll disagreed, arguing that Smart Schools Management, Inc. loaned him money, which SSM had earned as its management fees. Ingersoll was seeking Judge Ludington to instruct the jury regarding his loan defense to the tax evasion charges in counts six and seven. 


In his motion, Steven Ingersoll referred to section 7, and noted that “costs for school operating purposes include all expenditures necessary to carry out the powers and the financial obligations of the district . . . under the revised school code.” M.C.L.A. §388.1607.

Ingersoll argued that under this provision, it was legal for the GTA to advance funds to SSM, including management fees paid to SSM under the management agreement. Ingersoll claims that SSM “loaned him only those funds which SSM had earned as its management fees.”

The government response noted that this claim is “contradicted by SSM’s own financial records.” Despite the government’s investigation, it “is not aware of any records which would support the claim, and Steven Ingersoll has not produced any as reciprocal discovery.
”  The other reasons, according to the government, were that “even if the payments were loans, they were not reported to the IRS and there would still be an understatement of income tax, and that there is no competent evidence that Steven Ingersoll intended to repay the funds when he received them.”
 
The government maintained that Michigan statute 388.1618(1) is applicable to this case and is one of the crucial reasons why the court should not instruct on Steven Ingersoll’s loan theory as to counts six and seven.
 

Ludington noted that Counts 6 and 7 only address Steven Ingersoll’s alleged "failure to report disbursements from SSM and SSI funds as taxable income". Accordingly, the question for the jury is simply "to determine whether the SSM and SSI disbursements to Steven Ingersoll were, as he contends, non-taxable loans that he was obligated to repay or, alternatively, unreported taxable income." Ludington determined that the jury may resolve this question "utilizing traditional principles of federal law".

Defense counsel for Steven Ingersoll requested a ruling that Chemical Bank documents do not prohibit him from reimbursing himself for funds expended during the construction of Bay City Academy. The government had previously contended that the loan
documents prohibited such reimbursement, thereby forming part of the factual predicate for the bank fraud conspiracy charge.

At the hearing, the government clarified that it was "not relying on Steven Ingersoll’s reimbursement as part of the bank fraud conspiracy charge". 


Instead, the government contended that Steven Ingersoll committed bank fraud when (1) he stated that he did not have any outstanding loan obligations to SSM, SSI, or otherwise, and (2) submitted falsified sworn statements of the materials and labor invested at the Bay City Academy in order to obtain disbursement of the Chemical Bank loan.

Because the government is no longer relying on the theory that the loan documents prohibit Steven Ingersoll’s reimbursement, his request is mooted.

And finally, defense counsel for Roy Bradley presented his motion for a “lesser included” charge for Count 2, Conspiracy to Commit Tax Evasion. Bradley’s attorney noted that he may be seeking lesser included charges of failure to file W-2’s and/or failure to file 1099’s. Bradley's attorney acknowledged that whether these lesser included charges are merited would depend on the proofs presented at trial, and Ludington noted that a ruling at this time would be "premature".

1 comment:

  1. I look forward to and have been impressed with your reporting. Keep up the good work.
    Roy Bradley's cash payments to workers was the worst kept secret in town. I often wondered why Dr. Ingersoll didn't intervene, to protect his business reputation. I guess we have found out how concerned he was. Most people thought Roy worked directly for the good Doctor.

    ReplyDelete