“Steven Ingersoll abused the public trust placed in him by the school boards for the Grand Traverse Academy and the Bay City Academy, Lake Superior State University, and the people of Michigan who pay taxes to support the public schools of this state.
Most, if not all, of the untaxed income received by Ingersoll was money that Ingersoll diverted initially from the public school academies that he was entrusted to operate for the benefit of the students, not him, his solely owned entities, or his self-aggrandizing schemes. The misplaced trust induced by Ingersoll allowed him to use accountants, bookkeepers and his solely-owned entities to conceal his diversion of funds and to defeat the oversight mechanisms on which the public relied to prevent the abuses committed by Ingersoll.”
GTA Business Relationship to SSM and SSI
Government's Presentence Investigation Report
On July 13, Judge Thomas L. Ludington issued an order denying motions for a new trial filed by Steven Ingersoll and co-defendant Roy C. Bradley, Sr. (Ludington cancelled the motion hearing scheduled for July 23.)
On March 10, a jury convicted Steven Ingersoll of two counts of tax evasion and one count of conspiracy to commit tax evasion. Roy Bradley was convicted of one count of conspiracy to commit tax evasion.
During the trial, government prosecutors presented evidence that in 2010 and 2011 Ingersoll had “received distributions from his two closely-held corporate entities”: Smart Schools Management (SSM) and Smart Schools Incorporated (SSI). The prosecution alleged that the distributions were unreported taxable income.
In addition, the prosecution presented evidence that Bradley “did not report cash payments to employees working on a construction project owned by Steven Ingersoll to the Internal Revenue Service”, resulting in his $300,000.00 unpaid tax liability for 2011.
On March 24, 2015, Ingersoll filed a motion for judgment of acquittal. Bradley joined in the motion and also presented several arguments of his own.
In his July 13 order denying the motions for judgment of acquittal, Judge Ludington stated the “arguments are without merit”.
LAW & ORDER: A LOOK BACK AT THE CRIMES
On April 11, 2014, Steven Ingersoll, his wife Deborah Ingersoll, his brother Gayle Ingersoll, Roy Bradley, and Roy Bradley’s wife Tammy Bradley were indicted for various crimes related to their alleged participating in a conspiracy to commit bank fraud, conspiracy to commit tax evasion, wire fraud, and tax evasion.
The Superseding Indictment charged the defendants as follows:
-Count 1 charged Steven Ingersoll, Deborah Ingersoll, Gayle Ingersoll, Roy Bradley, and Tammy Bradley with conspiracy to defraud a financial institution related to a Chemical Bank loan on January 2011.
-Count 2 charged Steven Ingersoll, Gayle Ingersoll, and Roy Bradley with conspiracy to commit tax evasion related to the use of the January 2011 Chemical Bank loan.
-Count 3 charged Steven Ingersoll with wire fraud on June 29, 2011, related to the January 2011 Chemical Bank Loan.
-Count 4 charged Steven Ingersoll and Tammy Bradley with wire fraud on June 30, 2011, related to the January 2011 Chemical Bank Loan.
-Count 5 charged Steven Ingersoll and Gayle Ingersoll with wire fraud on June 30, 2011, related to the January 2011 Chemical Bank Loan.
-Count 6 charged Steven Ingersoll with failure to report taxable income for the year 2009.
-Count 7 charged Steven Ingersoll with failure to report taxable income for the year 2010.
The case began in 2009 when Ingersoll caused the Grand Traverse Academy to pay his closely-owned corporations, Smart Schools Management and Smart Schools Incorporated, the entire school management fee when GTA received its funds from the State of Michigan. Then these two corporations made distributions to Steven Ingersoll personally, which he did not report as taxable income— forming the basis for the tax evasion counts (Counts 6 and 7).
The distributions at issue were demonstrated during trial by introduction of the relevant bank records and revenue agent Michael Wisniewski’s testimony that Ingersoll underreported his 2009 taxable income by approximately $123,000.00 and his 2010 income by approximately $531,000.00.
In addition, the government alleged that when Ingersoll found that he needed to rebate funds to GTA, he and the other defendants engaged in a series of circular, unexplained, and purposeless transactions that shuffled proceeds from a Chemical Bank loan through various parties’ bank accounts. Ultimately, the funds ended up in the Ingersolls’ personal bank account at Fifth-Third Bank and later, at the Grand Traverse Academy. These allegations formed the basis of Count 1, conspiracy to commit bank fraud.
Related to this conspiracy, the government alleged that Steven Ingersoll, Gayle Ingersoll, and Roy Bradley conspired to commit tax evasion when (1) they shuffled the loan proceeds through their respective bank accounts without any economic purpose; (2) Roy Bradley paid his construction workers (who were employed on Steven Ingersoll’s construction project) in cash and did not report the wage expense to the Internal Revenue Service; and (3) Roy Bradley underreported his taxable income by about $300,000.00.
Finally, the government alleged that Steven Ingersoll, Tammy Bradley, and Gayle Ingersoll committed wire fraud when they shuffled the loan proceeds through their bank accounts without any economic purpose in furtherance of the conspiracy to commit bank fraud (Counts 4 and 5).
Steven Ingersoll disputed these allegations, claiming that “the distributions from his closely owned corporations, SSM and SSI, were not taxable because they were loans he was obligated to repay”. His co-defendants likewise denied the conspiracy, and generally alleged that they “did not possess the financial sophistication” to join or plan the conspiracies.
On March 4, 2015, Ludington granted the defendants' motion for acquittal on the conspiracy to commit bank fraud charge, concluding that “I don’t see a theory of fraud, let alone evidence of a conspiracy to commit bank fraud on those facts. I don’t believe that there’s a reasonable interpretation of the evidence that would allow a reasonable juror to convict the defendant beyond a reasonable doubt on the basis that’s been submitted with respect to Count One.”
And on March 10, 2015, the jury acquitted Deborah Ingersoll, Gayle Ingersoll, and Tammy Bradley of the remaining charges against them.
However, the jury convicted Steven Ingersoll of conspiracy to commit tax evasion (Count 2) and tax evasion (Counts 6 and 7), and convicted Roy Bradley of conspiracy to commit tax evasion (Count 2).
Following their convictions, Steven Ingersoll and Roy Bradley filed motions for a new trial, alleging several errors during their trial.
Ingersoll claimed his convictions for tax evasion (and by extension, Ingersoll’s and Bradley’s conviction for conspiracy to commit tax evasion) should be set aside because the statutes violate the “Due Process clause”.
Ingersoll and Bradley claimed that they did not have fair notice that their conduct was prohibited by the statute.
Ingersoll was charged with and convicted of tax evasion pursuant to 26 U.S.C. §7201. The elements of tax evasion are “willfulness; the existence of a tax deficiency; and an affirmative act constituting an evasion or attempted evasion of the tax.
Ingersoll, however, alleged that §7201 was “unconstitutionally vague” as applied to him. The central issue in the case was the characterization of “distributions to Ingersoll from his closely held corporations, SSM and SSI.” Government prosecutors argued that the distributions were unreported taxable income, while Ingersoll argued that they were “non-taxable loans”.
The central issue to be proven by the prosecution was the second element: existence of a tax deficiency.
To determine the characterization of the distributions, the jury instructions provided that “[w]hether advances are treated for tax purposes as loans turns on the intention of the parties at the time the withdrawals are made.”
Because this required a factual determination by the jury, the Court included “eight factors identified in the relevant case law” that could guide the jury in determining Ingersoll’s intent regarding the advances.
Ingersoll claimed that the use of these eight factors in the jury instructions made the statute, as applied to him, “unconstitutionally vague”. He claimed that he did not know of the factors, and he argued that even the government case agent assigned to his case could not testify about the particular factors.
However, Ludington’s order stated Ingersoll was “confusing a complex factual determination with a complex law”.
According to the motion, the primary issue was whether he had a tax deficiency, which required a factual determination by the jury: were the advances loans? Or were they taxable income?
The characterization of the advances is governed by Ingersoll’s intent as both the controlling officer of SSM and SSI and as the personal recipient of the advances.
The law is well-settled on this point, and Ingersoll did not argue otherwise.
But Ingersoll, the only person with absolute insight into his motivations, elected not to testify at trial. And therefore, the jury had to infer his intent from the circumstantial evidence surrounding the advances. The eight factors were a jury aid to guide their factual determination regarding his intent. That there are complex factual issues does not render a statute void for vagueness.
Indeed, Ingersoll’s counsel argued that the simple fact that Ingersoll repaid some of the distributions was evidence of his intent to repay them all.
Ingersoll also claimed in his motion for a new trial that the IRS case agent’s opinion testimony about the eight factors reveals that the law is unsettled because even the agent was unaware of the factors.
But Ingersoll did not demonstrate a logical nexus between his subjective understanding of the law and the government case agent’s opinions about the law; Ingersoll does not claim to have sought or become aware of the government case agent’s opinions during the period in question.
Absent any such connection, the government case agent’s testimony has no bearing on Ingersoll’s state of mind.
Ludington summarized saying, “the current law on the tax treatment of loans and distributions to shareholders is well-established and provided fair warning to Ingersoll that shareholder loans properly accounted for are not taxable income, while income-distributions are. Moreover, the tax law was also clear and well-settled that the characterization of the advances depended on Ingersoll’s intent at the time the advances were made. The law is not vague or debatable regarding these points, and therefore the law was not unconstitutionally vague as applied to
UP IN SMOKE?
Ingersoll and Bradley claimed that the prosecutor made inappropriate remarks during her opening and closing.
Specifically, Ingersoll claimed that the prosecutor (1) made improper comments regarding witness Vicki Kundinger’s credibility evidence and (2) improperly characterized the Government’s burden of proof.
Vicki Kundinger was called as a witness by Ingersoll. She testified that her husband had been Ingersoll’s certified public accountant for several years. She further testified that after her husband died, all of her husband’s records had been destroyed in a house fire in October 2011, and that Ingersoll did not try to get his records from her until a year after the fire.
The inference from Ms. Kundinger’s testimony was that Ingersoll’s financial records had been destroyed in a fire, and therefore it would have been natural (even necessary) for him to recreate those financial records—thereby innocently explaining the multiple versions of his financial records.
After Ms. Kundinger’s cross-examination by the prosecutor, Ingersoll’s attorneys sent additional discovery materials to the government—including a 2010 letter from Duane Kundinger (Ingersoll’s deceased accountant) to Ingersoll regarding Ingersoll’s financial records.
At trial, the prosecution described the contents of the letter from the accountant:
The letter says: enclosed is any material you furnished for use in preparing the returns. If the returns are examined, requests may be made for supporting documentation, therefore, we recommend you retain all pertinent records for at least seven years.
Basically, the information that was provided to Mr. Kundinger[, the accountant,] by Steven Ingersoll was then returned to Steven Ingersoll, so the fact that there was a fire at Mr. Kundinger’s house is—it’s after this letter is dated, May 1, 2010. Certainly, these records were not destroyed in the fire, and the Government had no knowledge of this letter or of the ability to cross-examine the witness on the stand based on this statement of her husband. I believe the testimony was irrelevant and misleading to the jury . . . .
The Court described the letter as “[p]retty critical impeachment information. It largely undercut the relevance of the witness’ testimony that suggested that the records were maintained by her husband and went up in smoke.”
Although the Government requested the jury be given an instruction directing them to disregard the testimony of Ms. Kundinger regarding any fire destruction of documents at her home, the Court suggested, and the parties agreed, to simply submit the letter to the jury by stipulation for their consideration of its evidentiary value.
During closing arguments, the prosecutor stated the following about Ms. Kundinger’s testimony:
This is after Duane Kundinger is dead; and, by the way, that was yet another act of concealment or defrauding or attempting defrauding committed in the course of this case, where yesterday Steven Ingersoll calls a witness to say, yes, my husband prepared the tax returns for Mr. Steven Ingersoll until my husband died and then after that, I had a house fire.
Now, the obvious intent of that information, bringing in that testimony, was to suggest that that’s where Steven Ingersoll’s records went, but then today you see the letter . . . . Well, in fact, May 10th, before—of 2010, before Mr. Kundinger died, he had returned not just the tax returns but the records back to Steven
Ingersoll, so that was yet another intent to deceive you, and you can draw inferences from that, too.
Ingersoll claimed that these statements were improper because they (1) mischaracterized the evidence, and (2) revealed the prosecutor’s personal opinion regarding the veracity of Kundinger’s testimony.
In the order, Ludington stated the “statements did not, however, misstate the evidence”.
The 2010 letter regarding the return of documents had been submitted to the jury via stipulation, and the letter referenced the return of documents and records back to Steven Ingersoll.
Thus, there was a least some inconsistency between Ms. Kundinger’s testimony that the records had been destroyed in the fire.
Contrary to Ingersoll’s argument, it would not be unreasonable for a jury to conclude that his accountant was returning all of the financial records when he writes that “also enclosed is any material you furnished for use in preparing the returns.”
According to Ludington, the prosecutor’s closing remarks “did not mischaracterize the evidence,” nor did the statements reveal the prosecutor’s personal opinion regarding Kundinger’s testimony.
The letter does not appear to contradict Kundinger’s testimony, who testified generally that her husband’s accounting records (which could have included Ingersoll’s financial records) were destroyed in a fire.
Instead, the prosecutor described Ingersoll’s trial strategy as “deceptive”.
By eliciting Kundinger’s testimony, Ingersoll made it appear that his financial records had been destroyed, when in reality he knew that at least some—if not all—had been returned to him.
Therefore, Ludington noted, the prosecutor’s statements did not improperly impugn Ms. Kundinger’s testimony.
THE SCALES OF JUSTICE
Ingersoll and Bradley claimed that the prosecutor improperly mischaracterized its burden of proof by using inappropriate analogies and by referencing the indictment. For example, in her opening statement, the prosecutor refers to the “scales of justice”:
If you think of the scales of justice, presumption of innocence doesn’t mean we start with the scales tipped one way and the government has to tip it the other way. It means we start even, an empty or balanced situation, and the purpose of the trial is to present the evidence that will tip that one way or the other and you,ladies and gentlemen, ultimately decide which way that evidence tips.
Ingersoll claimed that these statements mischaracterized the burden of proof as a preponderance of the evidence standard. Furthermore, Ingersoll claims that references to the indictment “invited the jury to give improper weight to the opinion of the authorities embodied in the indictment.”
In his order, Ludington stated the prosecutor’s “statements were not mischaracterizations of the burden of proof and did not mislead the jury”.
Ludington added, “even if they had, the comments were isolated and cured by the Court’s jury instructions”, which:
- described the burden of proof (“The government must prove every element of the crime charged beyond a reasonable doubt.”)
- described the presumption of innocence (“[T]he defendants start the trial with a clean slate, with no evidence at all against them, and the law presumes that each defendant is innocent.”)
- described the role of the indictment (“The indictment is not evidence of guilt. It is just the formal way that the government tells the defendants what crimes they are accused of committing. It does not raise any suspicion of guilt.”)
- explained that the jurors must follow the law as provided by the Court, not the attorneys (“The lawyers may talk about the law during their arguments. But if what they said is different from what I say, you must follow what I say. What I say about the law controls.”)
Because not one of the prosecutor’s statements was improper, Ludington denied Ingersoll’s motion for a new trial.
Bradley, in addition to joining in Ingersoll’s motion, also claimed that the government “did not provide sufficient evidence that he joined a conspiracy with the intent to defraud the United
Bradley claimed that “there is insufficient evidence to show that he (1) intentionally filed a false tax return with underreported income and (2) that he intended to defraud the United States by paying his workers in cash and not reporting those payments.”
The government had the burden at trial of proving beyond a reasonable doubt: (1) an agreement to defraud the United States; (2) knowledge of, and intent to join, the conspiracy; and (3) participation in the conspiracy. In the order, Ludington asserted that a “rational jury could find all of these elements had been met.”
After more than eleven days of proofs, the jurors were presented with a substantial amount of evidence regarding circular, unexplained, and therefore apparently purposeless financial transactions among Steven Ingersoll, Bradley, and Gayle Ingersoll.
In addition, the government presented evidence that the “funding for Ingersoll and Bradley’s Bay City Academy construction project was funded by advances Ingersoll arranged to have SSM and SSI pay to himself after their receipt of funds from GTA.“ The government presented evidence that Bradley had been told that he could not pay his construction workers in cash without reporting it, but that he did so anyway.
Although Bradley claimed that the United States was “better off” because he did not take any deductions for the expense of compensating his construction workers, a rational jury could find based on the evidence that he knew of his tax obligations but willfully did not accurately report his taxable income or pay his tax liability.
Ludington stated that a “rational trier of fact” could have found the essential elements of a tax evasion conspiracy against Bradley, and found his sufficiency of the evidence argument is without merit.
Finally, Bradley contended that the indictment did not give him adequate notice of what he needed to defend against at trial.
He contended that the only conduct alleged in Count 2 of the indictment was that he “paid the construction company’s workers in cash and did not report the wages that they paid to their company’s workers via Form 1099 or W-2s, thereby concealing the earnings information regarding those workers from the United States.”
Bradley contended that, at trial, the government improperly went beyond the conduct alleged in the indictment and introduced testimony that his 2011 tax return had a tax deficiency of approximately $300,000.00.
Bradley claimed, because the government did not reference the alleged 2011 tax deficiency in the indictment, he was not provided adequate notice.
Bradley claimed that it was improper for the government to present evidence that he had a $300,000.00 tax liability as part of its proofs that he conspired to commit tax evasion with Ingersoll because that overt act—nonpayment of 2011 tax liability—was not specifically alleged in the indictment.
Ludington listed a series of precedents in his order, and stated that in the absence of clear precedent from the Sixth Circuit, the government was not required to list every alleged overt act taken by Bradley in furtherance of the conspiracy in the indictment.
Deeming Bradley's argument without merit, Ludington stated the indictment passed constitutional muster because it recited the statutory elements of conspiracy to defraud the United States and at least some of the overt acts taken in furtherance of the conspiracy.
COMING TOMORROW: Margo Abbott Tells Tall Tales About Steven Ingersoll's 2007 Heart Attack...And Other Interesting Facts!