On Tuesday, August 11, I sent an email to Michigan's new State Superintendent of Public Education, Brian Whiston, requesting that he examine the recent decision by the Grand Traverse Academy's Board of Directors (revealed exclusively on this blog August 9) not to pursue recovery of at least $1.67 million dollars owed by Steven Ingersoll's Smart Schools Management.
Using a mandatory arbitration clause and unlikely recovery as its reasons, the Board's attorney asserted in an email that any recovery was “remote”.
So why am I publishing the my email to Whiston?
Former Supreme Court Justice Louis D. Brandeis said it best: “Publicity is justly commended as a remedy for social and industrial diseases. Sunlight is said to be the best of disinfectants; electric light the most efficient policeman.”
Here's the text of my email, as sent to Whiston on August 11. I'll let you know when he responds with results:
On March 10, after two and a half days of deliberations, a federal jury found Bay City Academy founder Steven J. Ingersoll guilty of three of the six criminal counts he faced stemming from tax fraud.
The jury found Ingersoll guilty of two counts of attempting to evade or defeat tax and one count of conspiracy to defraud the United States, both of which are five-year felonies. The jury exonerated him of three counts of wire fraud.
And although Ingersoll has not yet been charged with embezzlement in connection with what a Grand Traverse Academy attorney Margaret Hackett called during her trial testimony a “substantial unauthorized transfer of funds”, the Grand Traverse Academy Board has decided not to seek recovery of that money — a debt estimated to exceed $3.5 million dollars.
Here's my question, on behalf of Michigan's taxpayers: how can the Board make what appears to be a unilateral decision not to pursue recovery of this money using an arbitration clause and unlikely recovery as their reasons?
And although the Board knew nearly two years ago that Ingersoll was under federal investigation, the Grand Traverse Academy board took no legal action and instead kept Steven Ingersoll and his management company on the public payroll for another year—until days before he was federally indicted on multiple fraud counts.
In the case of the Grand Traverse Academy, the evidence indicates that Ingersoll's debt to the school grew over a period of roughly seven years.
The amount of Ingersoll's annual management fee between 2007-2012 was subject to reduction in a mutually agreeable amount in any school year if extenuating circumstances make the entire annual fee inappropriate.
At the beginning of each fiscal year between 2007-2012, Steven Ingersoll advanced (usually in one lump sum), his annual Smart Schools Management/Grand Traverse Academy management fee.
Although based on Board-approved preliminary budget figures, Ingersoll’s management fees were later adjusted downward after actual budgets were calculated.
However, Ingersoll withheld repayment of the difference each year during this six-year period.
For years, the Grand Traverse Academy had carried Ingersoll’s growing debt on its books, characterizing it variously as a receivable, a related party receivable or a prepaid expense.
Margaret Hackett's Testimony
Meg Hackett, a Grand Rapids attorney representing the Grand Traverse Academy board, testified during Steven Ingersoll’s federal fraud trial that during a May 20, 2013 Academy board meeting, Ingersoll asked the board to characterize his $3.5 million dollar indebtedness to the charter school as a “loan”.
For years, the Grand Traverse Academy had carried Ingersoll’s growing debt on its books, characterizing it variously as either a receivable, a related party receivable or a prepaid expense.
Hackett testified that she was retained in 2009 by former Academy board president Mark Noss. Although Hackett did not describe the work performed, court documents indicate she later produced a legal opinion in a letter described in court documents as the “Thrun Letter” just days after the May 20, 2013 meeting.
Hackett's letter, dated May 30, 2013, was likely a legal opinion related to Steven Ingersoll’s $3.5 million dollar debt to the Grand Traverse Academy. The letter was followed by another on June 13, 2013—a “demand letter” sent by another Grand Traverse Academy attorney, Doug Bishop, to Steven Ingersoll.
The Bishop letter said his firm had been “directed by the Board to make a demand for immediate payment of all amounts due from Smart Schools Management, Inc. and/or Steve Ingersol (sic). These amounts include, but are not necessarily limited to, any amount formally designated as a receivable on Grand Traverse Academy’s financial statements.”
Bishop continued, saying in the June 13, 2013 letter that “the amount due is at least $3,548,319.00, which, to our understanding, was a figure calculated by Dr. Ingersol (sic) as indicated to be due as of June 30, 2012.”
When asked by the prosecution why Steven Ingersoll needed to have his debt “recharacterized”, Hackett said Ingersoll told her he “needed the sums characterized as a loan for reasons related to an IRS investigation and/or audit.” Ingersoll was clearly aware of the ongoing federal investigation into his finances.
Discussing his $3.5 million dollar debt (and referring to spreadsheets detailing the sums he had transferred from the Grand Traverse Academy's accounts to his personal bank accounts and those of Smart Schools Management), Hackett said Steven Ingersoll told those in the meeting that he “could not afford to pay that (his Academy debt) and his taxes all at the same time”, and needed to have the debt characterized as a loan.
The government alleged the so-called “inculpatory statements” made by Steven Ingersoll on May 20, 2013 were evidence that showed, or tended to show, Ingersoll’s involvement in an act, or evidence that could establish guilt.
Hackett explained the structure of Smart Schools Management, Inc. (owned and operated by Steven Ingersoll) and its 2013 business relationship as the Grand Traverse Academy’s “contracted management company.” When asked by the government if the Grand Traverse Academy, as a public school academy, was even allowed to make a loan, Hackett said no.
Saying that the Grand Traverse Academy had “no legal authority” to loan money to Steven Ingersoll, Hackett explained that Michigan law prohibits a public body, like the appointed board of a charter school, from making any loans.
Under cross examination by Martin Crandall, Steven Ingersoll’s criminal defense attorney, Hackett said among those attending the May 20, 2013 were it’s former board president Mark Noss, former Superintendent Kaye Mentley and its auditor, CPA Tony Henning.
When asked by Crandall to describe Ingersoll’s demeanor during the meeting, Hackett said that at times Ingersoll “seemed to be challenging the sums owed.” Admitting that Ingersoll’s request was the first time his debt was asked to be considered a loan, Hackett stated that the debt had been variously characterized in Grand Traverse Academy financial audits as either “accounts receivable or a prepaid expense.”
Asked by Crandall to describe the amount Ingersoll owed, Hackett described the $3.5 million dollars as a “significant unauthorized transfer of funds.” Crandall asked whether or not the Grand Traverse Academy “audited the books”, and Hackett stated the Academy did perform an annual audit of financial statements provided by Steven Ingersoll’s Smart Schools Management.
Explaining it was not a forensic audit, Hackett said the school’s authorizer, Lake Superior State University did not audit the Academy as part of its oversight. In addition, Hackett said while both Lake Superior State University and the Michigan Department of Eduction both “look at” the audit, neither are allowed access to Smart Schools Management’s financials. In addition, she added that the federal Department of Education would only be able to audit any federal funds paid to the charter school.
Crandall asked Hackett the reason for the May 20, 2013 meeting, and Hackett stated that Mark Noss had asked for the meeting (which lasted about two hours) on behalf of Steven Ingersoll since Ingersoll indicated that he “wanted to explain his view of his indebtedness” to the Grand Traverse Academy. Hackett met with Noss and Mentley separately for approximately an hour after Ingersoll left.
Under redirect examination by the prosecution, Hackett explained the difference between a “forensic audit” and an audit of financial statements as performed at the Grand Traverse Academy. While a forensic audit digs into underlying documentations (bank records, invoices, etc.), the audit performed at the Academy used financial information provided by Smart Schools Management, Inc. on behalf of the Academy.
Reiterating her “substantial unauthorized transfer of funds” description of Ingersoll’s $3.5 million dollar debt, Hackett explained that any “authorized transfer” by Ingersoll would have been made pursuant to the Academy’s authorized budget.
I would appreciate your reaction to this recent development, revealed to me on August 6 in an email from the Board's attorney, Kerry Morgan.