Part 2 of my exclusive, three-part series,“How Do You Steal $5.5 Million Dollars And Not Get Charged With A Crime?”.
After vehemently insisting for nearly three years that Steven Ingersoll's tax evasion and fraud charges had “nothing to do with the Grand Traverse Academy” and that “Dr. Ingersoll’s legal issues are personal”, it's stunning that a representative of the Traverse City charter school didn't weigh in on U. S. District Judge Thomas L. Ludington's September 22 sentencing hearing opinion.
Instead, the school (and its management company, Full Spectrum Management, LLC) passed that task to Steven Ingersoll's surrogate/attorney, Jan Geht, future member of the TCAPS Board of Education.
From its breathless headline, (“Federal judge agrees with Grand Traverse Academy in Ingersoll case”) to its use of deceptive, cherry-picked quotes, Interlochen Public Radio's recent story about Ludington's decision verges on the absurd — revealing the station's apparent bias in favor of a funder...and against the facts.
And the problems begin with the headline.
It's only when you get to the end of the article that you learn the supposed connection: Geht's contention that “Ingersoll’s legal problems had nothing to do with Grand Traverse Academy.”
Here's the exact quote:
Jan Geht says they had always maintained that “Ingersoll’s legal problems had nothing to do with Grand Traverse Academy.”
“This was a private tax problem of Dr. Ingersoll’s,” says Geht.
But even by the very narrowly-defined perspective of his recent federal tax evasion and fraud convictions, Ingersoll's legal problems have much to do with the Grand Traverse Academy.
The federal government's case against Steven Ingersoll (with respect to convictions on Counts 2, 6, and 7) primarily focused on allegations that in 2009, 2010 and 2011, Ingersoll received significant amounts of money from two closely-held corporate entities that he owned and controlled: Smart Schools Management (“SSM”) and Smart Schools Incorporated (“SSI”).
Ingersoll formed both companies in the early 2000's and until March 19, 2014, both were actively providing management and curriculum services to the Grand Traverse Academy.
SSI was organized to retain Ingersoll’s intellectual property interest in his Integrated Visual Learning method (Mark Noss and Steven Ingersoll are both named as copyright holders in United States Copyright Office records for the 1993 text that serves as IVL's foundation, titled “Integrated vision therapy” — not SSI), and Ingersoll continues to receive royalty income from Mark Noss/Full Spectrum Management.
You don't have to be a genius to know that this so-called private tax problem was fueled by millions of taxpayer dollars.
The article begins with this claim: Judge Thomas Ludington says Steven Ingersoll is guilty of “sloppy bookkeeping practices.”
Taken out of its proper context, a casual reader might assume Ingersoll was actually charged with sloppy bookkeeping...or that sloppy (potentially criminal deliberate, multi-year missstatement of the charter school's financial condition) bookkeeping practices appropriately summed up Ingersoll's financial activity during the years he managed the Grand Traverse Academy.
But you'd be wrong.
In fact, the “sloppy bookkeeping practices” phrase only appeared once in Ludington's entire 54-page opinion.
Here's the phrase, in its proper context, relating to an obstruction of justice enhancement sought by the government regarding to Ingersoll's reporting of his claimed general business expense exemptions, not the Grand Traverse Academy:
“A review of the Government’s objections satisfies the Court that at most Ingersoll provided incomplete or misleading information by error or as a product of sloppy bookkeeping practices.”
The IPR article continues, asserting the following:
“But in an opinion released today, Ludington says Ingersoll, the former manager of Grand Traverse Academy, did not lie about his finances and did not abuse his power when he was the manager of the public charter school near Traverse City.”
Ludington never expressed an opinion about whether or not Steven Ingersoll lied about his finances or abused his power while managing the Grand Traverse Academy.
In Ludington's opinion, the government did argue that Ingersoll used his position of trust with the Grand Traverse Academy and his de facto control over the charter school's finances to divert millions of dollars to his personal projects, entities, and bank accounts.
However, although he has yet to be charged with embezzlement, Ingersoll did admit under oath during his sentencing hearing that he used a fabricated accounts receivable scheme as financial cover for diverting millions of dollars from the Grand Traverse Academy. (With NPR's reputation at stake, it's perplexing that Interlochen Public Radio didn't actually do its own investigation.)
Ingersoll admitted it under oath during questioning by Assistant U. S. Attorney Janet Parker on December 9, 2015.
In this excerpt, Parker takes Ingersoll through a line of questioning that uncovers the method he used to misappropriate at least $3.5 million from the Grand Traverse Academy.
In short, Ingersoll paid himself his entire management fee in a lump sum and the beginning of each school year based on an estimated budget. At the end of each fiscal year, Ingersoll booked his annual overpayment as a "receivable", used school funds at the beginning of the next fiscal year to repay the receivable, and then created a new (and even larger) receivable each year:
Q. Doesn't the rebate affect expenditures by lowering the management fee?
Q. And also -- there was another component to the rebate, wasn't there? It was not just a management fee, but it was also a lease component?
A. Yeah, that's on the revenue side, and the management fee on the expense side, that's right.
Q. Right. And the -- why don't I put it this way: Can you explain to the Court how the amount of the lease was determined.
A. Well, as -- no, I can't explain that, other than the sum of the reduced management fee plus the gross amount of the lease. The lease was written to be determined -- I think the language in it said a retrospective determination at year-end. Of course, the reason it was written that way was to use it as a mechanism by which -- to influence that rebate position, so -- so I can't give you an exact -- I can't give you a definition as to how those -- the number was arrived at. It was well -- I can't say.
Q. Well, who arrived at that number?
A. I did pretty much.
Q. All right. So you arrived at a number that was based on what?
A. The primary driver of that was the amount of money that was required, amount of support, I should say, that was required to balance GTA's books for that fiscal year.
A. And that had to be split between the vehicle for revenue enhancement versus vehicle -- plus vehicle for expenditure reduction, management fee.
Q. Why would you split it between those two things?
A. I don't know.
Q. It was your decision, wasn't it?
A. Are you referring to the creation of this methodology or a specific year, for example?
Q. I'm referring to why would you opt as a methodology to, in order to make things not show a deficit, attribute part of the adjustment in your management fees and use the lease to the other side of the equation to complete the necessary adjustment?
A. I can't tell you why that is. Both of those method --
Q. Was -- I'm sorry. If you can't tell me why --
A. I guess I can say the why for both of those was the same, to create a methodology to deliver the support that the Academy needed to balance its books.
Q. Okay. And at the start of the year, was there a lease amount in the budget?
A. Most times.
Q. At the end of the year, would there be any relationship between that budgeted amount and what was in the final budget, or would that figure be based on the need to make the books look balanced?
A. It was -- the amounts were based on what it would take to balance the books at the end of the year –
Q. All right.
A. -- and the beginning was an estimated circumstance.
Q. All right. And the bottom line is you never paid that amount?
A. Well, that's not quite true.
Q. Well, did you actually pay the lease amount that is included in the final budget to GTA?
Q. Or was that part of the receivable?
A. It was part of the receivable.
Q. Okay. And when you actually paid it, did you actually transfer that amount to GTA?
THE COURT: Now, you can answer the same question with respect to the management fee. They're two different questions.
MS. PARKER: Right.
BY MS. PARKER:
Q. Did you actually pay the management fee?
Q. Explain when and how you actually paid that management fee.
A. In the first two months -- within the first two months of the prospective fiscal year, the rebate total in the preceding fiscal year was paid by actual transfer of monies from Smart Schools to GTA.
Q. All right.
A. Simultaneously, thereabouts, sums of money from GTA were trans -- that were budget authorized in the previous year were transferred to SSM to supply the money to do so.
Q. In other words, you used the next year's money to pay the last year?
A. That is correct.
Q. And that is why the receivable kept growing?
Q. Then why did the receivable -- the receivable is a combination of the management fee and the lease, correct?
THE COURT: Can I stop for just a moment.
MS. PARKER: Sure.
THE COURT: This is not the time to be curt with the prosecutor. You know these answers.
THE WITNESS (INGERSOLL): Well --
THE COURT: This is the time to explain it to her as well as you can.
THE WITNESS: I'll do that. So if -- if you'd like me to reframe your questions, I'll do that. Here's what happened. When the rebate was determined, what it should be, it was booked as a receivable, and it was -- had two components; management fee and lease, and the sum of those two totaled the amount of the rebate. At the same time --
BY MS. PARKER: Q. All right. How is that different from what I asked you before and you said no?
A. Well, I don't know -- well, that is quite different. That's --
Q. Please inform me.
A. I'm trying to. When you said that -- do you want me to -- never mind. I'll just carry on with what I'm saying and then I think it'll be clear. So at the end of the fiscal year, whatever the need was, it was accomplished by those two elements that became in their sum the total of the receivable. At the same board meeting that the finalization of the lease amount and the reduction of the management fee occurred, the authorization for revenues to be delivered to Smart Schools for the prospective fiscal year was also established. And if you tally up the line items that Smart Schools was authorized to receive, it's about six -- 6.6 or thereabouts each year. Out of that money, a good share of it anyway, would be drawn early in the fiscal year, that is in the first two months to help Smart Schools be able to service the created rebate. So in a sense, the -- your point was, so you used GTA's money to pay the rebate. Well, that's not technically correct. I used SSM's money that was authorized by GTA to repay the rebate, so that's the mechanism that we were operating under each of those years.
Q. And this is -- you recognize that this was something that had to be done in the first 60 days of the new fiscal year under Government accounting principles?
A. That's what I understood, yes.
Q. So you have some familiarity with Government accounting principles?
A. I do.
Q. Are you familiar with the term kiting?
A. I know what that means.
Q. All right. What is your understanding of what that means?
A. A bank account that is out of money gets filled with money by drawing money from another bank account that is out of money, that then creates a, you know, a negative balance over here.
Q. Right. And then you make a draw against the first bank account to replenish the second bank account, back and forth, correct?
A. I don't think this is quite the same, if that's what you're implying.
Q. Well, I'm not asking your opinion on that. What I'm asking is why does the rebate continue to grow if you're paying it in full?
A. It was paid in full. The rebate is more a function of the operational activity through the year relative to the funding sources, that is the expenditures through the year versus -- revenues versus expenditures through the year. That's what determined the change in the rebate amount.
Q. But the rebate continues to grow because you've paid this year's money into last year's and now have to take more to keep the process going?
A. Well, the lion's share of the balance of that rebate occurred '07, '08 and '09 if you look at the --
Q. When -- I'm not asking you that.
Q. It continued to grow. It grew -- by the time of the spring of 2012 it was $3.5 million?
A. Yes. [NOTE: As of June 30, 2012, the end of fiscal year 2011-12, the accounts receivable balance actually exceeded $4.0 million dollars.]
Q. Yes. It was smaller in the preceding year and even smaller in the year before that?
A. That is true.
Q. All right. So why?
A. The revenues were insufficient to cover the expenses and the amount of rebate -- the amount of infusion against the rebate that Smart Schools was able to put in -- the rebate grew by the fact that -- that the -- whenever the management fee was shrunken from 12 percent, that added to the rebate amount so every year –
Q. When, in your estimation, were you obligated to pay off that rebate to zero?
A. Say the question again, please.
Q. When were you obligated to pay that rebated sum to make it zero?
A. I don't think there was a definite date for that. I don't think that that rebate needed to be zero at any particular date. Well, at least until the separation of the -- I mean, the agreement was that at the end -- that became a conundrum of course because the plan was for me to -- once GTA was able to pay 12 percent, essentially –
Q. All right. Okay. I'm not sure that you're answering my question anymore.
A. Okay. All right.
Q. If you didn't feel that you were obligated to pay that to a zero by any particular date, what about that general accounting principle -- or government accounting principle 60 days?
A. I was obligated to pay that within a 60-day period.
Q. But then you create a new one?
A. Yeah, that's right.
Q. Just keep creating a new and larger one each year.
A. (Nodding head.)
To sum it up, Ingersoll served as the Chief Administrator for the Grand Traverse Academy in addition to owning Smart Schools Management.
Steven Ingersoll was, as the government asserted in its sentencing hearing arguments, on both sides of every Grand Traverse Academy/Smart Schools Management financial transaction, including, in the government's view, the self-interested account receivable/loan from the Grand Traverse Academy to Steven Ingersoll's Smart Schools Management.
Ingersoll argued that he did not abuse a position of trust with the Grand Traverse Academy and that even if he did, the Grand Traverse Academy is not a relevant victim under Sixth Circuit precedent because the IRS is the only victim of the conduct with which Ingersoll was convicted.
And Judge Ludington agreed, explaining the Sixth Circuit has held that the abuse-of-trust enhancement “may only be applied where the defendant abused a position of trust with the victim of his charged conduct.”
In Ingersoll's present case, his victim is the IRS.
And, finally, the IPR story spins the “unrebated rebate” method Ingersoll used to drain millions from the Grand Traverse Academy:
Ingersoll and officials at Grand Traverse Academy say the money was a rebate his management firm offered the academy when the school was having financial difficulties, a discount on his management fees that he never actually gave to the school. [Emphasis added.] Judge Ludington said what he heard during the sentencing hearing confirmed that view of the missing money.
Sort of makes it sound like Judge Ludington waved a legal magic wand over the whole stinking mess and blessed it...not!
Here's Ludington's assessment of the subject:
While the annual management fee was “rebated or reduced” to reflect a balanced budget, much of the reduced fee was not paid to GTA from SSM or SSI. Instead, the funds that SSM expressed willingness to rebate, but which were not in fact rebated, were accounted for as an asset on GTA’s balance sheet as an account receivable due from SSM.
Ludington, while acknowledging the scheme Ingersoll used to balance the Grand Traverse Academy books (a key covenant of its Series 2007 $16.2 million dollar municipal bond), also acknowledged a key component of the scheme: although Ingersoll expressed willingness to rebate millions owed back to the Grand Traverse Academy, he never really followed through.
So, was it embezzlement that resulted in missing millions from the Grand Traverse Academy or was Steven Ingersoll merely juggling too many balls?
I wouldn't count on Interlochen Public Radio to candidly answer that question.