Tuesday, October 25, 2016
MISS FORTUNE'S OCTOBER SURPRISE: Part 2
Recently asserting that the Grand Traverse Academy put the Steven Ingersoll financial scandal in the “rear view mirror”, the head of the charter school's management company has apparently forgotten this safety warning — objects in the mirror are closer than they appear!
BACKSTORY: Where It All Began
“By the time of the indictment in April of 2014, SSM had repaid all but $1.6 million of the cumulative $5 million in total promised support over the years.”
January 26, 2015
Defense Motion: United States v Steven J. Ingersoll
Beginning April 10, 2014, the date Steven Ingersoll's federal tax evasion indictment was unsealed, until March 3, 2015 (the day Grand Traverse Academy attorney Margaret Hackett testified during his federal trial), Ingersoll's defenders did a pretty good job convincing the public he was a philanthropist, not a thief.
Aided by a credulous local media's echo chamber, Grand Traverse Academy superintendent Kaye Mentley and its board president, Brad Habermehl, Ingersoll's public relations effort culminated with a bewildering hagiography issued on September 13, 2014 by the board: “History of Grand Traverse Academy”.
But, as Warren Buffett famously said, you never know who's swimming naked until the tide goes out.
The tide's gone out...and we're finally able to see the naked truth!
Back on January 26, 2015, Jan Geht, a member of Ingersoll's defense team, filed a motion asserting these “relevant facts” about what he claimed was a $5 million “rebate” from Ingersoll's Smart Schools Management, Inc. to the Grand Traverse Academy.
Here's an excerpt:
The government asserts that Smart School Management (“SSM”) cannot loan money belonging to the Grand Traverse Academy (“GTA”) because it was entrusted to SSM for the operation of GTA. Government’s position misconstrues the origin and nature of the amount reflected, at various times, on GTA’s books as accounts receivable and prepaid expense.
This amount is not a “loan” or an “advance” of management fees but a remainder from $5 million of its own budget-authorized earnings that SSM promised to rebate back to GTA according to its needs on an annual basis. GTA's budget operated each fiscal year in the following manner.
In June of the preceding fiscal year, the Board would pass a budget and an authorizing resolution giving SSM the authority to draw the entire annual budget for the operation of the school. Accordingly, SSM was authorized to draw the entire budget it was going to spend that year, not just its management fee.
In June of the current fiscal year (i.e., right before year-end), SSM and GTA would evaluate GTA’s needs to determine whether GTA was facing a deficit. SSM provided financial support to GTA each year by three methodologies: direct donation, rebate of contractually authorized and budgeted earnings, and an agreement to augment GTA's revenue by recording a lease obligation by SSM to GTA.
While structured as a lease obligation, the last methodology was yet another form of rebate by SSM to GTA. This financial structure resulted in a reduction in SSM earnings and an increase in accounts receivable/prepaid balance on GTA's books.
Thus, GTA's accounts receivable/prepaid balance has been consistently mischaracterized by the government as an overdraw by SSM when it actually represents SSM's willingness to support the Academy by rebating budget authorized earnings.
By the time of the indictment in April of 2014, SSM had repaid all but $1.6 million of the cumulative $5 million in total promised support over the years.
As crazy as it sounds, that bullshit excuse seemed to work until attorney Margaret (Meg) Hackett of the Thrun Law Firm took the stand on March 3, 2015 and blew the whistle about a May 20, 2013 meeting she'd attended at the Grand Traverse Academy.
A 15-page, attorney-client privileged letter Hackett issued to the board on May 30, 2013 had inadvertently been included among financial discovery provided to government prosecutors by Traverse City public accounting firm Dennis, Gartland & Niergarth.
Although the charter school's attorney, Kerry Morgan, filed a February 24, 2015 motion to quash the document, stating the Grand Traverse Academy board hadn't waived its privilege, United States District Court Judge Thomas L. Ludington denied the motion on March 2, 2015:
“The communication at issue concerns inculpatory statements allegedly made by Steven Ingersoll on May 20, 2013. At a meeting with GTA’s board and GTA’s attorneys, Steven Ingersoll allegedly requested that GTA characterize payments made by GTA to SSM, a company owned by Steven Ingersoll, to avoid adverse tax reporting implications for SSM and Steven Ingersoll. Steven Ingersoll allegedly made these statements to GTA’s board and attorneys, as well as GTA’s independent auditor and GTA’s superintendent.”
In addition, Ludington determined the statements made by Steven Ingersoll were not protected by attorney-client privilege because there were several third parties attending the meeting, including Kaye Mentley and Mark Noss.
Hackett testified on March 3, 2015 that during a May 20, 2013 Grand Traverse Academy board meeting, Steven 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 accounts receivable (related party receivable) or a prepaid expense. Hacket testified that she was retained in 2009 by former Academy board president Mark Noss. Although Hackett did not describe the work performed, court documents indicated she produced a 15-page legal opinion in a letter described as the “Thrun Letter” just days after the May 20, 2013 meeting.
Hackett's letter, dated May 30, 2013, was 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 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 indeed 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 can 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 its 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 Education 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 merely 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.
More on Thursday, October 27!