TURBULENCE: Could An Adversary Proceeding Impact Mark Noss As He Seeks To Discharge Debts Of Full Spectrum Management, LLC, His Shuttered Charter School Management Business? Part 1 of a two-part analysis

Mark Noss heads to bankruptcy court tomorrow morning to face his creditors and a bankruptcy Trustee, but his glide path to an easy Chapter 7 discharge may have hit a rough patch.

In Chapter 7 cases, the debtor does not have an absolute right to a discharge. 

An objection to the debtor's discharge may be filed by a creditor, by the trustee in the case, or by the U.S. trustee. Creditors receive a notice shortly after the case is filed that sets forth much important information, including the deadline for objecting to the discharge. 

To object to the debtor's discharge, a creditor must file a complaint in the bankruptcy court before the deadline set out in the notice. Filing a complaint starts a lawsuit referred to in bankruptcy as an “adversary proceeding”.

Included among the reasons for an adversary proceeding is the transfer or concealment of property with intent to hinder, delay, or defraud creditors.

In my opinion, Independent Bank, owed $766,925 by Full Spectrum, is a likely candidate to file an adversary petition—based on “constructive fraud”.

But first, some background.

Ingersoll's line of credit debt to Traverse City State Bank was detailed exclusively in this post.

The bank's Senior Vice President for Commercial Lending, Dan Stahl, began schvitzing in early 2013, proposing ways for Ingersoll to retire the $989,825 outstanding debt.

In the email exchange shown below, Stahl appears to acknowledge funds from the line of credit may have been diverted from the loan's original purpose, interim cash flow relief at the Grand Traverse Academy:

“It sounds like the last advance in 2011, and which is outstanding today, was used for cash flow considerably outside out market area.”
Although Stahl acknowledged Ingersoll had used at least some of the line of credit for the Bay City Academy, not the Traverse City charter school as intended, he asked Ingersoll if the Grand Traverse Academy could “provide a limited guarantee of the line balance, with the term out amortization we have discussed”.

Ingersoll declined that request, stating the “GTA cannot become a guarantor of the SSM LOC.” 

Continuing, Ingersoll told Stahl that “the funds already allocated to SSM can be used, so it should work out.”

But it didn't.

Although the general public would not learn of Steven Ingersoll's federal tax evasion indictment until it was unsealed on April 10, 2014, he'd hired a criminal defense attorney in July 2012.

Having stalled the repayment of his $989,825 line of credit debt with Daniel J. Stahl, TCSB’s Senior Vice President of Commercial Lending, in early 2013, Steven Ingersoll masterminded the remarkably swift off-loading of that obligation in early March 2014 from his Smart Schools Management, Inc. to Mark Noss, then president of the Grand Traverse Academy’s board of directors.

A contemporaneous string of emails from early March 2014 among Steven Ingersoll, Mark Noss and Dan Stahl revealed a deal was struck on March 16, 2014 for Noss to assume the obligation to repay Ingersoll's outstanding debt, days before the GTA board voted to sever ties with Ingersoll. 

Noss wasn’t formally awarded a management contract until March 19, 2014. He signed a promissory note on March 20, 2014 as a Managing Member of Full Spectrum Management, LLC, assuming the legal obligation to repay $925,000 left outstanding by Steven Ingersoll's Smart Schools Management, Inc.

And on April 17, 2014, Noss paid Steven Ingersoll's Smart Schools Management $17,841.94—the first in a string of secret payments to Steven Ingersoll that would not be revealed for nearly two years.

Mark Noss, the Managing Member of Full Spectrum Management, LLC, transferred funds beginning in April 2014 through June 2016 from FSM’s Traverse City State Bank account to Steven Ingersoll during the four year look-back period available to creditors under Michigan’s Uniform Voidable Transactions Act (UVTA). 

I believe those transfers could be considered proof of “constructive fraud”, and spur an adversary proceeding against Full Spectrum by its largest creditor, Independent Bank.

Here's why.

There are several “badges of fraud” that would draw the attention of a creditor or a bankruptcy trusteee: 

Noss began the transfers to Ingersoll shortly after he assumed a substantial debt, and the transfers were concealed by Noss until the practice was exposed on March 15, 2016 by an internal whistleblower—an accountant who’d worked for FSM. 

The purported “value” of Ingersoll’s business advice, cited by Noss after the payments were exposed, seem to fall short of the $12,500 monthly payments Noss made. 

Instead of paying Steven Ingersoll or one of his myriad LLCs, which would require Noss to issue an IRS Form 1099, Noss paid 'Smart Schools Incorporated'. 

If payments are made to a corporation, there's no IRS record of that income. 

It's up to the corporation to report its income to the IRS—which “Ingersoll failed to include his receipt of $12,500 per month from FSM, yielding $150,000 per year, in the financial information received from Ingersoll by the government on October 15, 2015 in response to the court’s order directing Ingersoll to provide complete and accurate information regarding his income.” (March 29, 2016; Government’s Supplemental Memorandum Regarding Ingersoll’s Newly Discovered Obstruction Of Justice, United States of America v. Steven J. Ingersoll) 

The cash transfers from FSM to Ingersoll’s Smart Schools Management (SSM) began on April 17, 2014. 

Mark Noss signed a Traverse City State Bank (TCSB) promissory note on April 19, 2014 assuming the legal responsibility to repay a $925,000 loan restructure of a Line Of Credit loan TCSB originally made in 2011 to Steven Ingersoll’s SSM. 

Between early April 2014 through March 15, 2016, Noss repeatedly, and publicly, made deceptive statements denying any ongoing business or financial relationship with Ingersoll, even claiming during a December 17, 2015 Grand Traverse Academy (GTA) board meeting that he had “no business relationship with Dr. Ingersoll at the present time”. (According to federal court documents released during Steven Ingersoll’s tax fraud trial, Noss/FSM paid Ingersoll’s Smart Schools Management $25,000 during December 2015.) 

Between April 8, 2014 and March 1, 2016, Noss transferred $627, 624.14 from FSM’s Traverse City State Bank account to several accounts held by Ingersoll, including Traverse City State Bank and a Chemical Bank branch in Bay City. 

One payment—$192,401.82 made on April 8, 2014—was later described as a repayment to Ingersoll’s Smart Schools Management (SSM) for the GTA’s payroll. 

Another payment, $54,358.41, was made on June 1, 2015 from a GTA PNC Bank account to one of Ingersoll’s personal Chemical Bank accounts. 

The amount was purported to be owed to Ingersoll due to fees paid to his privately-run daycare, run on-site at the Traverse City charter school. (There was never an explanation for the nearly 14 month payment delay, post Ingersoll’s March 2014 departure.) 

As explained by Rick Lowe, a former accountant for Full Spectrum Management, from the time of its establishment and throughout Ingersoll’s trial and sentencing hearings, FSM continued to pay Ingersoll $12,500 per month for use of “intellectual property”. 

On March 15, 2016 Lowe sent an email to GTA board members, including president Brad Habermehl, disclosing the payments: 

As you may recall, during the December board meeting held on January 15, 2016 Mark Noss stated that he had “no business relationship with Dr. Ingersoll at the present time”. 

I regret to have to inform you that that statement is false. Mark currently has through Full Spectrum Management an agreement to pay Dr. Ingersoll $12,500 per month for “intellectual property” and has been paying this fee every month since April 2014 when FSM was established. 

This arrangement continues to this day. 

I have attached documents showing the payment history and the most recent transactions. I have struggled with the knowledge that Mark chose to mislead the board at that meeting and have come to the conclusion that the right thing to do is inform you. 

Given the media attention concerning the sentencing hearings for Dr. Ingersoll and the concern that the board has shown regarding the perception that may be out in the public I felt you need to know all the facts. 

Although these payments to Dr. Ingersoll are legal and are from the FSM account it still seems inappropriate to me that this arrangement is continuing. I have expressed my concern about this to Mark on several occasions to no avail. The school is not billed for these fees so GTA has no financial exposure from this. 

Mark continually uses Dr. Ingersoll for advice on how to run a management company, cash flow management, and budgeting. 

Asking financial advice from a convicted felon who was found guilty of financial manipulation seems to show a lack of judgement and understanding of potential damage that could be done. I would think he would be the last person you would ask for advice. 

Under the circumstances and given the continuing media coverage, I think this places the academy at risk for a potential public relations nightmare. I understand that Mark and Steve are friends and showing loyalty is admirable. That being said I think the relationship has clouded Mark’s judgement when it comes to Steven and he can’t see the reality that his ties to him could do to the school. 

No matter what course of action the board chooses to take at least you now know the situation is not as it was represented. 

The next day, Noss responded: 

I was just made aware that you have been contacted by Full Spectrum Management’s (FSM) disgruntled previous employee, Richard Lowe, I apologize for involving you in this negative situation. 

I have been searching for his replacement ever since he verbally accosted my wife and threatened to “punch her”. I reluctantly kept him employed in the interim to prevent any financial risk to GTA. I would like to address his accusations. 

As I told the GTA Board in January, I have no formal business relationship with Dr. Steven Ingersoll. Integrated Visual Learning (IVL) was developed by Steven Ingersoll and I have used it in a variety of ways educationally and clinically. 

I have for years and continue to pay a proprietary fee for IVL’s Intellectual Properties that has allowed me to use it in my solely owned clinics, as well as more recently apply in in the GTA setting. 

When I was awarded the management contract for GTA two years ago, I realized there was a tremendous amount of knowledge for me to acquire quickly. 

I have utilized Dr. Ingersoll’s 18 years of school management expertise as needed for the benefit of GTA. 

I assure you he has never had access to any of GTA’s accounts since FSM has become the management company. I have spoken to him for guidance with respect to regulation, compliance, and reporting, as well as the requirements of the State of MI, LSSU, and our bond issue. 

GTA has never been compromised and has only benefitted from this communication. I encourage any of you to please contact me with any questions you may have. I believe you all know me well and my passion for the success of the GTA! Looking forward to seeing you this Friday at the Board meeting and the exciting ground-breaking!