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Monday, February 2, 2015

GOVERNMENT RESPONDS TO INGERSOLL FRAUD, TAX EVASION CASE MOTIONS: "No Competent Evidence Steven Ingersoll Intended To Repay" Multi-Million Dollar "Loans"

February 6 Motion Hearing Recap: Part 1

On January 26, Steven Ingersoll filed a “motion in limine” requesting that the court:

(1) find that Michigan’s M.C.L.A. § 388.1618(1) is not applicable to the jury instructions for his case,
(2) find that the Chemical Bank loan documents did not prohibit Steven Ingersoll from reimbursing himself, 
3) instruct the jury on lesser included offenses for the tax-evasion charges in counts six and seven, and 
4) make several modifications to its proposed jury instructions regarding counts six and seven. 

As you would have suspected, the government filed a flurry of responses on January 30, opposing Ingersoll's motions. Today, I review and analyze two.


Michigan law restricts the use of school-aid funding for the operation of schools. The State of Michigan provided the Grand Traverse Academy (GTA) school-aid funds through Lake Superior State University (LSSU). The GTA then provided the funds to SSM to operate and manage the public school academy.

The government alleges that Steven Ingersoll took fat stacks of school-aid funds and used the money for his own purposes.

But Ingersoll disagrees, arguing that Smart Schools Management, Inc. (SSM) loaned him money, which SSM had earned as its management fees. Ingersoll is seeking the judge to instruct the jury regarding his loan defense to the tax evasion charges in counts six and seven. 

The government opposed that instruction.

Section 388.1618(1) of the Michigan Code states: Except as provided in another section of this article, each district or other
entity shall apply the money received by the district or entity under this article to salaries and other compensation of teachers and other employees, tuition, transportation, lighting, heating, ventilation, water service, the purchase of textbooks, other supplies, and any other school operating expenditures defined in section 7 of M.C.L.A. §388.1618(1)

In his motion, Steven Ingersoll refers to section 7, and notes that “costs for school operating purposes include all expenditures necessary to carry out the powers and the financial obligations of the district . . . under the revised school code.” M.C.L.A. §388.1607. 

Ingersoll argued that under this provision, it was legal for the GTA to advance funds to SSM, including management fees paid to SSM under the management agreement. Ingersoll claims that SSM loaned him only those funds which SSM had earned as its management fees. 

The government response notes that this claim is contradicted by SSM’s own financial records. Despite the government’s investigation, it is not aware of any records which would support the claim, and Steven Ingersoll has not produced any as reciprocal discovery.

The government maintains that Michigan statute 388.1618(1) is applicable to this case and is one of the crucial reasons why the court should not instruct on Steven Ingersoll’s loan theory as to counts six and seven. 

The other reasons, according to the government, are that even if the payments were loans, they were not reported to the IRS and there would still be an understatement of income tax, and that there is no competent evidence that Steven Ingersoll intended to repay the funds when he received them.


In his motion, Steven Ingersoll claimed that he used the proceeds of the Chemical Bank construction loan to “reimburse himself for capital contributions to the Bay City Academy project.” He claimed that the construction loan documents contemplated that the proceeds would reimburse his contributions. Ingersoll argued that the loan proceeds were for a project to remodel a church into a school; ultimately, the project was completed; the bank did not lose anything, and therefore there was no bank fraud.

Case closed? Not so fast!

In its trial brief, the government disputed Ingersoll’s claim that the bank proceeds merely reimbursed his own contributions. But regardless, the government argued that Ingersoll's argument is flawed because it is well established that bank fraud does not require a loss to the bank.”

Wait, what? How could that be?

Here's how: to have the specific intent required for bank fraud, a defendant does not have to put the bank at risk of loss in the usual sense or intend to do so. It is sufficient if the defendant, in the
course of committing fraud on someone, causes a federally insured bank to transfer funds under its possession and control. 

So how does that work in this case?  Here's how: 

The government’s trial brief noted that the construction loan documents provided that the $1.8 million loan would be used for the Bay City Academy construction project, and did not contemplate any other purpose. 

The loan proceeds were not intended to repay other debts—like the $704,000 Ingersoll is alleged to have diverted to repay his debt (not to society...yet) to the Grand Traverse Academy.

The government maintains that Steven Ingersoll diverted income from SSM and SSI, incurring income-tax liability. 

Ingersoll, on the other hand, maintains that the payments from SSM and SSI to his personal account were loans”, but has not provided any loan documentation as reciprocal discovery showing that in 2009, SSI or SSM made $586,643 in loans to Steven Ingersoll and that in 2010, SSI or SSM made $1,536,502 in loans.

Why are we going down this path again? Here's why:

Setting aside whether the payments were income or loans for tax purposes, the Chemical Bank construction loan did not permit Steven Ingersoll to repay SSI and SSM with construction loan proceeds.

When Ingersoll obtained the USDA-backed construction loan guarantee (dated November 29, 2010), he signed a document indicating that he had
no outstanding loans.

Line 17 of the application required Steven Ingersoll to list his debts
and put an asterisk next to debts which would be repaid with the Chemical Bank construction loan.

In the space provided, Steven Ingersoll wrote...“No loans.”

COMING TOMORROW: Part 2-Gayle's Geothermal Scheme, Only My Dead Accountant Knows For Sure and Roy's Conspiracy Circus

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