Total Pageviews

Monday, May 9, 2016

“WAIT, WHAT? I DIDN’T REALIZE THERE WERE COVENANTS!” Although 2007 Grand Traverse Academy Bond Was An 'Advance Refunding' Of Previous 2002 Issue, Ingersoll Feigns Ignorance Of Fund Balance Covenant.


What looked to me two years ago like a textbook case of self-enrichment as millions of dollars in Grand Traverse Academy funds were allegedly steered into companies founded by Steven Ingersoll is now coming into sharper focus. Secret agreements, conflicts of interest, and undisclosed bank accounts relating to the Academy have been revealed during the last six months, mostly through testimony at Ingersoll's ongoing sentencing hearing.

Like a parent with a lice-ridden child, Miss Fortune has been combing through official transcripts and have discovered that Steven Ingersoll is truly the master of the misstatement. 

From slight exaggeration to brazen lies, it's all here in the transcripts.

Ingersoll, who claimed under oath he'd suffered a heart attack the day the Grand Traverse Academy's 2007 bond deal closed (not true, it happened weeks before), testified he did not realize an important bond covenant required the Grand Traverse Academy to carry a minimum general fund balance of approximately $650,000.

And the sentencing hearing testimony, beginning December 8, 2015, punches gaping holes in the lubricious paean to Ingersoll's pseudo-sainthood, 2014's “History of Grand Traverse Academy”. 

The document helped spawn the “philanthropist or thief” meme, with Team Philanthropist captain Mark Noss telling Interlochen Public Radio (likely with a straight face):

“There were times when the resources were just not there. So Smart Schools basically pledged or rebated that money back, saying ‘at some point in time we will repay what we’re calling a prepaid expense.’”

This excerpt, taken directly from the History document, portrays Ingersoll as a philanthropist, one willing to dig into his own deep pockets to save the day:

In 2007, after two years of work, Dr. Ingersoll arranged for an advanced refunding of the 2002 building finance agreement. This resulted in a vast improvement of the Academy’s debt structure dropping interest rates from 9.5% to 4%. This allowed the high school, early childhood wing and second gymnasium to be built. The new bond structure required GTA to carry a minimum fund balance of approximately $650,000. At the time the fund balance was $184,000. SSM and Dr. Ingersoll deposited $494,000 into GTA’s account to bring the Academy’s fund balance into bond covenant compliance. Approximately one year later, when State educational funding collapsed in response to the country’s financial crisis, SSM deposited an additional $474,000 into GTA’s account. Dr. Ingersoll and SSM borrowed the funds to be used to meet the school’s needs.”

After discussing early financing for the construction of the Grand Traverse Academy, under direct examination by his attorney, Jan Geht, Ingersoll reveals he covered his end on that $474,000 transaction: 

A. So I immediately began searching for a better deal and finally in 19 -- or in 2007 we were able to achieve through AG Edwards a bond offering that brought our interest rate down to just south of 4 percent. And at the time it was the second best pricing of any charter school in the nation, and that helped us substantially. 

We had grown from the inception rather steeply. Traverse City State Bank had funded additional construction projects, and ultimately we achieved the bond deal in 2007, and at that time, just before the bond deal was closing, it was the morning of a big conference call with the investment houses that were buying the bonds, I suffered a heart attack, and the bond deal closed while I was in the hospital. 

And they actually had to come and, you know, certify that I was alive as part of the bond disclosure; but, anyway, I recuperated for a couple of months and then I started -- when I was feeling better I started reading the bond document and I realized that there was -- and I hadn't realized this before, that there was a debt service -- 

Let's take a truth break: according to the due diligence conducted for the bond issue, Ingersoll's heart event occurred on February 16, 2007. He left the hospital four days later, on February 20, and the closing took place on March 13, 2007.

Is it possible Ingersoll is confusing the investor call with the closing date? 


But one of the bond documents signed at closing was an agreement which sets out all of the ongoing documentation to be sent to the Trustee, which includes an annual financial officer certification that the bond covenants (including days cash on hand and debt service coverage) were being met.

It's hard to believe that Ingersoll languished in his bed for nearly two months after a cardiac catheterization and the insertion of one stent.

Back to the transcript:

THE COURT: Covenant. 

A. -- covenant and it defined the level of fund balance that the Academy had. There was a formula that determined what that was, and the Academy did not have that level of fund balance, and so that was May of 2007. 

The covenant came into place July 1 of 2007. I had two months and needed a half million dollars -- well, about $400,000. 

So I went to Traverse City State Bank and personally borrowed a half million dollars and wrote a check to Grand Traverse Academy for $474,000, and at the same time we entered into a promissory note coming from the Academy to Smart Schools -- Smart Schools did -- I say I did this, Smart Schools did this; sole owner of Smart Schools. 

Did you catch that? 

Ingersoll borrowed a half million dollars from Traverse City State Bank, used it to satisfy a bond covenant, then promptly entered into an loan agreement with the Grand Traverse Academy. 

Later, Ingersoll's attorney questions him about his understanding of the Grand Traverse Academy's ability to borrow.


Q. Dr. Ingersoll, what is the source of the prohibition that you're referring to on the school's ability to borrow? Is it within the loan document, bond documents, or is it an independent Michigan State law? 

A. It's a state guideline. This has nothing -- this discussion has nothing to do -- and I misspoke about five times in my discussion of the bond parameters. I kept saying debt service covenant. There is a debt service reserve fund that was part of the bond offering, and that's about a million one; so, in other words, when we borrowed -- we borrowed 9.6 to take out the 5.6 and build a new wing in the 2007 bond deal -- well, I'm misspeaking again. The 9.6 was actually -- 

Q. Take your time. 

A. The 9.6 was actually an advance refunding of the 5.6 obligation. So that's actually in the background continuing to be serviced by the proceeds of the new bond deal that was 2007. That was actually a $17 million bond deal, and it financed the construction -- the build out of the rest of the Academy, which is now 104,000 square foot facility. 

Ingersoll's testimony continued the next day, December 9, 2015, under cross-examination by Assistant United States Attorney Janet Parker:

Q. You recall the promissory note? 

A. Of course. 

Q. Okay. Who were the parties to that, GTA and who? 

A. Smart Schools Management, I believe. I guess, I'd have to look at that again. I think it is Smart Schools Management though. 

Q. Okay. We can do that, I'm sorry. Can you read that? 

A. Yep, Smart Schools Management is correct. 

Q. And the date of this was June 8th, 2007? 

A. Yes. 

Q. And who signed on behalf of Smart Schools Management? 

A. That looks like Leslie Worth*, who was the president apparently at that time. 

Q. Was the president of what, I'm sorry? 

A. President of the GTA board, Leslie Worth. That's her signature. 

Q. Who signed on behalf of Smart Schools Management? 

A. I did. 

Q. And you said in your testimony, if I understood you correctly, that you found out that this was an illegal agreement? 

A. Well, I wouldn't say it was -- I don't know if it was illegal. It wasn't -- it didn't -- we did not go through the protocols that I later understood to be appropriate and so I didn't know at the time that there was a mechanism that was required to precede the academy receiving a loan such as this. 

Q. Well, so basically you're saying that you and -- you induced the Academy to enter into an agreement that was not proper without checking to see if what you were doing was correct? 

A. I don't think I would characterize it as such. 

Q. Well, you knew it was not proper? 

A. I did not know it was not proper. 

 Q. Okay. You didn't bother to find out it was not proper, did you? 

A. I wasn't aware of it at the time. 

Q. All right. And you didn't consult with any to find out if it was proper or not? 

A. Well, I did -- that's correct. 

Q. All right. 

THE COURT: Do you mean with the bank or do you mean -- 

MS. PARKER: No, not at all. 

THE COURT: -- an attorney? Do you mean with the state? 

Q. With your attorney, someone from the state? 

A. Well, I didn't -- I didn't consult with anyone from the state. I did discuss it with the bank. 

Q. All right. But the bank isn't knowledgeable on the legal restraints necessarily that apply to the interactions between the school and its public funds and the management company that you controlled? 

A. They were not aware of that, I assume. They didn't say anything about it. I was not aware of it either at the time. 

Q. All right. 

THE COURT: But I got a little bit lost there, because these aren't public funds. These are private funds that are being borrowed in order to augment public funds if I understand. 

MS. PARKER: I think, Your Honor, the witness has acknowledged that in hindsight the agreement was improper, and I guess I would like to go into maybe exploring that, and I think that might address your concern a bit. 


Q. Why is it today that you recognize that agreement was improper? 

A. I don't know. I'm not refreshed on that. I do recall that shortly thereafter I looked into that. I can't remember exactly what precipitated the awareness that there was a need to preclude -- to do a precluding something or other. I don't even know what that is at this moment. It is not the process -- it's not the same process as other types of borrowing I knew that -- I can tell you that much. I really don't know what the particular authorization is. 

Q. Do you understand that the issue related to the fact that the promissory note was being made by the school to you as management company? 

THE COURT: I thought -- 

THE WITNESS: It's the other way around, yeah. 

THE COURT: My understanding is that they were both obligors on the note. Did I misread that? 

THE WITNESS: I was the guarantor. Smart Schools Management was the lender. Grand Traverse Academy was the borrower. 

Q. Exactly. Right. But do you understand now that part of the problem was that Grand Traverse Academy could not borrow from you in that fashion? 

A. Yes, I do, I do. 

Q. That's where I'm going, Judge. 

A. I came to that understanding afterward, yes. 

Q. All right. But in entering into that agreement apparently, as far as you know, neither you nor the Grand Traverse Academy board consulted attorneys to find out about that? 

A. I believe that's true. 

Q. And so did you deduct on your taxes the investment that you made with regards to that loan? 

A. I don't believe so. 

Q. You don't believe so or you don't know. 

A. I guess I'd have to say I don't know, but I don't think I did. 

Q. All right. During your testimony yesterday again, you clarified -- initially, as I understand it, you said that you were the borrower, but then you changed that to you were the guarantor – 

A. That's right. 

Q. -- and Smart Schools was the borrower? 

A. That's correct

*Board member Lesley Werth's name was misspelled in the official transcript as 'Leslie Worth'.

No comments:

Post a Comment