On Thursday, I'll be publishing an update on the bankruptcy case of Full Spectrum Management, LLC, formed in April 2014 by Mark Noss.
However, the case can't be fully understood without proper context.
Here it is: the sordid story of financial corruption at the Traverse
City charter school, starring Steven Ingersoll and Mark Noss.
If you need a poster child for the failure of Michigan’s charter school financial oversight, look no further than Steven Ingersoll.
Convicted on March 10, 2015 on three counts of tax evasion and conspiracy, and sentenced on December 15, 2016 to 41 months in federal prison, Ingersoll owned and formerly managed the Bay City Academy and managed the Grand Traverse Academy until days before his April 10, 2014 federal indictment. (Ingersoll was released from prison in late December 2019 after serving 35 months of his sentence.)
Noss, a classmate of Ingersoll's at Ferris State University's School of Optometry, joined the Grand Traverse Academy's board of directors before the charter school's doors opened for students, leaving in April 2014 to form a management company.
Between 2007-2012, with the board's complicity, Steven Ingersoll fraudulently converted an estimated $5.0 million from the Traverse City charter school's funds to his various bank accounts—but was never investigated or charged with that illegal diversion.
Starting in 2007 at the beginning of the school’s fiscal year, and continuing for six years until the fiscal year ending June 30, 2012, Ingersoll advanced his entire annual Smart Schools Management, Inc. fee directly from the Grand Traverse Academy’s bank account before he had earned it—and before he was entitled to receive it.
Although based on board-approved preliminary budget figures, Ingersoll’s management fees were later adjusted downward after actual budgets were calculated.
However, Ingersoll never repaid the difference between the amount he'd advanced himself, and the actual management fee he was contractually allowed to receive.
The fraudulent manipulation of the Grand Traverse Academy’s financials, as a way to get the charter school’s books not to show negative net income, actually began in 2005.
On July 1, 2005, Mark Noss and Steven Ingersoll concocted and signed a lease agreement purporting to show that Ingersoll's Smart Schools Management actually paid rent to the Grand Traverse Academy for space Smart Schools occupied at the school—he did not, it was financial sleight-of-hand.
The rent amount was unspecified (yes, you read that correctly!) but was ostensibly determined at the end of each year by the amount needed to get the Grand Traverse Academy to a surplus so the school would avoid violating an important bond covenant—and enable Ingersoll to continue his money diversion scheme.
The chart below, showing Ingersoll's scribbled calculations, was entered into evidence by government prosecutors during his 2015 sentencing hearing.
In fact, Ingersoll admitted the scheme while testifying under oath during that hearing.
In an excerpt from his December 9, 2015 testimony, Steven Ingersoll recalled the hijinks that ensued between 2006-2013 when he presented his preposterous 'lease contribution' figures to the Grand Traverse Academy’s board of directors.
Ingersoll was questioned by Assistant United States Attorney Janet Parker.
Q. All right. The judge had -- I'm sorry. I want to go back to the question then, what did you present to the board as being the rebate at the time that the budget, including that rebate, was approved at the end of the fiscal year?
A. Whatever it was determined in the two -- the revenue enhancement and the expenditure reduction, the sum of -- well, both of those were presented as a part of the budget amendment, and I would always point out to the board that the change -- well, each time a budget was changed, the beginning of the year budget, the most recent budget and the proposed budget were shown in columns so that we could discuss the changes that were occurring.
And in the narrative discussion of those, I would certainly -- and I can tell you 100 percent of the time made it a point to point out that which was being reduced from the management fee and signed up for in the lease and, of course, not such a chuckle now, but at the time the board members would -- you know, when the amount of the lease -- I mean, it was for a small office, and it was, you know, $400,000 or whatever the number was.
Q. It was pure nonsense to cook the books to avoid --
A. Well, you say that. That's not what I say.
Q. -- having a deficit, isn't it.
A. That is not what I say. I don't agree with that.
Q. I know, I know it's not what you're going to agree to, so let's agree that it was a laughable figure?
A. Well --
Q. The board chuckled at it knowing, you and the board, that it was laughable.
A. Well, it was a methodology that facilitated what we were attempting to figure out how to get private side support to the public institution, and while it's pretty absurd to have this large lease number; and, of course, in retrospect, given all of this, not much chuckling going on now, but -- but that was the methodology we used and everyone was aware of it.
Get that?
Ingersoll created the number he needed to balance the books...and admitted it while under oath on the stand!
STEVEN INGERSOLL FACING INDICTMENT, GRAND TRAVERSE ACADEMY BOARD BEGINS COVER-UP
The 15-page legal analysis, released publicly on October 19, 2015 by government prosecutors during Ingersoll’s sentencing process, was delivered to the Grand Traverse Academy Board 13 months before Ingersoll was indicted.
The document revealed Ingersoll had secretly opened a second general fund bank account, manipulated financial records (with a series of furtive bank transfers) to make it appear he had repaid his massive debt in 2011, and even asked the board during the May 20, 2013 meeting to characterize his estimated $3.5 million-dollar debt to the school as a “loan” from the Grand Traverse Academy because he “needed” his indebtedness to the Academy to be characterized as a loan for reasons related to his investigation by the IRS.
Ingersoll openly admitted, when asked by a Thrun attorney during the May 20th meeting, that a conflict existed between his “personal interests and the interests of the Academy.”
During the meeting, Thrun lawyers advised the Academy board that it “did not have the requisite authority to enter into a loan or repayment plan which would document this transaction as a loan.”
Ingersoll then stated that “he did not have sufficient money to immediately repay the $3.5 million that he and/or SSM owes to the Academy and repay his tax liability at the same time.”
By June 30, 2013, the Grand Traverse Academy board and Ingersoll agreed on a “repayment plan”, revealing the details in the Academy’s 2013 financial statement.
The agreement was crafted to allow Ingersoll to “work off” his $2.38 million dollar balance by foregoing management fee payments over the remaining three fiscal years of his management contract: 2014: $774,000; 2015: $960,000; 2016: $604,980.
In its May 30, 2013 letter to Mark Noss at the Grand Traverse Academy, Thrun recommended against agreeing to Ingersoll’s “proposed repayment plan” which would not only lock the Academy into $3.5 million as the amount owed to the school by Ingersoll, it would tend to “characterize this amount as a ‘loan’ from the Academy” to Ingersoll”.
Mischaracterizing Ingersoll’s massive misappropriation as a loan, according to Thrun, would “subject the Academy and potentially Board members individually, to liability on a number of levels.”
By agreeing to a so-called “repayment plan”, the Academy board ignored Thrun’s legal advice, tacitly agreeing with Ingersoll that his debt was a “loan”, and allowing him to wriggle off hook.
On Thursday, the rest of the story.
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