Charter founder facing trial on bank fraud charges

• If convicted of all charges%2C Steven Ingersoll faces up to 30 years in prison.
• He also faces %241 million in fines and restitution.
• Ingersoll was able to advance money from Grand Traverse without informing the school board.

At the start of each academic year, Steven Ingersoll's company took cash advances from the Grand Traverse Academy's bank account as his fee for managing the charter school. By June 30, 2013, school auditors found, Smart Schools Management had accumulated prepayments totaling $2.33 million.

As his liabilities to the school mounted over the years, federal prosecutors say, Ingersoll tried to repay the Traverse City school with proceeds from a bank loan he had received to renovate a building for the Bay City Academy, a second charter he also founded and managed.

Ingersoll is scheduled to go on trial Tuesday, accused of steering $934,000 in loan funds for the renovation project into his own bank account, and sought to use the money to repay Grand Traverse. He is also charged with failing to pay federal taxes on the money. His wife, Deborah Ingersoll, and brother, Gayle Ingersoll, are also charged in the case, which will be heard by U.S. District Judge Thomas Ludington at the federal courthouse in Bay City.

If convicted of charges that include conspiracy to defraud Chemical Bank of Bay City, wire fraud and tax evasion, Steven Ingersoll faces up to 30 years in prison and $1 million in fines and restitution.

The issues raised by his case mirror the findings of an eight-day Free Press series, "State of Charter Schools," that found Michigan's charters receive nearly $1 billion a year in state taxpayer money, often with little accountability or transparency in how those dollars are spent. The June series also found conflicts of interest, insider dealings, and boards that were not aware of their management companies' business practices.

As Ingersoll awaits trial, similar questions of cronyism, conflicts of interest and questionable business practices swirl around his charter schools:

■ Ingersoll was able to advance money from Grand Traverse to his companies without informing the board. Experts say the amount of the advance was unusually large.

■ Shortly before his indictment, the president of the board of Grand Traverse formed a new management company, Full Spectrum Management, to replace Smart Schools. Mark Noss had been an academy board member from the school's beginning and got a doctor of optometry at Ferris State University with Ingersoll. An expert said the board chose an untested company, should have sought multiple bids and avoided dealing with an insider.

■ Noss' son-in-law, Brian Lynch, runs the Bay City Academy for Ingersoll's company, Smart Schools Management of Bay City. Critics say that raises questions about cronyism.

■ Ingersoll's daughter-in-law, Gretchen Ingersoll, has worked for Ingersoll companies that managed both the Bay City and Traverse City charters. Critics say that also raises questions about whether the management companies are hiring the best candidates or giving jobs to insiders at a publicly funded school.

Ingersoll's lawyers say he was actually in the process of refunding a portion of his fees, money that rightfully belonged to his company, when he was indicted in April.

Repayment plans

Every June, at the end of the school year, Ingersoll would go over the school's books and agree to give back a portion of his management fee whenever the academy came up short on cash. Over 10 years, that amounted totaled $4.9 million. His lawyers said he returned $3.3 million and had promised to pay another $1.6 million.

But those plans were derailed when Smart Schools and Grand Traverse parted ways shortly before Ingersoll was indicted, and he now has "no way to generate fees," said one of his lawyers, Jan Geht of Traverse City.

"His hope is once he defeats the indictment and everyone realizes he's an innocent man, he can re-enter the charter school management world and pay the $1.6 million," Geht said.

Geht said Ingersoll spent his own money on the construction in Bay City and reimbursed himself with bank proceeds totaling $934,000.

Ingersoll lawyer Martin Crandall of Detroit said there will be no plea deal because "he's not guilty. He's innocent."

Crandall said Ingersoll paid his taxes and spent $1.8 million, the full amount of the bank loan, on Bay City Academy.

Ingersoll is a proponent of visual learning, or using imagery to teach. In an interview, he told the Free Press last year that he has lectured on the topic around the world.

In court filings, Ingersoll said he has made "powerful and determined political enemies with his vision for reforming Michigan's failing public school system through establishment of innovative, privately run charter schools.

"These political enemies have strong financial and political interests in undermining the charter schools established by Dr. Ingersoll, and stand to benefit from discrediting all of Dr. Ingersoll's work," his lawyers told the court.

Prosecutors, however, said the transactions Ingersoll created resulted in him receiving "very substantial sums of unreported income" from Grand Traverse Academy and that he used Smart Schools as a "conduit for the funds Steven Ingersoll took from the GTA and ultimately transferred into his personal accounts."

According to prosecutors' court filings in the case, there were multiple withdrawals from Smart Schools' bank accounts in 2009 and 2010, and all of the $2.12 million in funds was deposited in Ingersoll's personal bank account.

Time for new auditors

Ingersoll's world began to unravel in 2013, when Lake Superior State University, authorizer of both charters, insisted Grand Traverse Academy hire new auditors.

Lake Superior was aware that Grand Traverse had been advancing money to Smart Schools "for a period of time," when it recommended new auditors "review the current year and past years, as far as what has been taking place," said Nick Oshelski, who runs the charter school office at Lake Superior.

Those auditors found the academy had advanced Smart Schools a total of $2.33 million as of June 30, 2013, and had worked out a repayment plan with Smart Schools to recover the money through June 2016.

Auditors also found other questionable business practices: Smart Schools kept the school's books, reconciled its bank accounts and could access its funds without board approval. Auditors told the board in a November 2013 report that the company's ability to prepay its fees "enables Smart Schools Management Inc. to abuse their access to public funds."

Experts say the person who has access to the money should not also keep the books, as Ingersoll did. And a cash advance of $2.33 million is "well outside the norm for any business," said Peter Henning, a Wayne State University law professor and former federal prosecutor.

Patrick Sweeney, a CPA who specializes in charter schools, said he does not typically see prepayments and has never come across anything of the magnitude of the Smart Schools payments.

"It doesn't make much sense to prepay for future services," aside from a deposit or a retainer, said Sweeney, a partner with Croskey Lanni in Rochester.

Months after the auditors released their findings, Ingersoll learned he was facing federal charges, and Noss, the board president, decided a succession plan was necessary, according to an e-mail he sent to the school superintendent and others.

"We now know it is likely Steve is going to jail. They are getting him for tax evasion for the pre-pay that has sat on GTA's books they are now claiming is income. ... This media expose will be devastating to the school," Noss wrote in March.

"We must be proactive and put a new management company in place before the media gets ahold of it."

The following day, the board voted to hire Full Spectrum Management as the school's management company. Noss signed the contract of behalf of the company, even while he was still a member of the school board. The company was incorporated the next day, and Noss resigned from the board in April.

"These practices occur in family businesses and privately held businesses, but here they're doing it with taxpayer-funded public schools, and they're treating them like their private domains. This is a public school and there are rules for how we operate these schools in the public's best interest, yet they treat them like private property," said Gary Miron, a Western Michigan University professor who has studied charter schools extensively.

Contact Jennifer Dixon: 313-223-4410 or jbdixon@freepress.com. Follow her on Twitter @jennbdixon