Saturday July 13, 2013

MIKE DONOGHUE

Burlington Free Press

BURLINGTON -- The former president and trustee of the Bennington School pleaded guilty in federal court Thursday to a single count of health care fraud and one count of filing a false tax return.

The admissions by Matthew Merritt Jr., 81, of West Stockbridge, Mass., came after a federal judge noted a recent psychiatric evaluation had found the former educator competent to stand trial.

U.S. District Court Judge William K. Sessions III said the report showed Merritt also was capable of understanding his legal proceedings and could freely consult with his lawyer.

A proposed plea agreement for four men in a $4.3 million fraud case involving the Bennington School Inc., fell through in May when Sessions ordered a psychiatric evaluation.

As Merritt was scheduled to enter guilty pleas on May 9, his defense lawyer David V. Kirby said he had serious concerns about whether his client was competent and if he could validly enter a plea.

When Sessions publicly announced Thursday in court that the doctor's report showed Merritt was competent to stand trial, Kirby said his client was ready to proceed with his guilty pleas.

Sessions explained that under the plea bargain Merritt could be sentenced up to 24 months in prison. The judge said if after reviewing a presentence investigation report by the U.S. Probation Office he planned to impose more than 24 months, Merritt would be free to withdraw his guilty pleas.

The sentencing is planned for Dec. 2 in Burlington.

Sessions released Merritt on conditions, including that he commit no new crimes and that he not possess any firearms. Kirby said that could be a problem for a day or two.

"We will have to make arrangements," Kirby said.

"That needs to be resolved immediately," Sessions said.

Merritt operated the Bennington School, a private institution for troubled boys and girls, and the former Valleyhead School, a similar facility for troubled young women in Lenox, Mass.

Merritt, who was placed under oath before answering questions at the half hour hearing, told the judge that he has a few medical conditions, including with his eyesight and his heart.

Assistant U.S. Attorney Tim Doherty told the court that Merritt filed false reports with the state to help get extra funds from the state. The state had sent troubled youth from throughout Vermont to the private school.

The tax fraud charge says Merritt, under the penalties of perjury, filed a false 2008 tax return claiming $228,886 in income when he knew he made much more, Doherty said.

The delay for the mental health evaluation also forced the postponement of the other cases because the government had worked out what it called was a "global settlement" with the four men for the restitution.

Raymond Crowley, 58, of Great Barrington, who is both the former chief financial officer at the school and Merritt's son-in-law is due for arraignment July 22.

Matthew Merritt III, 54, of Lenox, who served as a plant manager for the school and worked for his father, also is due for arraignment that day too.

The fourth defendant, Jeffrey LaBonte, 59, did enter a guilty plea to a single tax fraud charge on May 9 before the overall case took a slight detour for the medical evaluation for Merritt.

LaBonte admitted that on his 2009 tax return he claimed $782,156 in income when he knew he made more. He will pay $1.3 million restitution for his part in the global settlement.

Out of the $4.3 million restitution, the state of Vermont will receive $2,113,708 and the United States will receive $2,186,292, officials said.

The plea agreement is designed to settle both criminal and civil cases involving the four men.

Doherty, the prosecutor, explained until 2013, BSI, a for-profit, closely-held corporation, operated a residential program in Bennington, Vermont that offered therapeutic and educational services for socially and emotionally challenged boys and girls.

It said over the course of the last two decades, the State of Vermont placed many students at BSI, and was responsible for their tuition and other expenses. The funding for these placements came from the Vermont Medicaid program (approximately 60 percent federal funding and 40 percent state funding) and from several Vermont state agencies, including the Agency of Education, the Department of Mental Health, and the Department for Children and Families.

The funding was based on a per diem rate for each student, determined on an annual basis by the Division of Rate Setting (DRS), within the Vermont Agency of Human Services. The annual rate set by DRS was determined upon a review of BSI's application materials, including various accounting reports and budgets. In particular, the formula for the rate calculated by DRS for Medicaid and Education payments to BSI was based upon the school's reported allowable expenses. The higher the allowed expenses, the higher the per diem rate for each student. However, not all of BSI's claimed allowable expenses were in fact allowable for the rate calculation.

Prosecutors noted that Matthew Merritt Jr. as president and LaBonte as executive director, with the assistance of Crowley, as CFO and Merritt III, as plant manager, implemented a system of compensating certain employees of BSI, in addition to their salary amounts, by providing personal benefits, such as cars, gasoline, oil for personal residences, payments of personal expenses on credit card accounts, salaries for family members who did not work at BSI, and reimbursements for various personal expenses.

Those compensations were never reported on the individuals' tax returns.

The investigation began in 2011 after a request by BSI for a rate change due to reduced enrollment.

A different company is now operating the Bennington School.