BENNINGTON - The former president and founder of Bennington Schools Inc. was sentenced Wednesday by a federal court to serve 18 months in jail for tax and health care fraud. He and two of his family members must also repay $3 million to the state and federal government.

Matthew Merritt Jr. 82, of West Stockbridge, Mass., pleaded guilty in July to one count each of health care fraud, and filing a false tax return. United States District Court Judge William K. Sessions III also ordered Merritt to be supervised for one year following his release.

According to the United States Attorney's Office District of Vermont, three other people have entered into plea agreements regarding the fraud case, two of them relatives of Merritt.

Matthew Merritt III, Merritt Jr.'s son and former Bennington School's plant manager, pleaded guilty to tax fraud, as did Merritt Jr.'s son-in-law, Ray Crowley, who was the Bennington Schools former chief financial officer. All three agreed to join in on paying $3 million as part of the penalty.

Jeff LaBonte, Bennington Schools former executive director, who pleaded guilty to tax fraud as well, agreed to pay $1.3 million. The total $4.3 million recovery is being split between the state and federal government.

At a sentencing hearing on Dec. 23, Crowley was given six months of home confinement, a year on probation, and 200 hours community service. It had been agreed that his sentence would not be longer than 18 months.

Merritt III was given the same sentence but had to pay an additional $30,000 fine.

LaBonte was sentenced on Nov. 18 to four months of home confinement, a year of probation, 100 hours of community service, and had to pay a $30,000 fine.

According to the United States Attorney's office, for the past two decades prior to 2013, Bennington Schools Inc.'s residential facility in Bennington offered "therapeutic and educational" services to socially and emotionally challenged boys and girls. The State of Vermont placed many youths there and paid for their tuition and expenses, with the funding coming from the Medicaid program. Federal funds accounted for 60 percent, while the state funded the rest. The Vermont Department of Education, Department of Mental Health, and Department for Children and Families also provided funds.

Students were paid for on a per diem rate set by the Division of Rate Setting within the Vermont Agency of Human Services. The Division of Rate Setting set this rate using financial reports from Bennington Schools Inc.

According to federal attorneys, Merritt Jr., Merritt III, Crowley, and LaBonte worked a scheme where they compensated BSI employees for personal expenses for cars, gasoline, home heating oil, payments on credit cards, salaries for family members who did not work at BSI, and other expenses.

These things were not reported on tax returns and were embedded in the BSI's financial information submitted to the DRS for the setting of compensation rates.

In 2011, BSI requested a rate change because of lowered enrollment. When looking at BSI's financial information, the DRS decided an audit needed to be performed, which it was, and in 2012 it was learned the school had been overpaid by $3.6 million. Federal law would have let the government recoup thrice that amount if it prevailed at a trial, but the $4.3 million was settled on to avoid further litigation.

Merritt Jr. could have received a maximum of 10 years on the health care fraud conviction, and three years for the tax fraud, but the state agreed to not argue for more than 24 months. Merritt Jr. argued for no jail at the sentencing hearing.

Bennington Schools Inc.was taken over on Jan. 1, 2013, by Vermont Permanency Initiative Inc., which is part of Becket Family of Services.

Contact Keith Whitcomb Jr. at kwhitcomb@benningtonbanner.co m or follow him on Twitter @KWhitcombjr.