Former staff of private school agree to pay $4.3M to settle fraud case
By Patrick McArdle
STAFF WRITER | May 08,2013
BENNINGTON — The former owner and staff of the Bennington School have agreed to pay the state and federal governments $4.3 million to resolve a tax fraud case.
According to the U.S. attorney’s office in Vermont, the private, for-profit school for troubled youngsters is continuing to operate under new ownership as of Jan. 1.
The school is separate from the public schools that are operated by the local school district, including Bennington Elementary School.
Matthew Merritt, Jr., 81, the former president of the Bennington School; his son, Matthew Merritt III, 54, who was the school’s plant manager; and Merritt Jr.’s son-in-law, Raymond Crowley, 58, who was CFO of the school, have agreed to plead guilty to one charge each of federal tax fraud.
Merritt Jr. will pay $3 million to settle the tax fraud case, the U.S. attorney said, and will also plead guilty to engaging in a scheme to defraud a health care program.
Jeffrey LaBonte, 59, the former executive director of the school, has also agreed to plead guilty to a federal charge of tax fraud and pay $1.3 million to settle his potential liability for health care fraud.
The U.S. attorney’s office said that of the $4.3 million that the four men have agreed to repay, the state government will receive about $2.1 million and the federal government about $2.2 million.
Many students have been placed at the Bennington School by the state with the tuition paid through Medicaid, at a rate of about 40 percent from the state and the rest from the federal government. The state also contributed to the tuition through the Agency of Education, the Department of Mental Health, and the Department for Children and Families.
The state would pay a rate based on the school’s reported allowable expenses. But investigators said they found school officials were submitting expenses that were not allowed.
For example, certain employees were paid a salary as well as personal benefits, which were not reported as income to the Internal Revenue Service, according to the U.S. attorney.
These benefits allegedly included cars, gasoline and heating oil, payments on personal credit card accounts, salaries for family members who didn’t work at the school and reimbursements for various personal expenses.
Officials at the U.S. attorney’s office said the expenses were “embedded in the books and records” used to set the rates.
After the school’s leaders asked for a rate change due to reduced enrollment in 2011, government investigators looked more closely at the school’s financial records and decided to conduct an on-site audit.
The audit found that between 2003 and 2012, the school had received overpayment of more than $3.6 million, the U.S. attorney said. While the school officials disputed the amount of overpayment, they reached a settlement with the federal and state governments.
Merritt, Jr. faces a maximum prison term of three years, but under the plea agreement will not serve more than 24 months. Matthew Merritt III, Crowley and Labonte each face a maximum prison term of three years, but under the plea agreement Merritt III and Crowley will not serve more than 18 months.
Because of Labonte’s cooperation, the government recommends that he serve a sentence less than what will be recommended by the advisory sentencing guidelines.
Investigators said the crimes did not affect the quality of services offered at the Bennington School.
A man who answered the after-hours phone of the Bennington School on Tuesday said there was no one available who could comment on the case.