The United States And The State Of Vermont Enter Into Global Resolution With Former Officers Of Bennington School, Inc. Relating To Tax And Health Care Fraud Violations
The Office of the United States Attorney for the District of Vermont and the Office of the Vermont Attorney General stated today that they have entered into global resolution of criminal and civil investigative matters concerning alleged tax and health care fraud by former officers of Bennington School, Inc. (BSI). Defendant, Matthew Merritt, Jr., age 81, the President and Trustee of BSI, along with his son, Defendant Matthew Merritt III, age 54, BSI’s Plant Manager, and his son-in-law, Defendant Raymond Crowley, age 58, who served as CFO of BSI, have agreed to plead guilty to one charge each of federal tax fraud. In addition, Matthew Merritt, Jr., will plead guilty to a federal charge of engaging in a scheme to defraud a health care program. To resolve potential civil health care fraud liability, the three Merritt family members have agreed to pay a total of $3,000,000.00 to the United States and the State of Vermont. Defendant Jeffrey LaBonte, age 59, the Executive Director of BSI, has also agreed to plead guilty to a federal tax fraud charge, and will pay $1,300,000.00 to resolve his potential civil health care fraud liability. Of the total $4.3 Million recovery, the State of Vermont will receive $2,113,708.00 and the United States will receive $2,186,292.00.
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. 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% federal funding and 40% 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. This 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. For example, BSI President, Matthew Merritt, Jr. and Executive Director Jeffrey LaBonte, with the assistance of CFO Raymond Crowley and Plant Manager Matthew Merritt III, 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. These forms of compensation were never reported on the individuals’ tax returns. In addition, these unallowable expenses were embedded in the books and records of BSI, which were used to create the reports, budgets and other financial documents that BSI presented to DRS as accurate and allowable for rate setting.
The Government's investigation arose in 2011 following a request by BSI for a rate change due to reduced enrollment. In processing that request, DRS auditors took a close look at some of the financial information submitted and determined an on-site audit should be performed. The audit, completed in 2012, resulted in a recalculation of the rate BSI received during the years 2003-2012. DRS calculated the total amount of overpayment by the State during those years to be over $3.6 Million. Under the False Claims Act, 31 U.S.C. § 3729, and potential state law remedies, should the Government prevail at a trial, the defendants would be liable for treble damages as well as mandatory penalties up to $11,000 per claim. The defendants dispute DRS’s calculation, and the parties have settled to avoid further investigation and litigation.
For his federal health care fraud conviction, Matthew Merritt, Jr. faces a maximum term of imprisonment of ten years under 18 U.S.C. § 1347. For his federal tax fraud conviction Matthew Merritt, Jr., faces a maximum prison term of three years under 26 U.S.C. § 7206. Pursuant to a written plea agreement, the parties have agreed that Matthew Merritt Jr.’s total term of imprisonment should not exceed 24 months.
For their federal tax fraud convictions, Matthew Merritt III and Raymond Crowley each face a maximum prison term of three years under 26 U.S.C. § 7206. Pursuant to a written plea agreement, the parties have agreed that Matthew Merritt III and Raymond Crowley’s prison terms should not exceed 18 months.
For his federal tax fraud conviction, Jeffrey Labonte faces a maximum prison term of three years under 26 U.S.C. § 7206. Pursuant to a written plea agreement, the government has agreed to make the nature and extent of Jeffrey Labonte’s cooperation known to the federal court and, as a result of his cooperation, request that the court sentence Jeffrey Labonte to a term of imprisonment below that recommended by the advisory sentencing guidelines.
Tristram J. Coffin, United States Attorney, noted that “schemes such as the one employed by these former BSI officials exact a significant toll on federal and state programs. Top officials at a for-profit organization that held itself out as serving an important public mission engaged in a fraud scheme involving government health care program payments. In addition, these same individuals filed false income tax returns. The prosecution of health care fraud offenses is a top priority for the Department of Justice, and coupling such fraud with tax violations make these types of crimes even more egregious. Our office will continue to vigorously pursue and prosecute individuals who engage in such conduct. The American taxpayer deserves no less.”
The United States and the State of Vermont acknowledge that the scheme at issue here did not impact the quality of services offered to students at BSI. The school continues to operate as a fully-licensed residential treatment program. However, as of January 1, 2013, management and ownership of the programs at Bennington School were transferred to Vermont Permanency Initiative Inc., which is part of the Becket Family of Services. Matthew Merritt, Jr., has resigned as President and Trustee of BSI, and Jeffrey LaBonte, Matthew Merritt III and Raymond Crowley have left the school’s employ.
This matter was investigated by the United States Attorney's Office, the Medicaid Fraud and Abuse Unit of the Vermont Attorney General’s Office, the Internal Revenue Service, the Federal Bureau of Investigation, and the Office of Inspector General, U.S. Department of Health and Human Services. United States Attorney Coffin commends the investigative agencies for their hard work on this criminal and civil investigation.
On the criminal matters, the United States was represented by First Assistant U.S. Attorney Paul Van de Graaf and Assistant United States Attorney Timothy C. Doherty, Jr. The civil investigation was handled by Civil Chief, Carol L. Shea. The State of Vermont was represented by Assistant Attorney General Edward Baker. Matthew Merritt, Jr. is represented by David V. Kirby of O’Connor and Kirby in Burlington, Vermont. Jeffrey LaBonte is represented by John Pucci of Buckley Richardson in Springfield, Massachusetts. Matthew Merritt III is represented by Richard Berne in Portland, Maine. Raymond Crowley is represented by Maryanne E. Kampmann of Stetler, Allen & Kampmann in Burlington, Vermont.