FORMER PRESIDENT OF BENNINGTON SCHOOL SENTENCED TO 18 MONTHS IN FEDERAL PRISON FOR TAX AND HEALTH CARE FRAUD CONVICTIONS
The Office of the United States Attorney for the District of Vermont stated that, on February 5, 2014, Matthew Merritt, Jr., 82, of West Stockbridge, Massachusetts was sentenced to 18 months in federal prison after his guilty plea to charges that he engaged in a scheme to defraud a health care program and commit tax fraud. United States District Judge William K. Sessions III, sitting in Burlington, also ordered that Merritt, Jr. serve one year of supervised release following his prison term.
Merritt, Jr. is the founder and former President of Bennington School, Inc. (BSI). According to court records, the Office of the United States Attorney for the District of Vermont and the Office of the Vermont Attorney General previously entered into a global resolution of criminal and civil investigative matters concerning alleged tax and health care fraud by former officers of Bennington School, Inc. (BSI). Pursuant to that resolution agreement, Merritt, Jr., along with his son, Defendant Matthew Merritt III, BSI’s Plant Manager, and his son-in-law, Defendant Ray Crowley, who served as CFO of BSI, plead guilty to one charge each of federal tax fraud, which is a felony. In addition, Matthew Merritt, Jr., pled guilty to a federal felony 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 paid a total of $3,000,000.00 to the United States and the State of Vermont. Defendant Jeff LaBonte, the Executive Director of BSI also pled guilty to a federal tax fraud charge and paid $1,300,000.00 to resolve his potential civil health care fraud liability. Of the total $4.3M recovery, the State of Vermont has received $2,113,708.00 and the United States has received $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 Department of Education, the Department of Mental Health, and the Department of 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.
BSI President, Matthew Merritt, Jr. and Executive Director Jeff LaBonte, with the assistance of CFO Ray Crowley and Plant Manager Matthew Merritt III, implemented a system of compensating certain employees of BSI 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 individual’s 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 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. faced a maximum term of imprisonment of ten years under 18 U.S.C. § 1347. For his federal tax fraud conviction, he faced a maximum prison term of three years under 26 U.S.C. § 7206. Pursuant to a written plea agreement, the parties agreed that Matthew Merritt Jr.’s total term of imprisonment should not exceed 24 months. At sentencing, Merritt, Jr. asked that Judge Sessions impose no prison sentence, while the United States argued that Merritt, Jr. should serve the full 24 months in prison. In determining the 18-month sentence, Judge Sessions noted, among other factors, the gravity of Merritt, Jr.’s crimes, the fact that he engaged in the fraudulent conduct over the course of many years, and the harm Merritt, Jr.’s crimes cause the community.
For their federal tax fraud convictions, Matthew Merritt III and Raymond Crowley each faced a maximum prison term of three years under 26 U.S.C. § 7206. Pursuant to a written plea agreement, the parties agreed that Matthew Merritt III and Raymond Crowley’s prison terms should not exceed 18 months. In a sentencing hearing held on December 23, 2013, Judge Sessions sentenced Crowley to one year of probation, which includes six months of home confinement, and 200 hours of community service.
The same day, Judge Sessions sentenced Merritt III to one year of probation, which includes six months of home confinement and 200 hours of community service. Judge Sessions also ordered Merritt III to pay an additional $30,000 fine.
For his federal tax fraud conviction, Jeffrey Labonte faced a maximum prison term of three years under 26 U.S.C. § 7206. Pursuant to a written plea agreement, the government 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. In a November 18, 2013 sentencing hearing, Judge Sessions sentenced Labonte to a one-year term of probation, which includes four months of home confinement and 100 hours of community service. Judge Sessions also ordered Labonte to pay an additional $30,000 fine.
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 Jeff 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 is 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 and Assistant United States Attorney, Nikolas Kerest. 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.