Charter School Owners Sentenced for Defrauding School to Pay for Lavish Lifestyle. Minneapolis, MN, May 24, 2006

Published by the Department of Education, Office of Inspector General on 2006-05-24.

Below is a raw (and likely hideous) rendition of the original report.

OIG Investigative Reports, Charter School Owners Sentenced for Defrauding School to Pay for Lavish Lifestyle
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Investigative Report
May 24, 2006
U.S. Department of Justice
United States Attorney
District of Minnesota
Rachel K. Paulose, United States Attorney
(612) 664-5600
Jeanne F. Cooney, Director of External Relations
(612) 664-5600
Charter School Owners Sentenced for Defrauding School to
Pay for Lavish Lifestyle.
MINNEAPOLIS — The former owners of one of the first charter schools in Minnesota
were sentenced today in United States District Court for defrauding the school
to help subsidize an extravagant lifestyle. William Pierce, age 46, was sentenced
to 37 months in federal prison and three years of supervised release. His wife,
Shirley Pierce, also 46 years of age, was sentenced to 30 months in prison and
three years of supervised release. In addition, Judge Michael J. Davis ordered
the couple to pay $489,239.65 in restitution to the Minnesota Department of
Education, which, along with the federal government, funded the school.
William and Shirley Pierce, both of Minneapolis, once owned and operated the
now-defunct Right Step Academy, a not-for-profit school founded in 1993. In
2000, the St. Paul School Board refused to renew Right Step's charter after
an audit disclosed that under the Pierces' leadership, Right Step engaged in
financial mismanagement, provided students an inadequate education, and provided
unsafe transportation and facilities. Right Step, a publicly funded, tuition-free
school created to offer a highly structured, discipline-based alternative education
to at-risk youth, soon closed.
Following a fifteen-day trial in October of 2005, a jury convicted William
and Shirley Pierce of all charges listed in the thirteen-count indictment filed
against them. Those charges included one count of conspiracy, three counts of
filing false tax returns, four counts of mail fraud, and five counts of wire
At trial, the government presented evidence that the Pierces conspired to commit
fraud in 1997 when they jointly formed a company known as Right Group, which
they represented to the board of directors at the Right Step school as wholly
owned by Shirley Pierce. Ms. Pierce then proposed to Right Step that Right Group
handle the school's accounting, payroll, and human resource duties. During negotiations,
William Pierce, Right Step's president and board director, failed to disclose
to the other board members or employees the full extent of his interest in Right
Group. Ultimately, William Pierce caused Right Step to enter into a contract
with Right Group.
Over the next four years, the Pierces repeatedly billed the Right Step school
excessive amounts for services allegedly rendered by Right Group. The court
estimates those over-charges at $357,652.65. Moreover, the Pierces diverted
for personal use payments made by Right Step to Right Group and, on occasion,
took money directly from both Right Step and Right Group. Trial evidence revealed,
for example, that William Pierce, a former U.S. Army maintenance worker, paid
himself $51,855.54 in excessive compensation between 1998 and 2000 for his role
as Right Step's executive director. William Pierce also caused Right Step to
issue a check to Right Group in the amount of $12,549.35 for company start-up
costs and as a retainer. That money was used, however, to pay for, among other
things, a Caribbean cruise vacation for the Pierces. In addition, the couple
took Right Step funds in the amount of $17,561.87 to pay off personal credit
card debt and $11,125.00 to purchase season tickets to the Minnesota Timberwolves.
When asked at trial if the purchase of Timberwolves tickets with Right Step
money was in the best interest of the school, William Pierce replied, "I believe
so." The court found William Pierce "blatantly lied" when he made that statement.
Other court documents reflect that the Pierces defrauded Right Step by having
the charter school make payments to SBP Managment without a contract or board
approval. SBP Management was a business operated by Shirley Pierce. The court
held that payments to SBP Management "represented a continuance of the Pierces'
scheme to defraud by using Right Step Academy funds for their benefit."
Trial evidence further revealed that the Pierces committed tax fraud when they
failed to include as income on their 1998, 1999, and 2000 federal tax returns
approximately $55,701.00 in funds diverted from Right Step and Right Group.
The Pierces caused Right Group to pay for their Mercedes Benz automobile, the
lease of a Lincoln Navigator SUV, as well as expensive clothing and home furnishings.
At trial, Shirley Pierce testified that she liked "very nice things." The payments
for the things described above, however, were not included as income on the
Pierces' tax returns. In addition, the Pierces had Right Group pay $3,000 in
tuition to Wilberforce Academy on behalf of their son. Later that amount was
falsely claimed as a business expense instead of income on their tax return.
The court found that Shirley Pierce, a former IRS revenue officer and special
agent, committed perjury when she testified she was unaware of her tax obligations.
Charter schools offer an alternative education for students while creating
new professional opportunities for teachers. As executive director of the Right
Step charter school, William Pierce was entrusted with acting in the best interest
of the school and its students. Yet, under his leadership, Right Step failed
to meet its obligations pursuant to state law or its charter agreement with
the St. Paul School District. Right Step officials were delinquent in submitting
financial statements, payroll taxes, and teacher retirement contributions. They
also hired unqualified and unlicensed teachers. The court concluded that William
Pierce had abused the public trust; and at sentencing, Judge Davis said to Shirley
Pierce, "We all like nice things, but we don't do it on the backs of children."
After sentencing, United States Attorney Rachel K. Paulose added, "Charter
schools are an important part of the educational system here in Minnesota. Without
charter schools, many young people who have difficulty in the public school
system would undoubtedly give up on their education and their future. It is
therefore critical that the administration of these schools be conducted with
the utmost integrity. Through their actions, the Pierces failed the 290 students
enrolled at Right Step Academy."
This case was the result of an investigation by Special Agent Steve Makowski
of the IRS, Criminal Investigation Division, and Special Agents Dan Pavlokovich
and Jon Greenblatt of the U.S. Department of Education, Office of Inspector
General. Assistant United States Attorneys John R. Marti and Ann M. Anaya prosecuted
the case.
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Last Modified: 05/30/2006
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