Education Company to Pay $4.3 Million in Settlement With New York State
October 21, 2016
As published by the New York Times on October 19, 2016.
A for-profit network of schools and the family behind it have agreed to pay New York State more than $4.3 million in a settlement after having spent state funds, intended to pay for special education preschool, on credit card bills, maintenance of a boat and a son’s law school tuition, as well as claiming false tax deductions, the office of the state attorney general, Eric T. Schneiderman, said on Wednesday.
The education company, K3 Learning Inc., is owned by Michael Koffler. His sons, Daniel and Brian Koffler, are its president and its chief technology officer.
Michael Koffler also owns Sunshine Developmental School, a special education preschool program based in Queens. Federal law mandates that states provide special education preschool, and New York is one of a few states that do so by funding private contractors, many of them for-profit companies. Contractors are expected to track their expenses and submit reports to the State Education Department annually, seeking reimbursement.
The cost of providing special education preschool has ballooned in recent years, particularly in New York City, where the city administers the reimbursements. Some companies have been found to have inflated expenses or diverted state money for their own private use.
The Kofflers appear to have treated Sunshine Developmental School as the family’s personal ATM, according to the agreement with the attorney general’s office. They set up a pass-through company that effectively controlled the lease for the school’s main program in Queens. That company, called Bridan Realty III, (from a combination of the Koffler sons’ first names), then charged the school a marked-up rent that was roughly twice what the company was actually paying for the property.
Money from those rent payments, which totaled over $3.5 million from 2006 to 2010, went into an account controlled by Michael Koffler, from which the family drew regularly, according to the agreement. There were frequent checks to Michael, in amounts as large as $116,000; recurring monthly payments of $2,500 each to Brian and Daniel; hundreds of thousands of dollars in payments to credit card accounts controlled by the family; checks for boat maintenance; and checks to Brian’s law school.
An audit of Michael, Brian and Daniel Koffler by the state’s Department of Taxation and Finance also revealed that the three together had failed to report millions of dollars in income from K3 Learning, then known as MetSchools, and its related companies.
Michael Koffler purportedly made a $12 million loan to MetSchools, which allowed him to claim a $12 million loss on his personal tax returns. The Taxation and Finance Department could find no proof that he had made such a loan.
In addition, MetSchools and other related companies claimed $1.6 million of the family’s personal expenses as deductible business expenses. The expenses included rental payments on a New York City apartment, department store purchases, car loan payments, utility and maintenance payments on the family’s vacation home in Westhampton Beach, Long Island, and purchases made in Westhampton Beach and St. Barts, the Caribbean island.
Reached by phone, Michael Koffler’s wife, Lori, said the family did not wish to comment.
“We won’t allow special education programs to be exploited for personal financial gain,” Mr. Schneiderman said in a statement. “These defendants used their programs as a way to defraud the government and cheat on their taxes — sticking law-abiding New Yorkers with the bill in the process.”