by C.B. Hall, Vermont Business Magazine Democracy Builders Fund, which purchased the campus of Marlboro College last July, has received almost $1 million in federal COVID relief funds on the basis of information publicly available that persons familiar with the matter have called into question.
On May 1, 2020, under the COVID-related Paycheck Protection Program, the federal Small Business Administration approved a loan of $943,365 to Democracy Builders Fund, Inc, according to data published on the SBA website (SEE TABLE BELOW).
According to the database, the application from DBF, described as an S corporation with an address in San Francisco, reported that the loan would support 270 jobs. The SBA document states that none of the loan remains undisbursed. Other documentation obtained by VBM indicates that DBF has applied for forgiveness of the loan, as allowed by federal law.
In an email statement that cited agency policy against discussing individual borrowers, SBA public affairs officer Shannon Giles declined to comment on DBF's borrowing. Giles did however refer VBM to the agency's public database, which, she wrote, "represents what borrowers indicated on their PPP Applications."
Information substantially the same as the SBA data has been posted on watchdog websites maintained by ProPublica and federalpay.org. Those postings led VBM to make further inquiries.
The dollar amount cited also jibed with an unaudited statement of DBF's financial position. Prepared by a St Louis-based accounting firm, BlueMissionOps, and obtained by VBM, that statement was filed with the Vermont attorney general's office in conjunction with DBF's controversial sale of the Marlboro campus to Type 1 Civilization Academy Marlboro Campus in January.
The statement, addressed to Seth Andrew, then DBF's CEO, in Marlboro, lists a "SBA Cares Act PPP Grant (Unrealized)" in the amount of $943,365 as a current asset as of December 31, 2020.
As a liability, the statement also lists a slightly larger amount – apparently the PPP loan total plus a small amount of interest. The former figure represents what DBF will receive if its application to SBA for forgiveness of the loan receives the agency's approval: The loan would then become a grant.
Documentation obtained by VBM appears to indicate that DBF applied for the forgiveness in April. The status of that application is uncertain. Accessed on May 20, federalpay.org reports that the loan, issued through JP Morgan Chase Bank, "has been disbursed by the lender and has not yet been fully repaid or forgiven." The SBA database provides no information on the question.
According to the SBA data, the agency approved a second loan of $312,107, supporting 18 jobs, to Democracy Builders Fund Inc, described as an S corporation located at the Marlboro address that formerly belonged to the college. None of that amount, approved on March 20, remains undisbursed, according to the federal database, which gives JP Morgan Chase Bank as the actual lender of both loans, which SBA has guaranteed.
The second loan concerns only 18 jobs, a figure about which no one interviewed for this article expressed doubts. No sources alleged that the payroll money from either loan was used improperly. But the first loan application's reported 270 jobs has observers scratching their heads.
"That sure is a lot of payroll," was the comment from David Williamson, a Marlboro resident and professor of management who headed up a group of investors that attempted unsuccessfully to purchase the campus when the college put it up for sale in 2019.
The compensation provided under the first loan was considerable. The funds were used in a period of less than six months, from May 1 to October 16, 2020, according to documentation obtained by VBM. The accounting states that several employees received more than $40,000 during that period, with Andrew, then DBF's guiding figure, getting paid almost $46,000. The DBF board dismissed Andrew in the wake of his arrest on fraud-related federal charges in late April of this year.
The compensation information comes from a document attributed to a Texas firm, Insperity, which has handled payroll matters for DBF. The accounting lists 41 employees paid through the loan.
Total cash compensation to them exceeded the $943,365 loan amount by about $39,000; the latter figure essentially represents coincidental payroll costs during the term of the loan that remained DBF's responsibility, according to a source familiar with the loan, who asked for anonymity to discuss the matter.
The source told VBM that the list included every employee paid with the first loan, and described it as "a fact" that DBF did not have the payroll it was claiming.
"There were not 270 jobs saved," the individual said. A second source familiar with the matter, who likewise requested anonymity, had no knowledge of any affected employees beyond the 41 accounted for.
Both sources told VBM that approximately 30 of the 41, although employees of DBF, were in practice working on programs at an organization called VoteAmerica.
The California secretary of state's database lists VoteAmerica, which works to encourage voting, as a nonprofit located at the contact address that DBF used in its loan application. VoteAmerica was at the time described as a project of DBF on the latter's website; as a tax-exempt nonprofit, DBF served as VoteAmerica's fiscal sponsor until the latter subsequently acquired its own tax exemption under the IRS code, and it no longer receives any mention on the website.
VBM's research indicated that about 10 of the 41 were DBF's own workers, whether in Marlboro or at the organization's office in New York City. DBF does not appear anywhere in the California secretary of state's database.
Citing policy against discussing client matters, Insperity group account manager Elaine Matthews declined to respond to an inquiry seeking clarifications as to the more than 200 jobs not accounted for.
Since Democracy Builders had its primary location in New York City when SBA approved the first loan, VBM approached the New York Department of Labor for information on the size of the organization's payroll. The department refused to comment, citing state law concerning confidentiality.
A document filed by DBF with the Vermont Department of Labor, bearing Andrew's signature but no date, suggests however that, in 2020, Democracy Builders employed only three persons in Vermont, and only for a few weeks in the summer, shortly after it acquired the Marlboro campus. The document gives Insperity and its location as DBF's address for payroll-related questions.
The 18 jobs reported in the second loan application seem consistent with the apparent payroll of 10 that the Insperity document mentioned earlier reports pertinent to the first loan. Further, by the time of the second loan's approval – March 2021 – DBF had established operations on the Marlboro campus.
An S corporation?
The SBA database's description of DBF as an S corporation presents another mystery. That depiction appears in a column headed "Business Type," under which numerous other entities in the database are described as nonprofits, such as DBF is. Another column, headed "NonProfit" contains "Y" entries on the lines pertinent to such entities, but on the lines for DBF's two loans that column is blank.
The IRS defines S corporations as "corporations that elect to pass corporate income, losses, deductions, and credits through to their shareholders for federal tax purposes. Shareholders of S corporations report the flow-through of income and losses on their personal tax returns and are assessed tax at their individual income tax rates. This allows S corporations to avoid double taxation on the corporate income."
DBF's sole active registration with the Vermont secretary of state describes it as a nonprofit corporation, under the name "Democracy Builders Fund I, Inc.," located at the Marlboro address also used in the second loan application. New York's secretary of state lists DBF as a not-for-profit corporation with a New York City address.
An S corporation is an IRS designation; S corporations do not usually register as such with state authorities. Under the law, however, a nonprofit cannot at the same time be an S corporation, according to VBM's sources.
"On the nonprofit side, there's no such thing as a C or S organization," Anderson Advisors, a Nevada-based tax law firm that works with S corporations and nonprofits nationwide, explains on its website. (A C corporation is one that files under a different subchapter of the IRS code.)
VBM asked DBF why the two applications had been filed through an S corporation, why the first loan application referred to 270 jobs, and what the status of the loan forgiveness application was.
Through its attorney, Montpelier's Daniel Richardson, DBF responded that it "is currently reviewing the matter as part of its due diligence as fiduciaries. Until it has an opportunity to complete its review of this matter, it believes any comment is premature and potentially prejudicial to its process."
Andrew did not respond to an emailed request for comment on the same questions posed to DBF. His attorney, Burlington-based Tim Doherty, declined to comment.
At last report, not much was happening on the 533-acre Marlboro campus. It's the site of Degrees of Freedom, which started off as a DBF project, but severed its ties with that organization in the wake of Andrew's arrest.
Described by its CEO, Chandell Stone, as a hybrid post-secondary academic program, Degrees of Freedom is not yet operating; rather, its staff is attempting to ramp up to an operational launch independent of DBF – amid all the angst and uncertainty that a succession of controversies surrounding that organization has already spawned.
For the citizens of Marlboro more generally, the questions surrounding the loans constitute still more distracting news, as they watch one troubling cloud after another appear over the campus – and all that it represents to them.
"Regardless of what's happened," former Marlboro selectboard chair Jesse Kreitzer said, "I hope that the campus will eventually fulfill its purpose, even if at this point that's hard to see. Still, it's my hope that that will happen. I try to remain optimistic."
|3233387705||5/1/2020||912||PPP||DEMOCRACY BUILDERS FUND, INC.||1270 GROVE ST APT 301||SAN FRANCISCO||CA||94117||Exemption 4||24||100||943365||943365||0||48270||JPMorgan Chase Bank, National Association||1111 Polaris Pkwy||COLUMBUS||OH||43240-2031||U||N||N||Existing or more than 2 years old||SAN FRANCISCO||SAN FRANCISCO||CA||94117-0001||CA-12||270||Unanswered||Unknown/NotStated||13365||850000||60000||20000||Subchapter S Corporation||48270||JPMorgan Chase Bank, National Association||COLUMBUS||OH||Unanswered||Unanswered|