Detroit principal pleads guilty in kickback scheme
The first of 14 defendants charged in a $1 million bribery and kickback scheme at Detroit Public Schools has pleaded guilty to a felony charge in U.S. District Court in Detroit.
Clara Smith, former principal at Thirkell Elementary, appeared Thursday morning before U.S. District Court Judge Victoria Roberts and entered into a plea agreement for her role in the scheme, which deprived DPS students of more than $2.7 million in resources.
Smith, who had a 45-year career at DPS and had been principal at the school from 2008 to earlier this month, admitted to Roberts that she took kickbacks and bribes from school supplies vendor Norman Shy.
In return, she repeatedly submitted fraudulent purchase orders to DPS that claimed Shy delivered goods when he had not.
When asked by Roberts how the scheme worked and what crime she committed, Smith said Shy initially approached her during the 2007-08 school year.
“At first, I said no, no, no. But I fell out of the grace of God by going along with the scheme,” Smith told Roberts.
Smith said Shy told her that “most of the principals are doing it, and I’ve been a vendor for 50 years and no one has been caught.”
Prosecutors say it was in 2009 that Smith began participating in the scheme and accepting $194,000 from Shy in the form of cash, checks, credit card payments or gift cards for Sam’s Club or Walmart.
Smith told Roberts she did receive gift cards and money but “a lot of that was for my students,” and at the end, she got $5,000 cash from Shy.
Asked by Roberts what she meant, Smith said she did not agree with the $194,000 that prosecutors allege she took from Shy.
Smith said some of the money and gift cards she accepted from Shy were given to DPS children or used to decorate the school and pay for school trips to Chicago and Washington, D.C.
“I didn’t use it all for my personal benefit. The $194,000 did not all go to me,” Smith said.
Assistant U.S. Attorney J. Michael Buckley asked Smith whether she took the money and used it for her personal benefit, which included spending money on students and school decorations.
“Once she takes the money, what she does with it is a separate manner,” Buckley said.
Smith finally agreed she took more than $150,000, which is the threshold in the law she is charged under.
Smith pleaded guilty to conspiracy to commit federal program bribery, a five-year felony with fines of up to $250,000.
When she is sentenced on Sept. 7, she faces between 46 and 57 months in prison under the terms of her plea deal.
Smith has agreed to cooperate with prosecutors in future investigations as part of the deal. If she does, she can request a sentence reduction, according to the terms of her plea.
Prosecutors allege Smith and Shy entered into an arrangement from 2009 to 2015, where Smith would submit fraudulent invoices to DPS for goods that Shy did not deliver.
Smith then accepted kickback payments from Shy totaling $194,000 that came in the form of cash, checks, credit card payments or gift cards from Sam’s Club or Walmart.
According to a criminal complaint, Smith requested and accepted 45 separate kickback payments from Shy totaling $38,300 in checks paid to her husband from 2009 to 2014 and 17 kickback payments from Shy totaling $8,549.50 in checks paid to her daughter.
Federal prosecutors allege the scheme, which started in 2002 and ran through January 2015, was hatched by Shy, 74, of Franklin, who billed DPS for $5 million school supplies but delivered less than promised.
In return for the business, Shy allegedly paid bribes and gave kickbacks to 12 former and current DPS principals and one assistant superintendent in the form of cash and gift cards totaling $908,518.
Shy allegedly kept a ledger to record how much he owed Smith and other defendants in the case. Smith kept a ledger to show how much money Shy owed her in kickback payments.
At Shy’s request, Smith faxed him written requests for kickback payments which came in different forms including cash, gift cards, checks payable to Smith’s family members and friends, payments to Smith’s credit cards and payments to Smith’s personal bills.
The FBI has been investigating DPS for the last two years after a tip from state auditors led them to an unrelated corruption case at the Education Achievement Authority, the state-created reform district that includes DPS’ lowest-performing schools.
DPS’ new emergency manager Steven Rhodes, installed by the state March 1 to run DPS, placed current DPS staffers on unpaid leave and suspended business with the vendor charged in the case.
Smith retired from the district effective April 1.
Prosecutors have reached plea deals with 12 of the 14 defendants in U.S. District Court.
The remaining two are expected to make court appearances in the near future, officials said.