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Garland trade school owner charged with bilking VA out of $70 million

Jonathan Davis has been imploring the government for years to either charge him with a crime, move forward with its forfeiture case against him or return his more than $4 million in seized assets.

The Dallas-area businessman finally got his wish – but not the outcome he had hoped for. A federal grand jury in Dallas indicted him last week, more than three years after agents seized his assets, and he now faces a possible life sentence if convicted.

The 13-count indictment accuses Davis of making false or misleading statements about his Garland heating and air-conditioning trade school to the government. He is charged with multiple counts of wire fraud, money laundering and aggravated identity theft. The now-defunct Retail Ready Career Center received about $70 million in G.I. Bill money, making it one of the biggest recipients for a trade school.

Davis’ lawyer, Derek Staub, says the indictment amounts to allegations of civil regulatory violations, not crimes, and that three years of investigation yielded no evidence of wrongdoing.

“This whole indictment stems from them saying that we weren’t forthcoming on an application,” Staub said. “They are just flat out wrong.”

But the U.S. attorney’s office said Davis “scammed the VA” out of more than $71 million in veterans’ benefits.

“The defendant allegedly lied to multiple governmental agencies,” said office spokeswoman Erin Dooley. “We are confident the evidence will prove our case. To undermine the VA is to insult the sacrifices of military veterans nationwide.”

Those comments set the stage for what is likely to be a hotly-contested case. Davis, 43, voluntarily surrendered on Nov. 23. He pleaded not guilty the same day and was released pending trial. He faces up to 184 years in prison if convicted, the U.S. attorney’s office said.

Although authorities claim Davis lied about his school’s financial condition, he hasn’t been accused of scamming student veterans out of an education, unlike other schools targeted by the feds in recent years. In those G.I. Bill fraud cases, prosecutors successfully proved that educational services were either not provided or were significantly less than advertised. Other cases involved fake students and sham or fly-by-night schools.

Lawmakers in Washington D.C. have debated giving the Veterans Affairs department more power to crack down on predatory for-profit schools that receive G.I. Bill funding and take advantage of military veterans. Critics say oversight is lacking, and the VA is under pressure to do more to combat fraud and crack down on predatory schools targeting veterans.

Students learn about heating and air conditioning at Retail Ready Career Center before it was raided by the feds and closed down.
Students learn about heating and air conditioning at Retail Ready Career Center before it was raided by the feds and closed down.(Retail Ready Career Center)

The Nov. 18 indictment doesn’t accuse Retail Ready of defrauding students. Staub said he’s not aware of any student complaints and that on the contrary, Davis’ students “love him.” The school’s graduation rate was 89 percent, and it had a placement rate of 81 percent in its final year, the company has said in court records.

The criminal allegations against Davis differ from what’s alleged in the civil forfeiture suit, Staub said. He said federal officials initially claimed his client violated regulations by enrolling too many veterans. “This indictment is not what has been threatened for the past three years,” he said.

Staub said he believes the government rushed the indictment together at the last minute to prevent a judge from eventually dismissing the forfeiture lawsuit.

Lies and fraud?

The indictment says that from May 2013 to December 2019, Davis made false statements to obtain VA approval for Retail Ready to receive G.I. Bill payments on behalf of students, and that he “fraudulently” persuaded veterans to enroll in his trade school.

Staub said he doesn’t understand how the feds could claim the alleged scheme continued through 2019 since the school has been closed since the September 2017 raid. “How they’re saying that we’re still out there doing it blows my mind,” he said.

Davis also is accused of lying to an accountant, resulting in a “false and misleading” Retail Ready financial statement. And officials say he sent false financial statements to the Texas Workforce Commission and to the Texas Veterans Commission.

Jack Ternan, another defense lawyer, said the purpose of accurate financial statements is to assure the government that a school will be able to operate. He said his client did so successfully.

“They weren’t harmed in any way even if those things were inaccurate,” Ternan said.

Retail Ready Career Center suddenly closed Sept. 27, 2017, as federal authorities investigated the for-profit school. The owner, Jonathan Davis, has been indicted on fraud charges more than three years later.
Retail Ready Career Center suddenly closed Sept. 27, 2017, as federal authorities investigated the for-profit school. The owner, Jonathan Davis, has been indicted on fraud charges more than three years later.(Eva-Marie Ayala / The Dallas Morning News)

The indictment also says Davis misrepresented his students’ career prospects and that he falsely certified to the TWC that he had no criminal cases pending against him. He’s also accused of falsely stating that Retail Ready had operated as an “educational institution” over a certain time.

Davis previously told The Dallas Morning News that the feds forced his school to close its doors for good, stranding many of his out-of-state student veterans. He has filed multiple legal challenges to the civil forfeiture action that were unsuccessful. And he sued the government in September 2019 on behalf of Retail Ready, claiming among other things, a violation of the Fourth Amendment, which protects against unreasonable searches and seizures.

U.S. District Judge Brantley Starr, who is presiding over the forfeiture case, has denied Davis’ attempts to toss the suit but said in a ruling last month that he would “entertain another motion to dismiss in 30 days.” Starr wrote that the government’s delay in bringing criminal charges did “not yet implicate Fifth Amendment due process concerns.”

But he added that the “constitutional dynamics in forfeiture cases are in constant flux, and the balance could be different 30 days from now.” The forfeiture case remains on hold until the criminal proceedings conclude.

Recruitment questioned

Retail Ready, which opened in the summer of 2014, offered “boot-camp style classes,” where it took six weeks rather than six months for students to become HVAC technicians. Classes ran from 7:30 a.m. to 6:30 p.m. Students came from all over the country and some from abroad.

Davis charged the VA between $18,000 and $21,000 for each student to attend, the indictment says.

The school provided students with housing assistance at local hotels that included meals and transportation. Retail Ready trained more than 2,500 people, some of whom went on to jobs that paid more than $75,000 annually, the company has said. More than 90 percent of its students were veterans, school officials said, most of whom needed financial aid.

But the government’s forfeiture lawsuit claims Retail Ready violated the “85-15 rule,” which prohibits the VA from paying more than 85 percent of student enrollment costs. The rule is intended to cut down on fraud by preventing schools from only recruiting veterans in order to maximize G.I. Bill funding, according to the forfeiture lawsuit.

Government lawyers also claim in the forfeiture suit that Retail Ready awarded scholarships to students not based on financial need but to “artificially meet” the 15 percent requirement. The lead investigator has spoken with former Retail Ready employees and other “insiders” with knowledge of the facts, court records say.

About 300 students were enrolled when agents raided the school in 2017. The government seized all of Davis’ bank accounts, and his $2.3 million Dallas house is also part of the forfeiture action, court records show. So are a Lamborghini, Ferrari, Bentley and other luxury cars.

The school’s student recruitment practices also have come under fire.

The forfeiture lawsuit alleges that Davis’ sister formed two companies that posted fake entry-level jobs on multiple job boards. When people responded, the companies sold those “leads” to Retail Ready for recruitment, according to the lawsuit.

VA regulations prohibit the use of false or misleading advertising or enrollment practices, federal authorities said. The forfeiture suit also said Retail Ready exceeded enrollment limitations and improperly paid bonuses to admissions staff.

In response, Retail Ready’s lawyers said the school tried to comply with numerous federal regulations and that any inaccuracies were honest mistakes.

Staub said that when he first met with the prosecutor a couple of years ago, his PowerPoint “basically said ‘You made too much money too quickly.’”

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