- Horace Mann School, a top prep school, lets parents buy their kids spots, a lawsuit says.
- The suit was filed by a former assistant to a businessman who made a $1 million pledge.
- It accuses the parent, Qi Tom Chen, his companies, and Horace Mann of cheating on their taxes.
The exclusive New York City prep school Horace Mann accepted a $1 million pledge from a tech businessman in exchange for giving his children a leg-up in the admissions process, a new lawsuit claims.
The case, filed by a former employee of tech company Lake 5 Media, accuses its owner Qi Tom Chen of cheating on his taxes for years, writing off hundreds of thousands of dollars of personal outlays as business expenses.
It also goes after Horace Mann, which boasts a 10.4% acceptance rate for kindergarteners and places more than half of its graduating seniors at super-selective schools like Harvard, Columbia, and the University of Chicago. The lawsuit claims Chen hired a consultant who brokered a meeting with Horace Mann's head of school where a dodgy deal was struck.
"As a result of that meeting, Mr. Chen made a million dollar pledge to Horace Mann in exchange for preferential admissions treatment for his children," the suit claimed.
The lawsuit was confidentially filed in late 2020 by Daniel Hayward, a former assistant at Lake 5 Media, Chen's media-monitoring technology firm. The case was quietly unsealed in May after the New York Attorney General declined to devote its resources to the case.
Ed Adler, a spokesman for Horace Mann, said the claims are bogus and protested that the school was collateral damage in a dispute between others.
"The matter doesn't involve Horace Mann, and there has never been a quid pro quo for gifts at the school," he said.
The case is at an early stage and could eventually be dismissed. But if Hayward proves that Chen, his companies or Horace Mann cheated on their taxes, he would stand to collect a share of any back taxes paid to the state.
Wine, music lessons, and payments to a "sexual paramour" were allegedly written off
According to the lawsuit, Lake 5 Media reported to the IRS that it paid $550,000 in 2018 to an entity called CTBS Everblue LLC, mostly for "rent." In reality, Hayward claims, Chen used the Everblue entity to purchase more than $22,000 of wine for his own personal consumption and to pay for music and martial-arts lessons for his kids, among other things.
"Over the past 10 years, Mr. Chen has spent massive amounts of Lake 5's and Everblue's money on foreign vacations; improvements to his residence; wine; automobiles; support for his sexual paramour; and even a surrogacy contract," the lawsuit claims.
As for Horace Mann, the suit claims, payments received for admissions slots should have been reported to the IRS as "unrelated business income," which is taxable.
Eric Rosen, a former federal prosecutor who worked on the "Varsity Blues" pay-to-play cases, said the case against Horace Mann could turn on how explicit the supposed deal between Chen and the school was. Simply hoping that a donation will curry favor isn't illegal, he said.
"It's all gonna come down to whether they can get discovery to show there was some agreement between the parent and the headmaster," said Rosen, now with the law firm Freedman Normand Friedland.
Steve Mintz, a lawyer for Chen, declined to comment.
Hayward was confused, then concerned, when Insider contacted him after the lawsuit's existence was made public in May. "I didn't want to have an issue with Horace Mann," he said. "I'm gonna yell at that lawyer."
His lawyer, David Abrams, declined to comment.