EL Developer Scott Chappelle Sentenced to 38 Months in Federal Prison, Must Pay Over $1.3M

East Lansing area real estate developer Scott Chappelle was sentenced in federal court today to 38 months in prison for tax evasion and was ordered to pay the IRS over $1.2 million in restitution plus a fine of $150,000.

The sentencing, postponed twice since August, was conducted by federal Judge Jane M. Beckering in the Western District Court of Michigan in Grand Rapids.

Sentencing guidelines called for a term of 37-46 months. In issuing a sentence of 38 months, Beckering said she thought Chappelle’s time in prison would impress upon him the seriousness of his crimes.

At today’s hearing, the defense tried to paint Chappelle as a man out to save the family business, blaming his troubles on the 2007 recession.

But Beckering was having little of it as she noted the evasion stretched out over an eight-year period, into the economy’s recovery. Noting that Chappelle had continued spending on personal matters even as he told the IRS he was short of cash, she called his spending “incredible,” saying it included travel, jewelry, and even cosmetic surgery.

In June 2020, a federal grand jury had brought an indictment against Chappelle that included eight federal counts. In April 2022, Chappelle pleaded guilty to one count in an agreement that dropped the other charges.

According to a press release issued by the Department of Justice, Chappelle pleaded guilty to “tax evasion arising from his near decade-long effort to prevent the IRS from collecting taxes he and his business owed.”

ELi reported last month on the debate between Chappelle’s lawyers and prosecutors over how much time he should serve. In dueling submissions to the court, Chappelle’s lawyers argued his “contrition, background, and character” called for a shorter sentence, while the prosecutors described his actions  as “truly egregious violations of the law.”

Government attorneys told Judge Beckering in their sentencing memorandum that, while “he was telling IRS employees that he had little or no income because his business was floundering,” Chappelle was using “funds from his business to make down payments and mortgage payments on houses and condos where he and members of his family lived,” including a condo in downtown East Lansing. “He bought a yacht and paid for docking fees, fuel and maintenance.”

The case focused on Chappelle-operated companies including Terra Management Company, Strathmore Development Company Michigan LLC and Terra Holdings LLC, “all of which were involved in real estate development and property management in the East Lansing area,” according to the DOJ.

Chappelle is known by many in the East Lansing real estate arena as the developer who proposed “City Center II,” a concept aimed at bringing forth a major public-private partnership redevelopment for the area at the downtown northwest corner of Abbot Road and Grand River Avenue.

For many years, the City of East Lansing and East Lansing’s Downtown Development Authority worked in collaboration with Chappelle on that vision, in later years called the “Park District.” 

The properties became blighted and were ultimately lost to foreclosure action. The lots along Grand River Avenue have since been redeveloped by Chicago-based developers DRW/Convexity to include The Graduate Hotel and The Abbot apartment building.

Family members of Scott Chappelle, including his sons Sam and Jacob, now run the company called Strathmore Real Estate Group, which takes credit for projects developed by Scott Chappelle. 

Strathmore is currently seeking approval from the Acme Township board for a project in that Traverse City-area community, and questions are being raised there about Scott Chappelle’s involvement. Strathmore is proposing to redevelop the site of a former K-Mart and grocery store, to build out new apartments, self-storage units, light industrial manufacturing space, retail, pickleball courts and a “men’s shed” for a local men’s crafting-and-discussion organization.

Acme-area citizens against the proposal have brought up Scott Chappelle’s criminal record in public meetings. Covering the controversy, the Traverse City Record Eagle reported in August that Scott’s son Jacob Chappelle said  “Scott Chappelle is retired [and] has no vested interest nor authority over the project.”

But citizens against the project used the Freedom of Information Act (FOIA) to turn up emails showing Scott Chappelle participating in communications related to the proposed project. Scott Chappelle’s email used the same private business domain name (c-devco.com) as his sons Jacob and Sam. (C-devco.com redirects to the website of Strathmore Real Estate Group.)

Responding to a question from Jeff Jocks, attorney for Acme Township,  about his father’s involvement in the proposed project there, Jacob Chappelle wrote, “Scott is an independent and licensed real estate salesperson and still sources users for third parties, including us….Otherwise, Scott’s involvement in any of our business dealings is purely in an advisory or consulting capacity because he is no longer an owner, officer, or investor in the project, the developer, or any of the project entities.” 

“We have secured over $30M in financing for this project, so please be assured that if our financing partners are comfortable with Scott’s non-involvement in these matters, it would be reasonable for Acme Township to be as well,” wrote Jacob Chappelle. 

He offered to provide supporting evidence and references.

Acme Township’s board will be holding a public hearing on that proposal Oct. 17 following a divided public meeting about it on Sept. 27.

Strathmore is already approved here to build a new Trader Joe’s in Meridian Township, just over East Lansing’s border, across Grand River Avenue from Whole Foods. 

Construction of that project has been stalled for several months, with no structure yet built above grade. The latest update from Meridian Township’s Planning Department says, “Work on the site has slowed due to material supply that was purchased by the developer. Concrete foundations have been poured and work will resume when materials are available.”

Responding to an inquiry from ELi about the lack of announcement on the project from Trader Joe’s, a spokesperson for that company explained, “We typically announce new stores [just] a couple months before they open.” 

Following his guilty plea in April, Scott Chappelle told the City Pulse he is “not involved in the Trader Joe’s project” and that he “will work through these tax issues and look forward to getting them behind me.”

Update, Oct. 11, 8:45 pm: Read the DOJ press release on the sentencing here.

Disclosure: One year before his guilty plea, in April 2021, Chappelle sued East Lansing Info and Alice Dreger for alleged defamation relating to reporting on his criminal indictment. In October 2021, Ingham County Circuit Judge Joyce Draganchuk granted Dreger’s and ELi’s request, made by attorney Brian Wassom of Warner Norcross + Judd, to summarily dismiss Chappelle’s suit. Chappelle has since exercised his right to appeal Draganchuk’s decision and the State Court of Appeals is expected to hear arguments in that case later this year or early next year.