Lawsuit seeks $150M from Indiana online schools fraud claims

The leaders of two now-closed Indiana online charter schools are accused in a new lawsuit of defrauding the state of more than $150 million by padding their student enrollments and inappropriately paying money to a web of related businesses.

The lawsuit announced Monday by the Indiana attorney general’s office comes nearly two years after Indiana Virtual School and Indiana Virtual Pathways Academy shut down amid a state investigation that found the two online schools improperly claimed about 14,000 students as enrolled between 2011 and 2019, even though they had no online course activity.

The lawsuit seeks repayment of about $69 million it claims the schools wrongly received in state student enrollment payments. It also seeks $86 million that officials say the schools improperly paid to more than a dozen companies linked to them by common business officers or relatives and did so with little or no documentation.

“This massive attempt to defraud Hoosier taxpayers through complex schemes truly boggles the mind,” state Attorney General Todd Rokita, a Republican, said in a statement.

A state audit linked much of the misspending to Thomas Stoughton, who headed the online schools from 2011 to 2017, and who owned or had business associates that operated about a dozen companies that received school payments. An attorney for Stoughton, BJ Brinkerhoff, declined to comment on the lawsuit.

It is unclear how much of the money the state could recover. Shortly after the two schools, which had a shared administration, closed in August 2019, a notice from their then-attorney to creditors taped to the Indianapolis office door for the schools said they had “no funds and no assets.”

The lawsuit, however, casts a wide net with a total of 13 venders and 14 people who were officials at the schools named as defendants.

“The State’s claims arise from systematic violations of a position of trust … misappropriation and diversion of public funds,” the lawsuit said.

The attorney general’s office said it had referred the case to federal and state agencies for possible criminal violations. A federal grand jury subpoena to the schools was included in documents released in 2019, but FBI spokeswoman said Monday she could not comment. The U.S. attorney’s office in Indianapolis didn’t immediately reply to a request for comment.

Indiana Virtual School was formed in 2011 soon after a Republican-driven state education overhaul that expanded the availability of charter schools, which are privately operated but receive taxpayer funding, and launched the state’s private school voucher program.

Republicans who dominate the state Legislature rejected complaints from Democrats after the fraud allegations emerged that responsibility rested with lax state regulations. GOP leaders argued it was difficult to legislate against “criminal intent.”

Democratic Rep. Ed DeLaney of Indianapolis said he was only surprised by the scale of the apparent fraud and that he had little hope of the state recovering much money. He said the state had provided “flimsy” supervision.

“We need to learn from this,” DeLaney said. “You know if you give vast sums of money to people who are allowed to act outside of public view, they might take advantage of it.”

The schools reported an enrollment of about 7,200 students before state education officials cut off funding in 2019 based on preliminary audit findings of the enrollment padding.

Officials in Indiana have disagreed about oversight responsibilities between the State Board of Education, the state Department of Education and the Daleville Community Schools, a district of about 1,000 students near Muncie, which was the charter authorizer for the two online schools.

State auditors cited the Daleville district for a lack of meaningful oversight and monitoring. District officials, however, maintained the district played no role in the erroneous enrollment reports and didn’t have access to data about the online schools’ students until 2018 because of concerns about federal student privacy laws.

In a statement, the district said it was “heartened by efforts to hold accountable parties responsible for alleged improprieties,” but was “disappointed to learn of the decision by Indiana Attorney General Todd Rokita to include current Daleville Community Schools Assistant Superintendent David Stashevsky as a defendant in the civil action.” District officials said it Stashevsky who played a key role in bringing the irregularities to the attention of State Board of Education officials in the first place.

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18 thoughts on “Lawsuit seeks $150M from Indiana online schools fraud claims

  1. “This massive attempt to defraud Hoosier taxpayers through complex schemes truly boggles the mind,” said Mr Rokita. It also boggles my mind that the state can be so cavalier and careless in distributing taxpayer funds to fraudulent institutions, apparently with very little oversight. What does that say about our state government and all of the bureaucrats who are charged to manage the educational needs of our students? It just seems to me that there would be systems in place in advance of the funds being distributed in order to provide accountability.

    1. Joe, it’s by design. It’s destroying Indiana to underfund schools and further divert money to charter schools which are held to even lower standards than public schools, but those charter/virtual school campaign contributors expect ROI for the money they give our legislators.

      Indiana would do care better to follow the Massachusetts model for charter schools. Only the state board of education can charter schools, no for-profit schools, and it’s kind of hard to get a charter going – you can’t be a fly-by-night dreamer. And, oh yeah, you need to perform or you get closed. Here in Indiana, I think every school corporation can charter schools, and they have a financial incentive to keep the charter open even if they’re doing an awful job.

    1. Joe B. –
      Wow. Only “61 out of 900 seniors graduated,” and it didn’t raise a red flag with someone to look closer or to shut them down for 2 *more* years. Clearly something was lax at the state level for them to continue funding with that level of failure at a school. Any politician that believes otherwise should probably be reviewed to determine if they are connected with the schools.

  2. Wow. What a mess. $150 million we’ll likely never see back.

    Do online schools not have to report the amount of time students are actually online? Regular public schools have to report on enrollment and have requirements for time in school. Are there not equivalent hoops in place for online schools? Seems like the democrats might have had a point if such hoops don’t exist at the same level as brink & mortar schools. Regardless – it’s about paying for education, so let’s get the partisan out of it do what’s right for the kids – which includes making sure money is being used to truly educate real kids.

    1. You sound like the last Republican Superintendent of Public Education, Jennifer McCormick … who got so fed up with things she didn’t bother to run for re-election to be the last elected superintendent and quit the Republican Party.

      What’s amazing about Indiana is how Republicans would rather let a retired florist in Bob Behning have more of a say in education policy in the state than any professional educator. But when you look at the results we get, it’s not all that surprising.

  3. Government idiots doing what government employees do. Forget a “lawsuit” against a couple people who took the $ and ran. Open a criminal investigation against the gov idiots. Unfortunately the AG is not going to pursue any of his own.

  4. If the government is at fault here it is because of the Republican Legislature. I’ll let you “simmer” on that for a bit. The expansion of the voucher system is disappointing.

  5. Gosh that guy Rokita is sure on the job, isn’t he? Truth be told, I think Indiana is preserved for grifters. If you have the connections you can grift millions out of Indiana, scot free. Todd got the memo, he just thinks AG is a stepping stone, just lookin’ to make a splash.
    Indiana has been about come on, take the money and run since at least the 90s.

  6. con men always exist. Let’s not throw the baby out with the bath water regarding school choice. Charter schools are the answer to create an opportunity for parents to decide what is best for their child with respect to an education. The current public school system fully run and dictated to by the teacher’s unions have a poor history of delivering a good product. I.E. low graduation rates coupled with low competence in SAT scores and etc. Now add their thirst for indoctrination curriculum such as ‘critical race theory’, 1619 projects, sex ed and LBGTQ training for kindergarteners, and many other abhorrent teachings we have to give parents a choice. Aren’t democrats the Pro-choice party?

    1. You started off with a good point and then devolved into garbage you’ve seen either on Fox News or your Facebook feed.

      Public dollars should come with accountability. Indiana has dialed down the accountability as they’ve ramped up the dollars diverted from public education to private and charter schools. Explain why this school existed for one week after it was uncovered it was ripping off the state of Indiana, much less two more years.

      And for parents who want better schools, they’ve been able to for several years to send their child to any public school that has room.

      And spare the nonsense about teachers unions. The state board of education is in charge. We no longer have an elected schools chief. As the Indiana legislature has gotten more involved in education and mandates it’s desires, the outcomes have gotten worse. Coincidence? I doubt it.

      And you might wanna take a long hard look at what religious schools teach before you complain about what public schools teach. Find me one k-12 Indiana public school teaching critical race theory. Yet Indiana has numerous schools teaching children the earth is 6,000 years old and taxpayers are paying for it.

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