IN: A Tale of Charter Fraud.

At one point, Indiana Virtual School and Indiana Virtual Pathways Academy were two of the largest cyber-charters in Indiana. But that turns out to have been part of a huge case of fraud, and almost a decade after the original fleecing of Indiana taxpayers, some of the fraudsters running the operation are facing jail time.

Phillip Holden, Thomas Stoughton, Percy Clark and Christopher King managed to steal almost $45 million from taxpayers. 

The schools, founded in 2011, were going great guns by 2016, but a Chalkbeat story by Shaina Cavazos  in 2017 showed some of the cracks in the school's supposed success. For one thing, the school only had one teacher for every 222 teachers. It only graduated 61 out of 900 seniors. And while it was raking in the money, Cavazos found that only 10% of the state funds hoovered up by the school were going toward instruction (a massive difference from other cyber-charters in the state). The other almost-90 percent was going to "support services," including firms that were owned and run by people who were also running IVS.

Indiana Virtual School was, in fact, a textbook case of self-dealing for fun and profit. The state handed millions to the school, then the school's leaders handed millions to companies that they themselves owned. Thomas Stoughton was founder of the school, and he hired AlphaCom Inc., another company he founded and owned. Cavazos also found that IVS hired a company owned by Stoughton's son.

Also, in 2017, after IVS received an F from the state, they then created IVPA to avoid losing their charter.

In 2019, Daleville Community Schools, the virtual schools' oversight board, revoked its charter. The board of directors quit, and the cyber-charters were shut down even as the US Attorney's office issued a subpoena to collect evidence about the schools.

The schools were in big trouble because, not satisfied with the self-dealing scheme they were already running, the four individuals named above had also cooked up a scheme to boost the schools' enrollment with students not actually attending the school. The investigation and court cases focused on 2016-2018, but it seems unlikely that those were the only years fraud went on.

The prosecutors of the case found that thousands of students never logged in or were re-enrolled after they had left the school. The school did not, as law requires, unenroll students who never show up. They went ahead and enrolled students who had never finished their applications to the school. The court found that the school enrolled at least one student after he had died. 

The four enrolled these non-attending students, collected taxpayer dollars from the state, handed those dollars off to the sweetheart subcontractors, and pocketed the money. Federal charges followed.

Clark, Stoughton, and King pled guilty to conspiracy to commit wire fraud. Holden was convicted of wire fraud and conspiracy to commit same just last week; his lawyer has called Holden a fall guy who didn't make any money from the scheme. Clark appears to have scored a measly $1.3 million. They are all supposed to be paying the money back; I hope nobody's holding their breath waiting for that to happen.

A few lessons from this not-unusual tale of charter fraud and malfeasance.

One, magical free market forces did not take care of this. In fact, the state of Indiana did not take care of this. It took a combination of journalism and federal investigators to shut this down. Keep that in mind the next time a charter fan is explaining that too much regulation and oversight will stifle the awesome innovative powers of charter entrepreneurs. 

Two, it took a decade to bring some justice to this situation. A decade! Some of the students who were enrolled in this scam are now nearly thirty years old. 

Three, the free market did not take care of this. Yes, I said that already, but it is worth saying at least twice. School choice without any regulation or oversight is simply an invitation to fraud and abuse, and there will always be folks willing to accept that invitation. Students and taxpayers deserve some protection from these guys, not a belated attempt at sort-of-justice.