A Hamilton County court hearing this week may determine whether Indiana taxpayers have a chance to recover $154 million from two virtual charter schools and their leaders and business partners.
The hearing, set for 1:30 p.m. Wednesday before Hamilton Superior Court Judge Michael Casati, concerns motions to dismiss a lawsuit to recover charter school funds that were allegedly obtained by fraud or improperly spent.
Attorney General Todd Rokita filed the suit in July 2021 on behalf of the state. Defendants include the schools — Indiana Virtual School and Indiana Virtual Pathways Academy — and several of their officers and employees. Also named are businesses that were affiliated with the schools.
The lawsuit relies on an investigation by the State Board of Accounts, the findings of which were released in early 2020. Auditors found that the online schools inflated their enrollment or failed to ensure students were being taught, resulting in overpayment of more than $68 million by the state. Auditors also identified more than $85 million in improper payments to vendors and businesses.
The schools closed in 2019 after their authorizer, Daleville School Corp. revoked their charter. The previous year, their claimed enrollment peaked at more than 7,000 students.
Problems with the schools came to light in 2017, when Chalkbeat Indiana revealed poor test scores, abysmal graduation rates and hefty payments to businesses connected to the school’s founder. Indiana Virtual School employed only one teacher per 200 students and spent just 10% of its funds on instruction, Chalkbeat found.
But the schools enjoyed political connections. They employed a state legislator as a consultant and had a retired state appeals court judge on the school board. Businesses affiliated with the schools gave $140,000 to Indiana Republican election campaigns. The schools paid a lobbying firm $300,000.
This is a sprawling legal case, and it seems unlikely to be wrapped up quickly – unless the judge decides to dismiss the suit. Defendants include more than a dozen businesses and organizations and more than a dozen individuals. Key defendants include the school’s founder and one-time director and board president, Thomas Stoughton, and some of his family members and their businesses.
The so-called Stoughton defendants have called for the judge to dismiss the suit, arguing the allegations are vague, improper and not supported by evidence. Other defendants have filed separate motions to dismiss, in some cases claiming they weren’t responsible for the schools’ problems. All those motions are on the docket for Wednesday’s court hearing.