Indiana Sues Officials Behind Virtual School Scandal For $154M In Alleged Fraud

Indiana is seeking more $154 million from individuals and businesses with ties to Indiana Virtual School and Indiana Virtual Pathways Academy, online public schools that closed two years ago amid allegations that they bilked the state of millions by inflating their enrollment.

Attorney General Todd Rokita sued the schools, multiple venders that provided services to them, and 14 individuals with ties to the schools or the companies that were inappropriately paid.

The lawsuit is based on the findings from an investigation released by the State Board of Accounts last year. The review found that the two schools reported thousands more students than actually attended classes. As a result, they inappropriately collected more than $68 million in state funds.

The schools also paid more than $85 million in public funds to companies that had links to school officials and their family members, the audit found.

The alleged misuse of public funding by Indiana Virtual School and Indiana Virtual Pathways Academy is one of the largest scandals involving online schools in the country. The schools claimed they enrolled more than 7,000 students before they were forced to close in 2019. The investigation found some students reported as enrolled had only requested information about the program from the schools' website. One student was included in the enrollment count twice after they died.

The lawsuit seeks those damages as well as the cost of the audit. The total amount awarded by the court could be much more because the state also asked for triple the actual damages, a remedy allowed under some statutes.

“This lawsuit is historic because it represents the largest amount of monetary damages ever sought by our office following a State Board of Accounts investigation,” Attorney General Todd Rokita said in a statement. “This massive attempt to defraud Hoosier taxpayers through complex schemes truly boggles the mind. This case demonstrates once again that public servants must remain ever vigilant in our work to safeguard the public treasury from opportunists.”

Rokita’s office said the matter was referred to federal and state criminal investigative agencies.

Federal investigators looked into the schools in 2019, but it is unclear whether that investigation is ongoing. The Federal Bureau of Investigation declined to comment. The U.S. Attorney’s Office could not immediately be reached for comment.

It is unclear how much money the state will recover if it wins the suit. The schools are defunct, and several of the related companies they did business with have been dissolved.

The state is also going after many people who helped run the schools or the venders. The suit alleges that there were “systematic violations of a position of trust by a public official” and “misappropriation and diversion of public funds.”

The individuals the state is suing include Thomas H. Stoughton, who founded Indiana Virtual School in 2011 and served as president of the board for six years. During two years of that time, he was president of AlphaCom.

A 2017 Chalkbeat investigation found that Indiana Virtual School paid AlphaCom millions.

Stoughton could not immediately be reached for comment.

The state is also suing Merle Bright, who was not a board member for either school but had access to the schools’ bank accounts. In 2018, he signed checks for more than $6.8 million to companies he was related to.

Bright, according to the audit, is either the owner or an officer of several corporations that received payments for providing educational services to the schools. Those companies received more than $84 million dollars in payments from the schools.

Bright could not immediately be reached for comment.

Of the $85 million in payments Indiana Virtual School and Indiana Virtual Pathways made to related companies, the audit found that more than 90 percent did not have invoices or the invoices lacked details of service.

Former board members of the schools appear to have made few comments since they abruptly resigned minutes before a public meeting was scheduled to begin in August 2019.

Daleville Community Schools, the public school district who authorized and oversaw both virtual charter schools, was not named in the complaint. The audit found no evidence whether Daleville provided adequate oversight.

The complaint did name David Stashevsky, who served as superintendent of Indiana Virtual School during the 2011-12 school year. Stashevsky is now an assistant superintendent for Daleville schools. In a statement, Daleville Superintendent Greg Roach said that none of the allegations occurred when Stashevsky worked for Daleville and he is a “trusted and well-respected school administrator.”

Contact WFYI education reporter Dylan Peers McCoy at dmccoy@wfyi.org. Follow on Twitter: @dylanpmccoy.